DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
1996 was a year of little change. The yield of the Lexington Tax Free Money
Fund fell thirty basis points to 2.6%.* This decline paralleled that of most tax
free money funds and reflects a cut in short term interest rates by the Federal
Reserve early in 1996. Stability has been the most striking feature of Federal
Reserve monetary policy. Over the last two years, the Fed governors have chosen
to change the Discount Rate and the Federal Funds rate only once.
The market anticipates tighter monetary policy in the months ahead. A
one-quarter of a percentage point hike in the Federal Funds rate (from the
current 5.25%) is expected after either the February or March Federal Reserve
meetings. While inflation has been very much under control--in fact, last year's
core CPI was only 2.6%, the lowest since the Seventies--economic growth was
strong during the final months of 1996. Economists reason that such business
expansion increases the likelihood of greater inflation and that theFederal
Reserve will move before such cost pressures occur. A hike in the Federal Funds
rate would modestly lift taxable money market interest rates but would have a
more muted impact on municipal note yields.
The short term tax free note market is supply driven. Demand for municipal
money market investments is remarkably stable and often pushes the yield for
these securities below rational economic levels. For example, the current yield
of municipal notes is only about 60% of their taxable equivalents. Sometimes,
the supply of notes overwhelms this underlying demand. Then, municipal note
yields are forced high enough to encourage crossover buying from accounts which
typically buy taxable instruments. Near term, however states and local
governments enjoy improved finances and only moderate borrowing needs. Moreover,
changes in Federal tax guidelines have limited arbitrage borrowing and investing
by municipalities. So, changes in Federal Reserve policy will have limited
impact on municipal yields.
Longer dated municipal notes do provide some yield pickup, however. We are
extending gradually the average maturity of the Lexington Tax Free Money Fund
(42 days on December 31st) to lock in these extra returns. These purchases
consist primarily of pre-refunded or insured municipal bonds with maturities of
nine months to one year. For liquidity, the Fund relies on its holdings of
variable rate demand notes (55% of total assets at year-end). These securities
can be redeemed either on the same day or within seven days.
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS HELD NOVEMBER 5, 1996 (UNAUDITED)
Total Outstanding Shares as of September 10, 1996: 26,072,941
1. Directors Elected: S.M.S. Chadha, Robert M.DeMichele,Beverly C. Duer, Barbara
R.Evans, Lawrence Kantor, Jerard F. Maher, Andrew M.McCosh, Donald B. Miller,
John G. Preston, Margaret W. Russell and Philip C. Smith
For All Nominees: 14,095,180 Withheld Authority: 912,854
<TABLE>
<CAPTION>
VOTES VOTES
VOTES FOR AGAINST ABSTAINED
-------- ------- --------
<C> <C> <C> <C>
2. Selection of KPMG Peat Marwick LLP as Independent Auditors ........... 14,206,321 466,714 334,999
</TABLE>
Sincerely,
Denis P. Jamison Robert M. DeMichele
/s/ -------------------- /s/ ---------------------
Denis P. Jamison Robert M. DeMichele
Portfolio Manager President
February, 1997 February, 1997
* The average annual yield for the seven day period ended December 31, 1996 was
2.61%. Shares of the Fund are not insured or guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share. Some income is subject
to state and local taxes and the federal alternative minimum tax.
1
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MATURITY COUPON YIELD TO VALUE
AMOUNT SECURITY RATING DATE RATE MATURITY (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA: 5.4%
$ 640,000 Alaska Industrial Development & Export
Authority (Lot 11)* ................ A-1 7/1/07 4.20% 4.20% $ 640,000
800,000 Columbia IndustrialDevelopment Board
(Alabama Power)* ................... VMig 1/A-1 10/1/22 4.65 4.65 800,000
---------
1,440,000
---------
CALIFORNIA: 13.6%
1,200,000 California Pollution ControlFinance Authority
(Southdown Project)* ............... A-1+ 2/15/98 3.50 3.50 1,200,000
900,000 California Pollution Control Finance Authority
(Southern California Project)* ..... Mig 1/A-1+ 2/28/08 4.70 4.70 900,000
500,000 SouthCoast Local Education Agencies
Series 1996 A ...................... SP-1+ 6/30/97 4.75 4.07 501,609
1,000,000 State Of California Revenue Anticipation Notes Mig 1/SP1+ 6/30/97 4.50 3.97
1,002,513
---------
3,604,122
---------
FLORIDA: 5.3%
1,400,000 Indian River County Hospital District*. VMig1/A-1 10/1/15 4.15 4.15 1,400,000
---------
GEORGIA: 9.7%
1,000,000 Fulton County I.D.A. (ADP Project)* ... P-1/Aa2 9/1/12 3.70 3.70 1,000,000
800,000 Georgia Technical Foundation
Facilities Inc.* ................... A-1+ 2/1/12 3.55 3.55 800,000
780,000 Municipal Electric Authority Of Georgia
Series B** .......................... VMig 1/A-1+ 4/1/97 3.55 3.55 780,000
---------
2,580,000
---------
HAWAII: 8.1%
1,250,000 City &County Of Honolulu** ............ A-1+/P-1 2/7/97 3.55 3.55 1,250,000
900,000 Hawaii State Department Budget & Finance
(Kuakini Medical Center)* ........... Vmig 1 7/1/05 4.10 4.10 900,000
---------
2,150,000
---------
ILLINOIS: 0.6%
100,000 City Of Chicago Pre-Refunded G.O. Bonds AAA/Aaa 1/1/11 8.00 3.83 102,010
50,000 State Of Illinois Pre-Refunded
Revenue Bonds ....................... AAA 6/1/03 7.50 3.95 51,684
---------
153,694
---------
INDIANA: 1.5%
400,000 Gary Industrial Environmental Improvement
Authority (U.S. Steel)* ............. P-1/A-1+ 7/15/02 3.70 3.70 400,000
---------
KANSAS: 3.0%
800,000 Burlington Pollution Control (Kansas City
Power and Light) Series B** ......... P-1 3/3/97 3.50 3.50 800,000
---------
KENTUCKY: 3.8%
1,000,000 PendletonCounty LeasingProgram** ...... A-1+ 1/2/97 3.55 3.55 1,000,000
---------
LOUISIANA: 5.5%
700,000 Caddo ParishI.D.B. (Pennzoil Project)* . A1 12/1/12 4.40 4.40 700,000
500,000 New Orleans G.O.Bonds .................. AAA/Aaa 12/1/97 5.63 3.73 507,820
105,000 State Of Louisiana Series A G.O.Bonds .. AAA/Aaa 8/1/97 4.50 3.98 105,294
150,000 State Of Louisiana Pre-Refunded Revenue
Bonds ................................ AAA/Aaa 8/1/02 7.00 3.95 155,446
---------
1,468,560
---------
</TABLE>
2
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1996 (continued)
<TABLE>
<CAPTION>
PRINCIPAL MATURITY COUPON YIELD TO VALUE
AMOUNT SECURITY RATING DATE RATE MATURITY (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MAINE: 0.8%
$ 200,000 Maine Health &Higher Education Facilities
Revenue Bonds ....................... AAA/Aaa 7/1/97 5.60% 3.97% $ 201,537
---------
NEW JERSEY: 1.7%
300,000 Fort Lee G.O. Bonds ................... Aa 2/1/97 4.85 3.63 300,297
145,000 Stafford Township G.O.Bonds ........... AAA 9/1/97 5.50 4.01 146,372
---------
446,669
---------
NEW YORK: 14.1%
555,000 Cattaraugus County G.O.Bonds AAA 6/1/97 5.20 3.99 557,665
600,000 City Of New York Series B* ............ VMig1/A-1+ 8/15/18 4.50 4.50 600,000
200,000 City Of New York Subseries B-2* ....... VMig1/A-1+ 8/15/19 4.75 4.75 200,000
400,000 City Of New York Subseries B-2* ....... VMig1/A-1+ 10/1/20 4.50 4.50 400,000
400,000 New YorkCity Municipal Water Authority
Series A* ......................... VMig1/A-1+ 6/15/25 4.70 4.70 400,000
1,200,000 State Of New York (G.O. Bond Anticipation
Notes) Series S** ................... A-1/P-1 2/3/97 3.45 3.45 1,200,000
250,000 Suffolk County New York G.O. Bonds .... AAA/Aaa 7/15/97 3.70 3.69 250,000
125,000 Triborough Bridge &Tunnel Authority Series
A Revenue Bonds ................... AAA/Aaa 1/1/97 5.80 3.96 125,000
---------
3,732,665
---------
OKLAHOMA: 1.0%
150,000 Grand River DamAuthority Pre-Refunded
Revenue Bonds ..................... AAA/Aaa 6/1/98 6.45 4.06 154,360
105,000 Grand River Dam Authority Pre-Refunded
Revenue Bonds ..................... AAA/Aaa 6/1/06 7.00 4.06 108,276
---------
262,636
---------
OHIO: 5.7%
1,000,000 Ohio State Air Quality Development
Authority** ......................... VMig1/A-1+ 2/6/97 3.55 3.55 1,000,000
500,000 Ohio State Air Quality Development
Authority** ......................... VMig1/A-1+ 2/7/97 3.50 3.50 500,000
---------
1,500,000
---------
PENNSYLVANIA: 2.3%
500,000 Venango I.D.A. (Pennzoil Project)
Series 1982A* ....................... A-1 12/1/12 4.40 4.40 500,000
100,000 Bethel ParkSchool District Pre-Refunded
Revenue Bonds ....................... AAA/Aaa 2/1/01 6.85 3.99 100,231
---------
600,231
---------
SOUTH CAROLINA: 2.6%
400,000 York County Pollution Control Authority
(Project NRU 84 N-1)* ............... Mig1/A-1+ 9/15/14 4.15 4.15 400,000
300,000 YorkCounty PollutionControlAuthority
(Project NRU 84 N-2)* ............... Mig1/A-1+ 9/15/14 4.15 4.15 300,000
---------
700,000
---------
</TABLE>
3
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1996 (continued)
<TABLE>
<CAPTION>
PRINCIPAL MATURITY COUPON YIELD TO VALUE
AMOUNT SECURITY RATING DATE RATE MATURITY (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS: 11.2%
$ 330,000 Coppell I.D.C. Series 1984 (Minyard
Properties)* ................................ A-1 12/1/01 3.70% 3.70% $ 330,000
800,000 Garland I.D.A.* ............................... A-1 12/1/05 4.35 4.35 800,000
1,000,000 Harris County HealthFacilities Development
Corporation (Texas MedicalCenter)* .......... VMig1/A-1+ 2/5/22 4.70 4.70 1,000,000
100,000 North Harris & Montgomery Community
College District Series B G.O. Bonds ........ AAA/Aaa 8/15/97 4.25 3.57 100,390
745,000 Texas Higher Education Authority
Inc. Series B* .............................. VMig1 12/1/25 4.10 4.10 745,000
-----------
2,975,390
-----------
VERMONT: 1.5%
400,000 Vermont Student Assistance Corporation*........ VMig1 1/1/04 3.65 3.65 400,000
-----------
WYOMING 3.7%
1,000,000 Gillette County (Pacificorp)** ................ A-1+/P-1 1/3/97 3.45 3.45 1,000,000
-----------
TOTAL INVESTMENTS: 101.1%
(cost $26,815,504+) (Note 1) ................ 26,815,504
Liabilities in excess of other assets: (1.1%) (299,964)
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $1.00 per share on
26,515,540 shares outstanding) .............. $26,515,540
===========
* Seven-day Floating Rate Note backed by Letter of Credit.
** Municipal Commercial Paper. I.D.A.-- Industrial Development Authority
+ Aggregate cost for Federal income tax purposes is identical. I.D.B.-- Industrial Development Bonds
I.D.C.-- Industrial Development Corporation
G.O.-- General Obligation
</TABLE>
-------------------
<TABLE>
<CAPTION>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
ASSETS
<S> <C>
Investments, at value (cost $26,815,504) (Note 1) .......................................... $26,815,504
Cash (Note 4) .............................................................................. 123,465
Receivable for shares sold ................................................................. 6,560
Dividends and interest receivable .......................................................... 158,284
-----------
Total Assets ................................................................ 27,103,813
-----------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ........................................... 11,493
Payable for investment securities purchased ................................................ 509,461
Payable for shares redeemed ................................................................ 21,530
Accrued expenses ........................................................................... 45,789
-----------
Total Liabilities ........................................................... 588,273
-----------
NET ASSETS (equivalent to $1.00 per share on
26,515,540 shares outstanding) (Note 3) .................................................. $26,515,540
===========
NET ASSETS consist of:
Capital stock--authorized 1,000,000,000 shares, $.01 par value per share ................... $ 265,155
Additional paid-in capital ................................................................. 26,250,385
-----------
$26,515,540
===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Interest income ..................................................... $979,752
EXPENSES
Investment advisory fee (Note 2) ................................ $136,524
Transfer agent and shareholder servicing expense (Note 2) ....... 31,599
Printing and mailing expenses ................................... 31,022
Professional fees ............................................... 22,823
Accounting expenses (Note 2) .................................... 19,848
Registration fees ............................................... 17,654
Directors' fees and expenses .................................... 15,577
Custodian expense ............................................... 4,826
Computer processing fees ........................................ 4,080
Other expenses .................................................. 12,575
-------
Total expenses ........................................... 296,528
Less: expenses recovered under contract with the
investment adviser (Note 2) ............................ 22,750 273,778
------ ----------
Net investment income .................................... 705,974
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 705,974
==========
</TABLE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENTS OF CHANGES INNET ASSETS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net investment income ............................................... $ 705,974 $ 970,838
Distributions to shareholders from net investment income ............ (705,974) (970,838)
Decrease in net assets from capital share transactions
(Note 3) .......................................................... (1,715,724) (9,422,578)
----------- -----------
Net decrease in net assets .......................................... (1,715,724) (9,422,578)
NET ASSETS
Beginning of period ............................................. 28,231,264 37,653,842
----------- -----------
End of period ................................................... $26,515,540 $28,231,264
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Lexington Tax Free Money Fund, Inc. (the "Fund") is an open end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's investment objective is to seek current income
exempt from Federal income taxes while also maintaining stability of principal,
liquidity and preservation of capital. The following is a summary of significant
accounting policies followed by the Fund in the preparation of its financial
statements:
INVESTMENTS Security transactions are accounted for on a trade date basis.
Investments are carried at amortized cost, which approximates market value.
Under this valuation method, a portfolio instrument is carried at cost and any
discount or premium is amortized on a constant basis to the maturity of the
instrument. Interest income is accrued as earned.
FEDERAL INCOME TAXES It is the Fund's intention to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and tax exempt income to its
shareholders. Therefore, no provision for Federal income taxes has been made.
DIVIDENDS Dividends are declared daily from the total of net investment
income and net realized gain (loss) on investments.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results may differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 0.5% of the Fund's average daily net assets up to
$150 million and in decreasing stages to 0.3% of average daily net assets in
excess of $800 million. LMC is required to reimburse the Fund for any expenses,
including the investment adviser's fee but excluding interest and taxes, in
excess of 1% of the Fund's average daily net assets. Reimbursement for the year
ended December 31, 1996 amounted to $22,750 and is set forth in the statement of
operations.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs, of $35,754 which were incurred by the Fund, but
paid by LMC.
3. CAPITAL STOCK
<TABLE>
<CAPTION>
Transactions (at $1.00 per share) in capital stock were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Shares sold ................................... 19,634,926 17,149,761
Shares issued on reinvestment of dividends .... 634,447 850,185
----------- ------------
20,269,373 17,999,946
Shares redeemed .............................. (21,985,087) (27,422,524)
----------- ------------
Net decrease ................................. (1,715,724) (9,422,578)
=========== ============
</TABLE>
4. CASH
In order to facilitate the clearing process for redemptions by check, the Fund
maintains a compensating balance with its transfer agent. At December 31, 1996,
this compensating balance amounted to $48,600 and is included in cash in the
statement of assets and liabilities.
5. TAX DISTRIBUTION INFORMATION (UNAUDITED)
99.46% of the dividends paid by the Fund for the year ended December 31, 1996
are tax-exempt for regular Federal income tax purposes.
6
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income .................. 0.026 0.029 0.020 0.018 0.024
Less distributions:
Distributions from net investment income (0.026) (0.029) (0.020) (0.018) (0.024)
--------- --------- ----------- -------- ---------
Net asset value, end of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= =========== ======== =========
Total Return ................................. 2.61% 2.92% 2.00% 1.78% 2.47%
Ratio to average net assets:
Expenses, before reimbursement ......... 1.09% 1.12% 1.09% 0.92% 0.99%
Expenses, net of reimbursement ......... 1.00% 1.00% 1.00% 0.92% 0.99%
Net investment income, before
reimbursement ........................ 2.50% 2.76% 1.88% 1.77% 2.46%
Net investment income .................. 2.59% 2.88% 1.97% 1.77% 2.46%
Net assets, end of period (000's omitted) .... $ 26,516 $ 28,231 $ 37,654 $ 41,096 $ 45,844
</TABLE>
------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington Tax Free Money Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Tax Free Money
Fund, Inc. as of December 31, 1996, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. As to securities
purchased but not received, we performed other appropriate auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Tax Free Money Fund, Inc. as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 14, 1997
7
<PAGE>
LEXINGTON
[LOGO]
- --------------------------------------------------------------------------------
LEXINGTON
TAX
FREE
MONEY
FUND, INC.
----------------------
Seeks to achieve current income exempt from Federal income
taxes while maintaining stability
of principal, liquidity and
preservation of capital.
----------------------
ANNUAL REPORT
DECEMBER 31, 1996
The Lexington Group
of No Load
Investment Companies
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
DISTRIBUTOR
- --------------------------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
- --------------------------------------------------------------------------------
ALL SHAREHOLDER REQUESTS FOR SERVICES OF
ANY KIND SHOULD BE SENT TO:
TRANSFER AGENT
- --------------------------------------------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
OR CALL TOLL FREE:
SERVICE AND SALES: 1-800-526-0056
24 HOUR ACCOUNT INFORMATION:
1-800-526-0052
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield o Account Balances o Exchanges o
Last Transactions o Total Return o Duplicate Statements
- --------------------------------------------------------------------------------
This report has been prepared for the information of the shareholders of
Lexington Tax Free Money Fund, Inc. and is authorized for distribution to the
public only if it is accompanied or preceded by a currently effective prospectus
which sets forth expenses and other material information.
