As filed with the Securities and Exchange Commission on May 1, 1997
Registration No. 2-57786
811-2714
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 23 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19 X
(Check appropriate box or boxes.)
LEXINGTON TAX FREE MONEY FUND, INC.
-----------------------------------
(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
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(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Tax Free Money Fund, Inc.
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
-----------------------------------
(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue, New York, NY 10022
------------------------------------
It is proposed that this filing will become effective May 1, 1997
pursuant to Paragraph (b) of Rule 485.
------------------------------------
The Registrant has registered an indefinite number of shares under
the Securities Act of 1933, pursuant to Section 24(f) of the Investment
Company Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal
year ended December 31, 1996 was filed on February 26, 1997.
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- --------------- ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 2
4. General Description of Registrant 3
5. Management of the Fund 4
6. Capital Stock and Other Securities 11
7. Purchase of Securities Being Offered 4
8. Redemption or Repurchase 6
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ------ ----------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 11 (Part A)
13. Investment Objectives and Policies 2
14. Management of the Registrant 10
15. Control Persons and Principal Holders 4
of Securities
16. Investment Advisory and Other Services 4
17. Brokerage Allocation and Other Practices 5
18. Capital Stock and Other Securities 11 (Part A)
19. Purchase, Redemption and Pricing of 4, 6 (Part A)
securities being offered
20. Tax Status 7
21. Underwriters 4
22. Calculation of Yield Quotations on Money 2
Market Funds
23. Financial Statements 15
PART C
- ------
Information required to be included in Part C is set
forth under the appropriate Item, so numbered, in Part C
to this Registration Statement.
* Not Applicable
<PAGE>
PROSPECTUS
May 1, 1997
Lexington TAX FREE MONEY Fund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Service--1-800-526-0056
24 Hour Account Information--1-800-526-0052
A NO-LOAD MONEY MARKET MUTUAL FUND WITH THE PRINCIPAL INVESTMENT OBJECTIVE OF
CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES.
================================================================================
Lexington Tax Free Money Fund, Inc. (the "Fund") is a diversified
open-end management investment company, known as a money market mutual
fund.
Shareholders may invest, reinvest or redeem shares at any time
without charge or penalty.
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 Fund invests in short-term
municipal securities which are described more fully on page 3.
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.
Shareholders may use free redemption checks provided by the Fund for
amounts of $100.00 or more.
Lexington Management Corporation ("LMC") is the Investment Adviser
of the Fund. Lexington Funds Distributor, Inc. ("LFD") is the
Distributor of Shares of the Fund.
This Prospectus concisely sets forth information about the Fund that
you should know before investing. It should be read and retained for
future reference.
A STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997, WHICH
PROVIDES A FURTHER DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS AND
OTHER MATTERS THAT MAY BE OF INTEREST TO SOME INVESTORS, HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED HEREIN
BY REFERENCE. FOR A FREE COPY, CALL THE APPROPRIATE TELEPHONE NUMBER
ABOVE OR WRITE TO THE ADDRESS LISTED ABOVE.
Mutual fund shares are not deposits or obligations of (or endorsed
or guaranteed by) any bank, nor are they federally insured or otherwise
protected by the Federal Deposit Insurance Corporation ("FDIC"), the
Federal Reserve Board or any other agency. Investing in mutual funds
involves investment risks, including the possible loss of principal, and
their value and return will fluctuate.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
<PAGE>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets) (net of reimbursement):
Management fees .................................................... 0.50%
Other fees ......................................................... 0.50%
----
Total Fund Operating Expenses ...................................... 1.00%
====
<TABLE>
<CAPTION>
Example: 1 year 3 years 5 years 10 years
----- ------ ------ -------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period $10.20 $31.84 $55.25 $122.46
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
indirectly. (For more complete descriptions of the various costs and expenses,
see "How to Purchase Shares" and "Investment Adviser, Distributor and
Administrator" below.) The Expenses and Example appearing in the table above are
based on the Fund's expenses for the period from January 1, 1996 to December 31,
1996. Absent expense reimbursements, total fund operating expenses would have
been 1.09% of the Fund's average net assets. The Example shown in the table
above should not be considered a representation of past or future expenses and
actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following Financial Highlights information for each of the years in the
five year period ended December 31, 1996 has been audited by KPMG Peat Marwick
LLP, Independent Auditors, whose report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the Statement of
Additional Information. The Fund's annual report, which contains additional
performance information, is available upon request and without charge.
- --------------------------------------------------------------------------------
Selected Per Share Data for a share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $1.00 $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 0.041
Less distributions:
Dividends from
net investment income .............. (0.026) (0.029) (0.020) (0.018) (0.024) (0.041)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========== =========== =========== =========== =========== ===========
Total return ........................... 2.61% 2.92% 2.00% 1.78% 2.47% 4.22%
Ratio to average net assets:
Expenses, before reimbursement ....... 1.09% 1.12% 1.09% 0.92% 0.99% 0.96%
Expenses, net of reimbursement ....... 1.00% 1.00% 1.00% 0.92% 0.99% 0.96%
Net investment income,
before reimbursement ............... 2.50% 2.76% 1.88% 1.77% 2.46% 4.06%
Net investment income ................ 2.59% 2.88% 1.97% 1.77% 2.46% 4.06%
Net assets, end of period
(000's omitted) ...................... $26.516 $28,231 $37,654 $41,096 $45,844 $53,722
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1990 1989 1988 1987
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ... $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ................ 0.053 0.056 0.047 0.041
Less distributions:
Dividends from
net investment income .............. (0.053) (0.056) (0.047) (0.041)
----------- ----------- ----------- -----------
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
=========== =========== =========== ===========
Total return ........................... 5.39% 5.73% 4.79% 4.21%
Ratio to average net assets:
Expenses, before reimbursement ....... 0.93% 0.88% 0.91% 0.74%
Expenses, net of reimbursement ....... 0.93% 0.88% 0.91% 0.74%
Net investment income,
before reimbursement ............... 5.26% 5.57% 4.67% 4.09%
Net investment income ................ 5.26% 5.57% 4.67% 4.09%
Net assets, end of period
(000's omitted) ...................... $57,881 $61,385 $82,755 $84,954
</TABLE>
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2
<PAGE>
YIELD INFORMATION
For the seven-day period ended December 31, 1996, the Fund's annualized
current yield was 2.79% and the compounded effective yield was 2.83%. This yield
is subject to market conditions and will fluctuate daily as income earned
fluctuates. The above yield quotations are not an indication or representation
by the Fund of future yields or rates of return. This Prospectus may be in use
for a full year and it can be expected that these yields will fluctuate
substantially over that time. To obtain a current yield quotation for the Fund,
call the appropriate toll free telephone number listed on the cover of this
Prospectus.
The weighted average portfolio maturity on December 31, 1996 was 42 days.
COMPARATIVE PERFORMANCE INFORMATION
Advertisements and communications may compare the Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. Such performance may be
categorized according to the Fund's asset size as determined by the independent
service. From time to time, the performance of the Fund may be compared to
various investment indicies, including the Dow Jones Industrial Average and
Standard & Poor's 500 Composite Stock Index. Quotations of historical yields are
not indicative of future dividend income, but are an indication of the return to
shareholders only for the limited historical period used. The Fund's yield will
depend on the particular investments in its portfolio, its total operating
expenses and other conditions. For further information, including an example of
the yield calculation, see the Statement of Additional Information.
DESCRIPTION OF THE FUND
The Fund is a diversified open-end management investment company known as a
money market mutual fund. It is called a no-load fund because its shares are
sold without a sales charge.
INVESTMENT OBJECTIVE
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.
INVESTMENT POLICIES
The Fund will seek to achieve its goal through investment in high grade
short term municipal obligations issued by states, territories, and possessions
of the United States and by the District of Columbia, and their political
subdivisions, and duly constituted authorities and corporations. It will limit
its portfolio purchases, as well as the underlying securities of repurchase
agreements entered into by it, to those United States dollar denominated
instruments which its Board of Directors determines present minimal credit risks
and which are of "high quality" as determined by any major rating service (such
as Standard & Poor's Corporation or Moody's Investors Service, Inc.) or, in the
case of any instruments that are not rated, are of a quality comparable to such
rated instruments as determined by its Board of Directors. The Fund will enter
into repurchase agreements only with commercial banks and primary dealers in
U.S. government securities. Repurchase agreements when entered into with primary
dealers, will be fully collateralized including the interest earned thereon
during the entire term of the agreement. If the institution defaults on the
repurchase agreement, the Fund will retain possession of the underlying
securities. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization on the collateral may be delayed or limited and the Fund
may incur additional costs. In such case the Fund will be subject to risks
associated with changes in the market value of the collateral securities. The
Fund intends to limit repurchase agreements to institutions believed by its
adviser to present minimal credit risk. The Fund will maintain a dollar weighted
average portfolio maturity of not more than 90 days and will not acquire any
portfolio security with a remaining maturity of more than thirteen months (397
days).
The Fund may also hold cash and invest in obligations, the interest from
which may be subject to federal income tax, so long as at least 80% of the
Fund's net income is derived from securities, the income from which, in the
opinion of Counsel for the issuers thereof, is exempt from federal income tax;
provided, however, the Fund may invest in instruments yielding taxable income
such as short term money market instruments equal to or exceeding 20% of the
Fund's net income in extraordinary circumstances when adverse market conditions
dictate a defensive position. Any net income earned from taxable instruments
will be taxable to shareholders of the Fund as ordinary income. The investment
policies set forth in the preceding paragraph are fundamental policies and may
not be changed without approval of the shareholders.
3
<PAGE>
The Fund restricts its purchases of municipal securities to those rated not
lower than AA or Aa or MIG-2 (see "Appendix" in the Statement of Additional
Information), or municipal securities which have been issued by an issuer having
outstanding debt securities rated not lower than AA or Aa or MIG-2 or are
specifically determined by the Fund's Board of Directors to be of high quality
and represent minimal credit risks. Any municipal security which depends on the
credit of the Federal government will be regarded as having a rating of AAA or
Aaa. Purchases of tax exempt instruments such as municipal commercial paper
(which are also known as short term discount notes) will be limited to those
obligations rated A-1 or Prime-1 (see "Appendix" in the Statement of Additional
Information) or unrated obligations of equivalent quality, as determined by the
Board of Directors. Municipal commercial paper or short term discount notes are
short term obligations of municipalities which are likely to be used to meet
seasonal working capital needs of municipalities or interim construction
financing and to be paid from general revenues of the municipalities or
refinanced with long term debt. In most cases, such obligations are backed by
letters of credit, not repurchase agreements or other credit facility agreements
offered by banks or other institutions.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Directors. There are currently ten directors (of whom seven are
non-affiliated persons) who meet five times each year. The Statement of
Additional Information contains additional information regarding the directors
and officers of the Fund.
PORTFOLIO MANAGER
Denis P. Jamison, C.F.A. Senior Vice President, Director of Fixed Income
Strategy is responsible for fixed-income portfolio management at LMC. He is a
member of the New York Society of Security Analysts. Mr. Jamison has 25 years
investment experience.
Prior to joining LMC in 1981, Mr. Jamison had spent nine years at Arnold
Bernhard & Company, an investment counseling and financial services
organization. At Bernhard, he was a Vice President supervising the security
analyst staff and managing investment portfolios. He is a specialist in
government, corporate and municipal bonds. Mr. Jamison is a graduate of the City
College of New York with a B.A. in Economics. Mr. Jamison has been the portfolio
manager of the Fund since July of 1981.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation, ("LMC") P.O. Box 1515/Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663, is the investment adviser of the Fund.
Lexington Funds Distributor Inc. ("LFD") is the distributor of shares of the
Fund. LMC, established in 1938, currently manages over $3.3 billion in assets.
LMC serves as investment adviser to other investment companies and private
and institutional investment accounts. Included among these clients are persons
and organizations which own significant amounts of capital stock of LMC's
parent. The clients pay fees which LMC considers comparable to the fees paid by
similarly served clients.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC and LFD are wholly-owned subsidiaries of Lexington Global Asset
Managers, Inc., a Delaware corporation with offices at Park 80 West Plaza Two,
Saddle Brook, N.J. 07663. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities have a majority voting control of
outstanding shares of Lexington Global Asset Managers, Inc.
For the fiscal year ended December 31, 1996, the Fund paid LMC a monthly
management fee at the annual rate of 1/2 of 1% of the average daily net assets.
For the year ending December 31, 1996, LMC earned $113,774 in net management
fees from the Fund. See "Investment Adviser, Distributor and Administrator" in
the Statement of Additional Information.
HOW TO PURCHASE SHARES
INITIAL INVESTMENTS: MINIMUM $1,000. BY WIRE: (1) Telephone the Fund toll
free at 1-800-526-0056 and provide the account registration, address, and social
security or tax identification number, the amount being wired, the name of the
wiring bank, and the name and telephone number of the person to be contacted in
4
<PAGE>
connection with the order. You will then be provided with an account number. (2)
Instruct your bank to wire the specified amount, along with the account number
and registration to: State Street Bank and Trust Company, Attn: Mutual Funds
Dept., re: Lexington Tax Free Money Fund, Account No. 99043713. (3) A completed
New Account Application must then be forwarded to the Fund at the address on the
Application.
BY MAIL: Send a check payable to Lexington Tax Free Money Fund, along with a
completed New Account Application, to State Street Bank & Trust Company (the
"Agent") at the address on the Application.
SUBSEQUENT INVESTMENTS--BY WIRE: Instruct your bank to wire the specified
amount and appropriate information to the Agent (see "Initial Investments--By
Wire"--(2), above).
BY MAIL--MINIMUM $50: Send a check payable to Lexington Tax Free Money Fund
to the Agent, (see back cover of this prospectus for address) accompanied by
either the detachable form which accompanies the Agent's confirmation of a prior
transaction, or a letter indicating the dollar value of the shares to be
purchased and identifying the Fund, the account number, and registration.
BROKER-DEALERS: You may invest in shares of the Fund through broker-dealers
who are members of the National Association of Securities Dealers, Inc., and
other financial institutions and who have selling agreements with LFD. Banks and
other financial institutions may be required to register as dealers pursuant to
state law. Broker-dealers and financial institutions who process such purchase
and sale transactions for their customers may charge a transaction fee for these
services. The fee may be avoided by purchasing shares directly from the Fund.
PURCHASE PRICE AND EFFECTIVE DATE: Shares of the Fund are offered
continuously at net asset value which will normally be constant at $1.00 per
share. Net asset value is determined as of the close of the New York Stock
Exchange (currently 4:00 p.m. New York time) and on such other times or days as
there is a sufficient degree of trading in the portfolio securities of the Fund
to materially affect its net asset value. The price at which a purchase is
effected is based on the next calculation of net asset value per share after the
order is placed. Investments for which market quotations are not readily
available shall be valued by management in good faith under the direction of the
Fund's Board of Directors. Fund assets are valued based upon the amortized cost
method. No sales charge is imposed on purchases of shares. There is no assurance
that the Fund will maintain a net asset value per share of $1.00. Orders will
become effective when an investor's wire order or check is converted into
federal funds (monies credited to a bank's account with its registered Federal
Reserve Bank). If payment is transmitted by federal funds wire, the order will
become effective upon receipt. Payments transmitted by bank wire may take longer
to be converted into federal funds. Money transmitted by check will normally be
considered to have been converted into federal funds on the first business day
following receipt by the Agent.
AN OPEN ACCOUNT: By investing in the Fund, a shareholder appoints the Agent,
as his agent, to establish an Open Account to which all shares purchased will be
credited, together with any dividends and capital gain distributions which are
paid in additional shares. (See "Dividend, Distribution and Reinvestment
Policy"). Share certificates will be issued, for full shares only when requested
in writing. Unless payment for shares is made by certified or cashier's check or
federal funds wire, certificates will not be issued for 30 days. In order to
facilitate redemptions and transfers, most shareholders elect not to receive
certificates.
After an Open Account is established, payments can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (checks
drawn on the investor's bank periodically for investment in the Fund).
AUTOMATIC INVESTING PLAN WITH "LEX-O-MATIC". A shareholder may arrange to
make additional purchases of shares automatically on a monthly or quarterly
basis. The investments of $50 or more are automatically deducted from a checking
account on or about the 15th day of each month. The institution must be an
Automated Clearing House (ACH) member. Should an order to purchase shares of a
fund be cancelled because your automated transfer does not clear, you will be
responsible for any resulting loss incurred by that fund. The shareholder
reserves the right to discontinue the Lex-O-Matic program provided written
notice is given ten days prior to the scheduled investment date. Further
information regarding this service can be obtained from Lexington by calling
1-800-526-0056. On payroll deduction accounts administered by an employer and on
payments into qualified pension or profit sharing plans and other continuing
purchases programs, there are no minimum purchase requirements.
TERMS OF OFFERING: If an order to purchase shares is cancelled because the
investor's check does not clear, the purchaser will be responsible for any loss
incurred by the Fund. To recover any such loss, the Fund reserves the right to
redeem shares owned by the purchaser, seek reimbursement directly from the
5
<PAGE>
purchaser and may prohibit or restrict the purchaser in placing future orders in
any of the Lexington Funds.
The Fund reserves the right to reject any order, and to waive or lower the
investment minimums with respect to any person or class of persons, including
shareholders of the Fund's special investment programs. An order to purchase
shares is not binding on the Fund until it has been confirmed by the Agent.
ACCOUNT STATEMENTS: The Agent will send shareholders a confirmation of each
transaction indicating the date of the transaction, the number of shares
purchased or redeemed, the price per share and the total amount of the purchase
or redemption proceeds. A statement is also sent to shareholders quarterly or
when a change in the registration, address, or dividend option occurs.
SHAREHOLDERS ARE URGED TO RETAIN THEIR ACCOUNT STATEMENTS FOR TAX PURPOSES.
HOW TO REDEEM SHARES
BY TELEPHONE: Shares may be redeemed by telephone. Call the Fund toll free
1-800-526-0056. A REDEMPTION AUTHORIZATION WHICH IS CONTAINED IN THE NEW ACCOUNT
APPLICATION, OR A SEPARATE AUTHORIZATION FORM MUST BE ON FILE WITH LFD BEFORE A
SHAREHOLDER MAY REDEEM IN THIS MANNER. Shareholders may elect on the redemption
authorization form to have checks for redemption proceeds in any amount of $200
or more mailed either to the registered address, to the shareholder's bank
account, or to any other designated person, and a new form must be completed
whenever these instructions are revised.
Shareholders may request that redemption proceeds of $1,000 or more be wired
directly to a COMMERCIAL BANK ACCOUNT. The signatures on such a request must be
guaranteed, unless an authorization for redemption by telephone form has been
previously filed with LFD. The Agent presently imposes a $5.00 wire charge.
BY CHECK: Shareholders may effect redemptions by writing checks drawn on the
Fund, payable to the order of any person in any amount of $100 or more up to
$500,000 at no charge. Checks in amounts over $500,000 will not be honored. The
special forms and instructions may be obtained from the Fund or the agent.
Redemption checks should not be used to close your account. Redemption checks
are free, but the Agent will impose a fee (currently $15.00) for stopping
payment of a redemption check upon your request or if the Agent cannot honor the
redemption check due to insufficient funds, uncollected funds or other valid
reason.
PROCEDURES FOR REDEMPTIONS BY TELEPHONE OR CHECK MAY ONLY BE USED FOR SHARES
FOR WHICH SHARE CERTIFICATES HAVE NOT BEEN ISSUED, AND MAY NOT BE USED TO REDEEM
SHARES PURCHASED BY CHECK WHICH HAVE BEEN ON THE BOOKS OF THE FUND FOR LESS THAN
15 DAYS.
BY MAIL: Send to the Agent (see back cover of this prospectus for address):
(1) a written request for redemption, signed by each registered owner exactly as
the shares are registered including the name of the Fund, account number and
exact registration; (2) share certificates for any shares to be redeemed which
are held by the shareholder; (3) signature guarantees, when required; and (4)
the additional documents required for redemptions by corporations, executors,
administrators, trustees and guardians. REDEMPTIONS BY MAIL WILL NOT BECOME
EFFECTIVE UNTIL ALL DOCUMENTS IN PROPER FORM HAVE BEEN RECEIVED BY THE AGENT. IF
A SHAREHOLDER HAS ANY QUESTIONS REGARDING THE REQUIREMENTS FOR REDEEMING SHARES,
HE SHOULD CALL THE FUND AT THE TOLL FREE NUMBER ON THE BACK COVER PRIOR TO
SUBMITTING A REDEMPTION REQUEST.
Checks for redemption proceeds will be mailed within three business days,
but will not be mailed until all checks in payment for the shares to be redeemed
have been cleared. Shares redeemed will earn dividends through the date of
redemption. Shareholders who redeem all of their shares will receive a check
representing the value of the shares redeemed plus the accrued dividends through
the date of redemption. Where shareholders redeem only a portion of their
shares, all dividends declared but unpaid will be distributed on the next
dividend payment date.
SIGNATURE GUARANTEE: Signature guarantees are required in connection with
(a) redemptions by mail involving $25,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; (c) authorizations to effect redemptions by
telephone, telegram, or check; (d) changes in instructions as to where the
proceeds of redemptions are to be sent; and (e) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a credit union, a member firm of a
domestic stock exchange, or a foreign branch of any of the foregoing. A NOTARY
PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
6
<PAGE>
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") which should specify the
total number of shares to be redeemed or (c) on all share certificates tendered
for redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power. Signature guarantees in connection with redemptions by
telephone, telegram, or check must appear on the appropriate authorization form.
REDEMPTION PRICE: The redemption price will be the net asset value per share
of the Fund next determined after receipt by the Agent of a redemption request
in proper form (see "Determination of Net Asset Value" in the Statement of
Additional Information). The right of redemption may be suspended (a) for any
period during which the New York Stock Exchange is closed or the Securities and
Exchange Commission ("SEC") determines that trading on the Exchange is
restricted, (b) when there is an emergency as determined by the SEC as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets, or (c) for such
other periods as the SEC may by order permit for the protection of shareholders
of the Fund. Due to the proportionately high cost of maintaining smaller
accounts, the Fund reserves the right to redeem all shares in an account with a
value of less than $500 (except retirement plan accounts) and mail the proceeds
to the shareholder. Shareholders will be notified before these redemptions are
to be made and will have 30 days to make an additional investment to bring their
accounts up to the required minimum.
SHAREHOLDER SERVICES
TRANSFER: Shares of the Fund may be transferred to another owner. A
signature guarantee of the registered owner is required on the letter of
instruction or accompanying stock power.
SYSTEMATIC WITHDRAWAL PLAN: Shareholders may elect to withdraw cash in fixed
amounts from their accounts at regular intervals. The minimum investment to
establish a Systematic Withdrawal Plan is $10,000. If the proceeds are to be
mailed to someone other than the registered owner, a signature guarantee is
required.
GROUP SUB-ACCOUNTING: To minimize recordkeeping by fiduciaries,
corporations, and certain other investors, the minimum initial investment may be
waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share, next determined at the
time of the exchange. In the event shares of one or more of these Funds being
exchanged by a single investor have a value in excess of $500,000, the shares of
the Fund will not be purchased until the third business day following the
redemption of the shares being exchanged in order to enable the redeeming fund
to utilize normal securities settlement procedures in transferring the proceeds
of the redemption to the Fund. EXCHANGES MAY NOT BE MADE UNTIL ALL CHECKS IN
PAYMENT FOR THE SHARES TO BE EXCHANGED HAVE BEEN CLEARED.
Lexington Funds currently available for exchange are:
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ SYMBOL: LEXGX)/Seeks
long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in, emerging
countries and emerging markets.
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ SYMBOL: LEXIX)/Seeks long term growth
of capital through investment in common stocks of companies domiciled
in foreign countries.
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC. (NASDAQ SYMBOL: LXCAX)/Seeks
long-term capital appreciation through investment in companies
domiciled in the Asia Region with a market capitalization of less than
$1 billion.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC. (NASDAQ SYMBOL: LETRX)/Seeks long-term
capital appreciation through investment primarily in the equity
securities of Russian companies. The Fund has a $5,000 MINIMUM
INVESTMENT.
7
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ SYMBOL: LEBDX)/Seeks high current
income by investing in a combination of foreign and domestic
high-yield, lower rated debt securities. Capital appreciation is a
secondary objective.
LEXINGTON SMALLCAP VALUE FUND, INC. (NASDAQ SYMBOL: LESVX)/Seeks long-term
capital appreciation through investment in common stocks of companies
domiciled in the United States with a market capitalization of less
than $1 billion.
LEXINGTON GOLDFUND, INC. (NASDAQ SYMBOL: LEXMX)/Seeks capital appreciation and
such hedge against loss of buying power as may be obtained through
investment in gold bullion and equity securities of companies engaged
in mining or processing gold throughout the world.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ SYMBOL: LEXCX)/Seeks long-term
capital growth and income through investment in an equal number of
shares of the common stocks of a fixed list of American blue chip
corporations.
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ SYMBOL: LEXRX)/Seeks long-term
capital appreciation through investments in stocks of large, ably
managed and well financed companies. Income is a secondary objective.
LEXINGTON CONVERTIBLE SECURITIES FUND (NASDAQ SYMBOL: CNCVX)/Seeks total return
by providing capital appreciation, current income and conservation of
capital through investments in a diversified portfolio of securities
convertible into shares of common stock.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ SYMBOL: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates.
LEXINGTON MONEY MARKET TRUST (NASDAQ SYMBOL: LMMXX)/Seeks a high level of
current income consistent with preservation of capital and liquidity
through investments in interest bearing short term money market
instruments.
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ SYMBOL: LTFXX)/Seeks current income
exempt from Federal income taxes while maintaining liquidity and
stability of principal through investment in short term municipal
securities.
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and
a new account has to be established, the dollar amount exchanged must meet the
initial investment of the Fund being purchased. IF, HOWEVER, AN ACCOUNT ALREADY
EXISTS IN THE FUND BEING BOUGHT, THERE IS A $500 MINIMUM EXCHANGE REQUIRED.
SHAREHOLDERS MUST PROVIDE THE ACCOUNT NUMBER OF THE EXISTING ACCOUNT.
Any exchange between mutual funds is, in effect, a redemption of shares in
one Fund and a purchase in the other Fund. Shareholders should consider the
possible tax effects of an exchange.
TELEPHONE EXCHANGE PROVISIONS--Exchange instructions may be given in writing
or by telephone. TELEPHONE EXCHANGES MAY ONLY BE MADE IF A TELEPHONE
AUTHORIZATION FORM HAS BEEN PREVIOUSLY EXECUTED AND FILED WITH LFD. TELEPHONE
EXCHANGES ARE PERMITTED ONLY AFTER A MINIMUM OF 7 DAYS HAVE ELAPSED FROM THE
DATE OF A PREVIOUS EXCHANGE. EXCHANGES MAY NOT BE MADE UNTIL ALL CHECKS IN
PAYMENT FOR THE SHARES TO BE EXCHANGED HAVE BEEN CLEARED. Telephonic exchanges
can only involve shares held on deposit at the Agent; shares held in certificate
form by the shareholder cannot be included. However, outstanding certificates
can be returned to the Agent and qualify for these services. Any new account
established with the same registration will also have the privilege of exchange
by telephone in the Lexington Funds. All accounts involved in a telephonic
exchange MUST have the same registration and dividend option as the account from
which the shares were transferred and will also have the privilege of exchange
by telephone in the Lexington Funds in which these services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD distributor of the
Lexington Group of Mutual Funds as the true and lawful attorney to surrender for
redemption or exchange any and all non-certificated shares held by the Agent in
account(s) designated, or in any other account with the Lexington Funds, present
or future, which has the identical registration with full power or substitution
in the premises, authorizes and directs LFD to act upon any instruction from any
person by telephone for exchange of shares held in any of these accounts, to
purchase shares of any other Lexington Fund that is available, provided the
registration and mailing address of the shares to be purchased are identical to
8
<PAGE>
the registration of the shares being redeemed, and agrees that neither LFD, the
Agent, nor the Fund(s) will be liable for any loss, expense or cost arising out
of any requests effected in accordance with this authorization which would
include requests effected by imposters or persons otherwise unauthorized to act
on behalf of the account. LFD, the Agent and the Fund, will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine
and if they do not employ reasonable procedures they may be liable for any
losses due to unauthorized or fraudulent instructions. The following
identification procedures may include, but are not limited to, the following:
account number, registration and address, taxpayer identification number and
other information particular to the account. In addition, all exchange
transactions will take place on recorded telephone lines and each transaction
will be confirmed in writing by the Fund. LFD reserves the right to cease to act
as agent subject to the above appointment upon thirty (30) days' written notice
to the address of record. If other than an individual, it is certified that
certain persons have been duly elected and are now legally holding the titles
given and that the said corporation, trust, unincorporated association, etc. is
duly organized and existing and has power to take action called for by this
continuing Authorization.
Exchange authorization forms, Telephone authorization forms and prospectuses
of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions by
telephone to exchange shares of the Fund for shares of one of the other
Lexington investment companies at net asset value as described above. Under this
procedure, the dealer must agree to indemnify the Distributor and the funds from
any loss or liability that any of them might incur as a result of the acceptance
of such telephone exchange orders. A properly signed exchange application must
be received by the Distributor within five days of the exchange request. In each
such exchange, the registration of the shares of the fund being acquired must be
identical to the registration of the shares of the fund exchanged. Shares in
certificate form are not eligible for this type of exchange. LFD reserves the
right to reject any telephone exchange request. Any telephone exchange orders so
rejected may be processed by mail.
A capital gain or loss for federal tax purposes may be realized upon the
exchange, depending upon the cost or other basis of the shares redeemed. This
exchange offer is available only in states where shares of the fund being
acquired may legally be sold and may be modified or terminated at any time by
the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund declares and reinvests daily, dividends from its net investment
income and distributes such dividends on the last day of each month. Dividends
or distribution payments will be reinvested at net asset value in additional
full and fractional shares of the Fund unless and until the shareholder notifies
the Agent in writing that he wants to receive his payments in cash. This request
must be received by the Agent at least seven days before the payment date. Upon
receipt by the Agent of such written notice, all further payments will be made
in cash until written notice to the contrary is received. An account of such
shares owned by each shareholder will be maintained by the Agent. Shareholders
whose accounts are maintained by the Agent will have the same rights as other
shareholders with respect to shares so registered (see "How to Purchase
Shares--An Open Account").
Since substantially all of the net income will be declared as a dividend
each time the net asset value of the Fund is determined, the net asset value per
share will normally remain at one dollar per share immediately after such
dividend declaration and determination.
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification of
assets, distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
The Fund intends to invest principally in tax-exempt municipal obligations
so that distributions by the Fund of its net tax-exempt interest income can be
designated as exempt-interest dividends, which are excludable from gross income
for federal income tax purposes. However, shareholders are required to report
the receipt of exempt-interest dividends, together with other tax-exempt
9
<PAGE>
interest, on their federal income tax returns. In addition, these
exempt-interest dividends may be subject to the federal alternative minimum tax
and to state and local income tax, and will be taken into account in determining
the portion, if any, of Social Security benefits received which must be included
in gross income for federal income tax purposes. Finally, interest or
indebtedness incurred or continued to purchase or carry shares of the Fund
(which indebtedness likely need not be directly traceable to the purchase or
carrying of such shares) will not be deductible for federal income tax purposes.
Distributions by the Fund of any taxable net investment income and any net
short-term capital gain are taxable to shareholders as ordinary income. These
distributions are treated as dividends for federal income tax purposes but do
not qualify for the 70% dividends-received deduction for corporate shareholders.
The Fund is managed so that it will not have any long-term capital gains or
losses. The percentage of the Fund's net investment income (taxable and
tax-exempt) which constitutes tax-exempt interest will be determined annually
and will be applied uniformly to all distributions of such income made during
the year for purposes of designating a portion of such distributions as
exempt-interest dividends. This percentage may differ from the actual tax-exempt
percentage for any particular day or period during the year.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made or deemed made
during the year will be sent to shareholders promptly after the end of each
year. Shareholders purchasing shares of the Fund just prior to the ex-dividend
date will be taxed on the entire amount of the dividend received, even though
the net asset value per share on the date of such purchase reflected the amount
of such dividend.
All or a portion of any loss realized upon a taxable disposition of shares
of the Fund may be disallowed if other shares of the Fund are purchased within
30 days before or after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends
paid by the Fund. In order to avoid this back-up withholding, a shareholder must
provide the Fund with a correct taxpayer identification number (which for most
individuals is their Social Security number) or certify that it is a corporation
or otherwise exempt from or not subject to back-up withholding. The new account
application included with this Prospectus provides for shareholder compliance
with these certification requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion of federal income tax considerations relevant to the
Fund that is contained in the Statement of Additional Information. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A. 1211 Avenue of the Americas New York, New York
10022, has been retained to act as the Custodian for the Fund's investments and
assets. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 is the transfer agent and dividend disbursing agent for the
Fund. Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company
have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, & Frankel, 919 Third Avenue, New York, New York
10022 will pass upon legal matters for the Fund in connection with the shares
offered by this Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending
December 31, 1997.
10
<PAGE>
OTHER INFORMATION
The Fund was organized as a Maryland corporation on November 18, 1976. Prior
to April 29, 1980, its corporate name was "Lexington Tax Free Daily Income Fund,
Inc." On April 26, 1983, the name of the Fund was changed from "Lexington Tax
Free Daily Income Fund, Inc." to Lexington Tax Free Money Fund, Inc. The Fund
has authorized 1,000,000,000 shares of capital stock, $0.01 par value. All
shares are of the same class, with like rights and privileges. Each share is
entitled to one vote and to participate equally in distributions declared by the
Fund and in its net assets on liquidation. The shares have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the Directors if they choose to do
so, and, in such event, the holders of the remaining less than 50% of the shares
voting for the election of directors will not be able to elect any person or
persons to the Board of Directors. The shares are fully paid and non-assessable
when issued and have no preference, preemptive, or conversion rights. There are
no options or other special rights outstanding relating to any Fund shares.
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the Investment Company Act of
1940. However, meetings of shareholders may be called at any time by the
Secretary upon the written request of shareholders holding in the aggregate not
less than 25% of the outstanding shares, such request specifying the purposes
for which such meeting is to be called. In addition, the Directors will promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Director when requested to do so in writing by the recordholders
of not less than 10% of the Fund's outstanding shares. The Fund will assist
shareholders in any such communication between shareholders and Directors.
The Code of Ethics adopted by each of the Adviser and the Fund prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Fund's planned portfolio
transactions. The objective of each Code of Ethics is that the operations of the
Adviser and Fund be carried out for the exclusive benefit of the Fund's
shareholders. All organizations maintain careful monitoring of compliance with
the Code of Ethics.
A Registration Statement (herein called the "Registration Statement"), of
which this Prospectus is a part, has been filed with the SEC, Washington, D.C.
under the Securities Act of 1933, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made. A "Statement of Additional Information", to
which reference is made in this Prospectus, provides a further discussion of
certain areas in the Prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and the Statement of Additional Information omit certain information
contained in the Registration Statement, to which reference is made, filed with
the Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein and therein, may be obtained from the
Commission upon payment of the prescribed fees.
11
<PAGE>
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: 1-800-526-0056
24 HOUR ACCOUNT INFORMATION: 1-800-526-0052
TABLE OF CONTENTS PAGE
- -----------------------------------------------------------------------------
Fee Table ............................................................. 2
Financial Highlights .................................................. 2
Yield Information ..................................................... 3
Comparative Performance Information ................................... 3
Description of the Fund ............................................... 3
Investment Objective .................................................. 3
Investment Policies ................................................... 3
Management of the Fund ................................................ 4
Portfolio Manager ..................................................... 4
Investment Adviser, Distributor and Administrator ..................... 4
How to Purchase Shares ................................................ 4
How to Redeem Shares .................................................. 6
Shareholder Services .................................................. 7
Exchange Privilege .................................................... 7
Dividend, Distribution and Reinvestment Policy ........................ 9
Tax Matters ........................................................... 9
Custodian, Transfer Agent and
Dividend Disbursing Agent ........................................... 10
Counsel and Independent Auditors ...................................... 10
Other Information ..................................................... 11
LEXINGTON
LEXINGTON
TAX
FREE
MONEY
FUND, INC.
----------------------------------o---------------------------------
o No sales charge
o No redemption fee
o Free check writing service
o Free telephone exchange privilege
----------------------------------o---------------------------------
The Lexington Group
of
NO LOAD
Investment Companies
PROSPECTUS
MAY 1, 1997
==============
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This statement of additional information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Tax Free Money
Fund, Inc.(the "Fund"), dated May 1, 1997, as it may be revised from time to
time. To obtain a copy of the Fund's prospectus at no charge, please write to
the Fund at P.O. Box 1515/Park 80 West- Plaza Two, Saddle Brook, New Jersey
07663 or call the following toll-free numbers:
Shareholder Services Information:-- 1-800-526-0056
24 Hour Account Information:-- 1-800-526-0052
Lexington Management Corporation ("LMC") serves as the Fund's investment
adviser. Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
TABLE OF CONTENTS
Page
Investment Policy ..................................................... 2
Yield Calculation ..................................................... 2
Investment Restrictions ............................................... 3
Investment Adviser, Distributor and Administrator ..................... 4
Portfolio Transactions ................................................ 6
Determination of Net Asset Value ...................................... 6
Dividend, Distribution and Reinvestment Policy ........................ 6
Tax Matters ........................................................... 7
Custodian, Transfer Agent and Dividend Disbursing Agent ............... 10
Management of the Fund ................................................ 10
Appendix .............................................................. 13
Financial Statements .................................................. 15
1
<PAGE>
INVESTMENT POLICY
The fundamental investment objective of the Fund is to seek current income
exempt from Federal income taxes while also maintaining stability of principal,
liquidity and preservation of capital.
The Fund will seek to achieve its goal through investment in short term
municipal securities issued by states, territories, and possessions of the
United States and by The District of Columbia, and their political subdivisions,
and duly constituted authorities and corporations. It will limit its portfolio
purchases, as well as the underlying securities of repurchase agreements entered
into by it, to those United States dollar denominated instruments which its
Board of Directors determines present minimal credit risks and which are of
"high quality" as determined by any major rating service (such as Standard &
Poor's Corporation or Moody's Investors Service, Inc.) or, in the case of any
instruments that are not rated, are of a quality comparable to such rated
instruments as determined by its Board of Directors. The Fund will enter into
repurchase agreements only with commercial banks and dealers in U.S. Government
securities. Repurchase agreements when entered into with dealers, will be fully
collateralized including the interest earned thereon during the entire term of
the agreement. If the institution defaults on the repurchase agreement, the Fund
will retain possession of the underlying securities. In addition, if bankruptcy
proceedings are commenced with respect to the seller, realization on the
collateral may be delayed or limited and the Fund may incur additional costs. In
such case the Fund will be subject to risks associated with changes in the
market value of the collateral securities. The Fund intends to limit repurchase
agreements to institutions believed by LMC to present minimal credit risks. The
Fund will maintain a dollar weighted average portfolio maturity of not more than
90 days and will not acquire any portfolio security with a remaining maturity of
more than thirteen months (397 days).
The Fund may also hold cash and invest in obligations, the interest from
which may be subject to Federal income tax, so long as at least 80% of the
Fund's net income is derived from securities, the income from which, in the
opinion of Counsel for the issuers thereof, is exempt from Federal income tax;
provided, however, the Fund may invest in instruments yielding taxable income
equal to or exceeding 20% of the Fund's net income in extraordinary
circumstances when adverse market conditions dictate a defensive position. Any
net income earned from taxable instruments will be taxable to shareholders of
the Fund as ordinary income, except to the extent that individual taxpayers may
exclude such income pursuant to the combined dividend and interest received
exclusion (see "Federal Income Taxation"). The investment policies set forth in
the three preceding paragraphs are fundamental policies and may not be changed
without approval of the shareholders.
The Fund restricts its purchases of municipal securities to those rated not
lower than AA or Aa or MIG-2 (see "Appendix"), or municipal securities which
either have been issued by an issuer having outstanding debt securities rated
not lower than AA or Aa or MIG-2 or are specifically determined by the Fund's
Board of Directors to be of high quality and represent minimal credit risks. Any
municipal security which depends on the credit of the Federal government will be
regarded as having a rating of AAA or Aaa. Purchases of tax exempt instruments
such as municipal commercial paper (which are also known as short term discount
notes) will be limited to those obligations rated A-l or Prime-l (see
"Appendix") or unrated obligations of equivalent quality, as determined by the
Board of Directors. Municipal commercial paper or short term discount notes are
short term obligations of municipalities which are likely to be used to meet
seasonal working capital needs of municipalities or interim construction
financing and to be paid from general revenues of the municipalities or
refinanced with long term debt. In most cases, such obligations are backed by
letters of credit, not repurchase agreements or other credit facility agreements
offered by banks or other institutions.
YIELD CALCULATION
The Fund provides current yield and effective yield quotations, which are
calculated in accordance with the regulations of the Securities and Exchange
Commission, based upon changes in account value during a recent seven-day base
period.
Current yield quotations are computed by annualizing (on a 365-day basis)
the "base period return". The "base period return" is computed by determining
the net change exclusive of capital changes in the value of the account, divided
by the value of the account at the beginning of the base period. Effective yield
is computed by compounding the "base period return". Based upon dividends
actually credited to the shareholders' accounts (I.E.: based upon net investment
income), the current yield to an investor in the Fund during the last seven
calendar days of its fiscal year ended December 31, 1996 was at an annual rate
of 2.79% and the effective yield was at an annual rate of 2.83%. The average
weighted maturity of investments was 42 days. The current and effective yield
are affected by market conditions, portfolio quality, portfolio maturity, type
of instruments held and operating expenses. The Fund attempts to keep its net
asset value per share at $1.00, but attainment of this objective is not
guaranteed. This Statement of Additional Information may be in use for a full
year and it can be expected that these yields will fluctuate substantially from
the example shown above.
2
<PAGE>
The current and effective yield figures are not a representation of future
yield as the Fund's net income and expenses will vary based on many factors,
including changes in short term money market yields generally and the types of
instruments in the Fund's portfolio. The stated yield of the Fund may be useful
in reviewing the Fund's performance and in providing a basis for comparison with
other investment alternatives. However, unlike bank deposits and other
investments which pay fixed yields for stated periods of time, the yield of the
Fund fluctuates. In addition, other investment companies may calculate yield on
a different basis and may purchase securities for their portfolios which have
different qualities and maturities than those of the Fund's portfolio
securities.
EQUIVALENT YIELDS: TAX EXEMPT VERSUS TAXABLE SECURITIES
The following table shows the effect of the tax status of municipal bonds,
notes and commercial paper on the effective yield received by their holders
under the Federal income tax laws. It gives the approximate yield a taxable
security must earn at various income brackets to produce after tax yields
equivalent to those of tax exempt municipal bonds, notes and commercial paper.
The table, which is based on tax rates in effect on the date of this
Prospectus, provides separate computations for taxpayers who file joint or
individual returns. Of course, no assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that the Fund will
invest principally in obligations the interest from which is exempt from Federal
income tax, other income received by the Fund may be taxable. The table does not
take into account state or local taxes, if any, payable on Fund distributions.
<TABLE>
<CAPTION>
COMPARISON OF TAXABLE AND TAX-FREE YIELDS
MARGINAL
TAXABLE INCOME FEDERAL TAX-EXEMPT YIELD
JOINT RETURNS SINGLE RETURNS TAX RATE 1.5% 2% 3% 4% 5% 6% 7%
- -------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
$0 - $41,199 $0 - $24,649 15% 1.8 2.4 3.5 4.7 5.9 7.1 8.2
$41,200-$99,599 $24,650-$59,749 28% 2.1 2.8 4.2 5.6 6.9 8.3 9.7
$99,600-$151,749 $59,750-$124,649 31% 2.2 2.9 4.3 5.8 7.2 8.7 10.1
$151,750-$271,049 $124,650-$271,049 36% 2.3 3.1 4.7 6.3 7.8 9.4 10.9
$271,050+ $271,050+ 39.6% 2.5 3.3 5.0 6.6 8.3 9.9 11.6
</TABLE>
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as Federal and state
regulatory limitations. The investment restrictions are matters of fundamental
policy and may not be changed without the affirmative vote of the lesser of (a)
50% of the outstanding shares of the Fund or (b) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares of the Fund are
represented at the meeting in person or by proxy.
The Fund shall not: (l) issue senior securities; (2) borrow money, except
from banks as a temporary measure for extraordinary or emergency purposes and
not for investment purposes or through "reverse repurchase agreements"; no
borrowing shall be made if such borrowing, combined with any then outstanding
borrowings, shall exceed 5% of the Fund's total assets; (3) underwrite
securities of other issuers; (4) concentrate its investments to an extent
greater than 25% of the value of its total assets in either (a) securities of
issuers located in a single state or (b) revenue bonds which derive revenue from
projects of a similar type or class of facilities; these limitations not being
applicable to securities issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities, or to certificates of deposit or banker's
acceptances; (5) purchase or sell real estate, commodity contracts or
commodities or invest in interests in oil, gas or other mineral exploration or
development programs (however, the Fund may purchase municipal bonds secured by
real estate or interests herein); (6) make loans to other persons except (a)
through the purchase of a portion or portions of an issue or issues of municipal
bonds or notes or other publicly distributed bonds, notes, debentures and
evidences of indebtedness authorized by its investment policy, or (b) through
investments in "repurchase agreements" (which are arrangements under which the
Fund acquires a debt security subject to an obligation of the seller to
repurchase it at a fixed price within a short fixed period), provided that no
more than 10% of the Fund's assets may be invested in repurchase agreements
which mature in more than seven days; or (c) through loans of securities held in
the Fund's portfolio to responsible borrowers and subject to 100% collateral
requirements in accordance with guidelines established by the Fund's directors
and applicable federal regulations; (7) purchase the securities of another
investment company or investment trust, except in the open market and then only
if no profit, other than the customary broker's commission, results to a sponsor
or dealer, or by merger or other reorganization; (8) purchase any security on
margin or effect a short sale of a security; (9) buy securities from or sell
securities (other than securities issued by the Fund) to any of its officers,
directors or its investment adviser, as principal; (10) contract to sell any
security or evidence of interest therein, except to the extent that the same
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shall be owned by the Fund; (11) purchase or retain securities of an issuer when
one or more of the officers and directors of the Fund or of the investment
adviser, or a person owning more than 10% of the stock of either, own
beneficially more than 1/2 of 1% of the securities of such issuer and such
persons owning more than 1/2 of 1% of such securities together own beneficially
more than 5% of the securities of such issuer; (12) invest more than 5% of its
total assets in the securities of any one issuer (except securities issued or
guaranteed by the United States Government or any of its agencies or
instrumentalities), except that such restriction shall not apply to 25% of the
Fund's portfolio; (13) purchase an industrial revenue bond if as a result of
such purchase more than 5% of total Fund assets would be invested in industrial
revenue bonds where the payment of principal and interest are the responsibility
of a company with less than three years' operating history; (14) purchase any
security restricted as to disposition under Federal securities laws; or (15) buy
or sell puts, calls or other options.
For the purposes of these limitations, each government subdivision, (county,
city) and any subdivision, agency or instrumentality thereof (school district,
authority) shall be considered as a separate issuer. If a security is guaranteed
as to principal and interest the guarantor may be considered as the issuer. If
the security is backed only by the assets or revenues of a specific entity, that
entity shall be deemed the issuer.
With regard to restriction (6) (b) above, the Fund will enter into
repurchase agreements only with commercial banks and primary dealers in U.S.
government securities.
The Fund's investment portfolio may include repurchase agreements ("repos")
with banks and dealers in U.S. Government securities. A repurchase agreement
involves the purchase by the Fund of an investment contract from a bank or a
dealer in U.S. Government securities which contract is secured by debt
securities whose value is equal to or greater than the value of the repurchase
agreement including the agreed upon interest. The agreement provides that the
institution will repurchase the underlying securities at an agreed upon time and
price. The total amount received on repurchase would exceed the price paid by
the Fund, reflecting an agreed upon rate of interest for the period from the
date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the underlying securities. The difference
between the total amount to be received upon the repurchase of the securities
and the price paid by the Fund upon their acquisition is accrued daily as
interest. If the institution defaults on the repurchase agreement, the Fund will
retain possession of the underlying securities. In addition, if bankruptcy
proceedings are commenced with respect to the seller, realization on the
collateral by the Fund may be delayed or limited and the Fund may incur
additional costs. In such case the Fund will be subject to risks associated with
changes in the market value of the collateral securities. The Fund intends to
limit repurchase agreements to transactions with institutions believed by LMC to
present minimal credit risk.
Payment of interest expense by the Fund in connection with borrowing
permitted under its investment restrictions would have the effect of reducing
the Fund's yield to its shareholders. Although the Fund has the right to pledge,
mortgage or hypothecate its assets, in order to comply with a state statute the
Fund will not, as a matter of operating policy while offering shares in such
state, pledge, mortgage or hypothecate its portfolio securities to the extent
that at any time the percentage of pledged securities will exceed 10% of the
total net assets of the Fund.
Lending of portfolio securities: As stated in number (6) above, subject to
guidelines established by the directors and by the Securities and Exchange
Commission, the Fund from time-to-time, may lend portfolio securities to
brokers, dealers, corporations or financial institutions and receive collateral
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Such collateral will be either
cash or fully negotiable U.S. Treasury or agency issues. If cash, such
collateral will be invested in short term securities, the income from which will
increase the return to the Fund. However, a portion of such incremental return
may be shared with the borrower. If securities, the usual procedure will be for
the borrower to pay a fixed fee to the Fund for such time as the loan is
outstanding. The Fund will retain substantially all rights of beneficial
ownership as to the loaned portfolio securities including rights to interest or
other distributions and will have the right to regain record ownership of loaned
securities in order to exercise such beneficial rights. Such loans will be
terminable at any time. The Fund may pay reasonable fees to persons unaffiliated
with it in connection with the arranging of such loans. Also, the Fund has
undertaken not to invest in real estate limited partnership interests, oil, gas
or mineral leases, as well as exploration or development programs. The Fund will
not purchase warrants except in units with other securities in original issuance
thereof or attached to other securities, if at the time of purchase, the Fund's
investment in warrants, valued at the lower of cost or market, would exceed 5%
of the Fund's total assets. Warrants which are not listed on the New York or
American Stock Exchanges shall not exceed 2% of the Fund's net assets. Shares of
the Fund will not be issued for consideration other than cash.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC, P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, New Jersey 07663,
is the investment adviser to the Fund and, as such, advises and makes
recommendations to the Fund with respect to its investments and investment
policies.
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Pursuant to an investment advisory agreement the Fund will pay LMC an annual
investment advisory fee equal to 0.5% of its average daily net assets up to $150
million, 0.4% of such value in excess of $150 million up to $400 million; 0.35%
of such value in excess of $400 million up to $800 million; and 0.3% of such
value in excess of $800 million, after deduction of Fund expenses, if any, in
excess of the expense limitations set forth below. The fee is computed on the
basis of current net assets at the end of each business day and is payable at
the end of each month. The investment advisory agreement provides that LMC must
also pay the Fund monthly the amount by which all of the Fund's other expenses
(including the investment advisory fee) exclusive of interest and taxes exceed
1% of the Fund's net assets during any fiscal year, calculated by averaging such
net assets daily.
Under the terms of the advisory agreement LMC also pays the Fund's expenses
for office rent, utilities, telephone, furniture and supplies utilized for the
Fund's principal office and the salaries and payroll expense of officers and
directors of the Fund who are also employees of LMC or its affiliates in
carrying out its duties under the investment advisory agreement. The Fund pays
all its other expenses, including custodian and transfer fees, legal and
registration fees, audit fees, printing of prospectuses, shareholder reports and
communications required for regulatory purposes or for distribution to existing
shareholders, computation of net asset value, mailing of shareholder reports and
communications, portfolio brokerage, taxes and independent directors' fees, and
furnishes the Distributor, at printer's overrun cost paid by the Distributor,
such copies of its prospectus, annual, semiannual and other reports and
shareholder communications as may reasonably be required for sales purposes. In
addition, the Fund will bear any costs associated with the securities loan
program (any such loans will increase the return to shareholders).
LMC's services are provided and its investment advisory fee is paid pursuant
to an agreement which will automatically terminate if assigned and which may be
terminated by either party upon 60 days' notice. The terms of the agreement and
any renewal thereof must be approved at least annually by a majority of the
Fund's Board of Directors, including a majority of directors who are not parties
to the agreement or "interested persons" of such parties, as such term is
defined under the Investment Company Act of 1940, as amended.
LMC serves as investment adviser to other investment companies and to
private and institutional investment accounts. Included among these clients are
persons and organizations which own significant amounts of capital stock of
LMC's parent (see below). These clients pay fees which LMC considers comparable
to the fee levels for similarly served clients.
LMC's accounts are managed independently with reference to the applicable
investment objectives and current security holdings, but on occasion more than
one investment company or counsel account may seek to engage in transactions in
the same security at the same time. To the extent practicable, such transactions
will be made on a pro rata basis in proportion to the respective amounts of
securities to be bought and sold for each portfolio, and the allocated
transactions will be averaged as to price. While this procedure may adversely
affect the price or volume of a given Fund transaction, LMC believes that the
ability of the Fund to participate in combined transactions may generally
produce better executions overall. LMC received from the Fund under the advisory
agreement the following net fees as of the fiscal year ended December 31, 1994,
$199,643; December 31, 1995, $168,718 and December 31, 1996, $113,774.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian of, transfer agent and provides facilities for such
services. The Fund pays LMC a fee, payable monthly, equal to the pro-rata
portion of LMC\AIs actual cost in providing such services and facilities.
LFD also serves as Distributor for Fund shares under a Distribution
Agreement which is subject to annual approval by a majority of the Fund's Board
of Directors, including a majority who are not "interested persons". Of the
Directors, executive officers, and employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Jamison, Kantor, Lavery, and Luehs,
and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca (see "Management of the
Fund") may also be deemed affiliates of LMC by virtue of being officers,
directors or employees thereof. As of March 1, 1997, all officers and Directors
of the Fund as a group owned less than 1% of record capital shares of the Fund.
LMC and LFD are wholly-owned subsidiaries of Lexington Global Asset
Managers, Inc., a Delaware corporation with offices at Park 80 West Plaza Two,
Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities have a majority voting control of
outstanding shares of Lexington Global Asset Managers, Inc.
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PORTFOLIO TRANSACTIONS
Portfolio securities are normally purchased directly from an underwriter or
dealer in municipal securities. Therefore, usually no brokerage commissions are
paid by the Fund. Transactions are allocated to various dealers by the Fund and
LMC in their best judgment. Dealers are selected primarily on the basis of
prompt execution of orders at the most favorable prices. The Fund has no
obligation to deal with any dealer or group of dealers. Particular dealers may
be selected for research or statistical and other services to enable LMC to
supplement its own research and analysis with that of such firms. Information so
received will be in addition to an not in lieu of the services required to be
performed by LMC under the investment advisory agreement and the expenses of LMC
will not necessarily be reduced as a result of the receipt of such supplemental
information. For the fiscal years ended December 31, 1994, 1995 and 1996 all
portfolio transactions were effected on a net basis through dealers acting as
principal and, accordingly, no brokerage commissions were payable.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined as of the close of trading on
the New York Stock Exchange each day the Exchange is open for business and at
such other times and/or such other days as there is sufficient trading in short
term municipal securities to affect materially the Fund's net asset value per
share. Substantially all of the Fund's net income calculated from the
immediately preceding determination of net income, is declared daily as
dividends (see "Dividend, Distribution and Reinvestment Policy").
For the purpose of determining the price at which shares are issued and
redeemed, the net asset value per share is calculated immediately after the
daily dividend declaration by: (a) valuing all securities and instruments as set
forth below; (b) deducting the Fund's liabilities; and (c) dividing the
resulting amount by the number of shares outstanding. As discussed below, it is
the intention of the Fund to maintain a net asset value per share of $1.00. The
Fund's portfolio instruments are valued on the basis of amortized cost. This
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
the Fund would receive if it sold its portfolio. During periods of declining
interest rates, the daily yield on shares of the Fund computed as described
above may be higher than a like computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by the Fund results in a lower aggregate portfolio value
on a particular day, a prospective investor in the Fund would be able to obtain
a somewhat higher yield than would result from an investment in a fund utilizing
solely market values, and existing investors in the Fund would receive less
investment income. The converse would apply in a period of rising interest
rates.
The Fund's use of amortized cost and the maintenance of the Fund's per share
net value at $1.00 is based on its election to operate under the provisions of
Rule 2a-7 under the Investment Company Act of 1940. As a condition of operating
under that rule, the Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 13 months (397 days) or less, and invest only in securities which
are determined by the Board of Directors to present minimal credit risks and
which are of high quality as determined by any major rating service, or in the
case of any instrument not so rated, considered by the Board of Directors to be
of comparable quality.
The Board of Directors has also agreed, as a particular responsibility
within the overall duty of care owed to its shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the net asset value per share
as computed for the purposes of sales and redemptions at $1.00. These procedures
include periodic review, as the Board deems appropriate and at such intervals as
are reasonable in light of current market conditions, of the relationship
between the amortized cost value per share and a net asset value per share based
upon available indications of market value. In such review, investments for
which market quotations are readily available are valued at the most recent bid
price or quoted yield equivalent for such securities or for securities of
comparable maturity, quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other investments and assets are
valued at fair value, as determined in good faith by the Board of Directors.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund declares and reinvests daily, dividends from its net investment
income and distributes such dividends on the last day of each month. Dividends
or distribution payments will be reinvested at net asset value in additional
full and fractional shares of the Fund unless and until the shareholder notifies
State Street Bank and Trust Company, N.A., (the "Agent") in writing that he
wants to receive his payments in cash. This request must be received by the
Agent at least seven days before the payment date. Upon receipt by the Agent of
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such written notice, all further payments will be made in cash until written
notice to the contrary is received. An account of such shares owned by each
shareholder will be maintained by the Agent. Shareholders whose accounts are
maintained by the Agent will have the same rights as other shareholders with
respect to shares so registered (see "How to Purchase Shares - An Open Account"
in the Prospectus).
Since substantially all of the net income will be declared as dividends each
time the net asset value of the Fund is determined, the net asset value per
share will normally remain at one dollar per share immediately after such
dividend declaration and determination (see "Investment Policy").
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Distributions by the Fund made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). For purposes of these calculations,
gross income includes tax-exempt income. However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased by
the Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the debt
obligation.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
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cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax.)
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will not qualify for the 70% dividends-received deduction
for corporate shareholders.
The Fund does not expect to realize any long-term capital gains or losses.
The Fund intends to qualify to pay exempt-interest dividends by satisfying
the requirement that at the close of each quarter of the Fund's taxable year at
least 50% of the Fund's total assets consists of tax-exempt municipal
obligations. Distributions from the Fund will constitute exempt-interest
dividends to the extent of the Fund's tax-exempt interest income (net of
expenses and amortized bond premium). Exempt-interest dividends distributed to
shareholders of the Fund are excluded from gross income for federal income tax
purposes. However, shareholders required to file a federal income tax return
will be required to report the receipt of exempt-interest dividends on their
returns. Moreover, while exempt-interest dividends are excluded from gross
income for federal income tax purposes, they may be subject to alternative
minimum tax ("AMT") in certain circumstances and may have other collateral tax
consequences as discussed below. Distributions by the Fund of any investment
company taxable income will be taxable to shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for noncorporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount. In
addition, under the Superfund Amendments and Reauthorization Act of 1986, a tax
is imposed for taxable years beginning after 1986 and before 1996 at the rate of
0.12% on the excess of a corporate taxpayer's AMTI (determined without regard to
the deduction for this tax and the AMT net operating loss deduction) over $2
million. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and noncorporate
taxpayers. In addition, exempt-interest dividends derived from all municipal
obligations, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
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Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income and subject to federal
income tax. Further, a shareholder of the Fund is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry shares of
the Fund. Moreover, a shareholder who is (or is related to) a "substantial user"
of a facility financed by industrial development bonds held by the Fund will
likely be subject to tax on dividends paid by the Fund which are derived from
interest on such bonds. Receipt of exempt-interest dividends may result in other
collateral federal income tax consequences to certain taxpayers, including
financial institutions, property and casualty insurance companies and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisers as to such consequences.
Distributions by the Fund that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation or
other "exempt recipient."
SALE OR REDEMPTION OF SHARES
The Fund seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Fund will do this. In such a case, a
shareholder will recognize gain or loss on the sale or redemption of shares of
the Fund in an amount equal to the difference between the proceeds of the sale
or redemption and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss so recognized may be disallowed if the shareholder purchases
other shares of the Fund within 30 days before or after the sale or redemption.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of the Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. However, any capital loss arising from the sale or redemption of
shares held for six months or less will be disallowed to the extent of the
amount of exempt-interest dividends received on such shares.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund and exempt-interest dividends.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends and
any gains realized upon the sale of shares of the Fund will be subject to U.S.
federal income tax at the rates applicable to U.S. citizens or domestic
corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of its
foreign status.
9
<PAGE>
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income and exempt-interest
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Fund.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as the custodian for the Fund's investments and
assets. State Street Bank and Trust company, 225 Franklin Street, Boston,
Massachusetts 02110 is the transfer agent and dividend disbursing agent for the
Fund. Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company
have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
+S.M.S. CHADHA(59), Director. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of
India; Director, Special Unit for Technical Cooperation among Developing
Countries, United Nations Development Program, New York.
*+ROBERT M. DeMICHELE(52), President and Chairman. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers, Inc.;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.;
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc.; Director, Chartwell Re Corporation, Claredon
National Insurance Company, The Navigator's Group, Inc., Unione Italiana
Reinsurance, Vanguard Cellular Systems, Inc. and Weeden &Co.; Vice Chairman
of the Board of Trustees, Union College and Trustee, Smith Richardson
Foundation.
+BEVERLEY C. DUER (67), Director. 340 East 72nd Street, New York, N.Y. 10021.
Private Investor; formerly Manager of Operations Research Department, CPC
International, Inc.
*+BARBARA R. EVANS (36), Director. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation. Prior to March 1987, V.P.
Institutional Equity Sales - L.F. Rothschild, Unterberg, Towbin.
*+LAWRENCE KANTOR (50), Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc.; Executive Vice President and General
Manager -- Mutual Funds, Lexington Global Asset Managers, Inc.
+JERARD F. MAHER (50), Director. 300 Raritan Center Parkway, Edison, N.J. 08818.
General Counsel, Federal Business Center; Counsel, Ribis, Graham &Curtin.
+ANDREW M. McCOSH(56), Director. 12 Wyvern Park, Edinburgh EH92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business STudies, The University of Edinburgh, Scotland.
+DONALD B. MILLER, Director. 10725 Quail Covey Road, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director,
Maguire Group of Connecticut; prior to January 1989, President, C.E.O. and
Director, Media General Broadcast Services (advertising firm).
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts 02181.
Associate Professor of Finance, Boston College, Boston, Massachusetts.
+MARGARET W. RUSSELL, Director. 55 North Mountain Avenue, Montclair, N.J. 07042.
Private Investor, formerly Community Affairs Director, Union Camp
Corporation.
*+DENIS P. JAMISON, Vice President and Portfolio Manager. P.O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President, Director of Fixed Income
Investment Strategy, Lexington Management Corporation. Mr. Jamison is a
Chartered Financial Analyst and a member of the New York Society of Security
Analysts.
10
<PAGE>
*+LISA A. CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chief Financial Officer, Managing Director and Director,
Lexington Management Corporation; Chief Financial Officer, Vice President
and Director, Lexington Funds Distributor, Inc; Chief Financial Officer,
Market Systems Research Advisors, Inc..
*+RICHARD J. LAVERY, CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to October 1992, Senior Accountant, KPMG Peat Marwick.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to November, 1993, Supervisor Investment Accounting, Alliance Capital
Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+PETER CORNIOTES, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J. 07663.
Assistant Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington Group
of Investment Companies.
- ---------------
*"Interested person" and/or "affiliated person" of LMC as defined in the
Investment Company Act of 1940, as amended.
+Messrs. Chadha Corniotes, DeMichele, Duer, Faust, Hisey, Jamison, Kantor,
Lavery, Luehs, Maher, McCosh, Miller, Preston, and Mmes. Carnicelli, Carr,
Curcio, Evans, Gilfillan, Mosca and Russell hold similar offices with some
or all of the other registered investment companies advised and/or
distributed by Lexington Management Corporation and Lexington Funds
Distributor, Inc.
The Board of Directors met 5 times during the twelve months ended December
31, 1996, and each of the Directors attended at least 75% of those meetings.
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS:
Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof. Each Director who is not an
affiliate of the advisor is compensated for his or her services according to a
fee schedule which recognizes the fact that each Director also serves as a
Director of other investment companies advised by LMC. Each Director receives a
fee, allocated among all investment companies for which the Director serves.
Effective September 12, 1995 each Director receives annual compensation of
$24,000. Prior to September 12, 1995, the Directors who were not employed by the
Fund or its affiliates received annual compensation of $16,000.
<PAGE>
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1996 to December 31, 1996 for each Director:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AGGREGATE TOTAL COMPENSATION FROM NUMBER OF
NAME OF DIRECTOR COMPENSATION FROM FUND FUND AND FUND COMPLEX DIRECTORSHIPS IN FUND COMPLEX
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $856 $13,696 16
- ----------------------------------------------------------------------------------------------------
Robert M. DeMichele 0 0 17
- ----------------------------------------------------------------------------------------------------
Beverley C. Duer $1,712 $29,110 17
- ----------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 16
- ----------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 16
- ----------------------------------------------------------------------------------------------------
Jerard F. Maher $856 $16,046 17
- ----------------------------------------------------------------------------------------------------
Andrew M. McCosh $856 $13,696 16
- ----------------------------------------------------------------------------------------------------
Donald B. Miller $1,712 $26,760 16
- ----------------------------------------------------------------------------------------------------
Francis Olmsted* $1,068 $16,800 N/A
- ----------------------------------------------------------------------------------------------------
John G. Preston $1,712 $26,760 16
- ----------------------------------------------------------------------------------------------------
Margaret Russell $1,712 $25,048 16
- ----------------------------------------------------------------------------------------------------
Philip C. Smith $1,600 $25,080 16
- ----------------------------------------------------------------------------------------------------
Francis A. Sunderland* $744 $10,528 N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Retired
11
<PAGE>
RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Director in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Director upon retirement assuming various compensation and years of
service classifications. As of December 31, 1996, the estimated credited years
of service for Director Chadha, Duer, Maher, McCosh, Miller, Preston, and
Russell are 1, 18, 1, 1, 22, 18, and 15, respectively.
<TABLE>
<CAPTION>
HIGHEST ANNUAL COMPENSATION PAID BY ALL FUNDS
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$20,000 $25,000 $30,000 $35,000
YEARS OF
SERVICE ESTIMATED ANNUAL BENEFIT UPON RETIREMENT
------ -------------------------------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
</TABLE>
12
<PAGE>
APPENDIX
MUNICIPAL SECURITIES AND OTHER INVESTMENTS: Municipal bonds include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets, water and
sewer works, and gas and electric utilities. Municipal bonds may also be issued
in connection with the refunding of outstanding obligations, and obtaining funds
to lend to other public institutions and facilities or for general operating
expenses. In addition, certain types of industrial development bonds are issued
by or on behalf of public authorities to obtain funds to provide various
privately operated facilities for business and manufacturing, housing, sports,
conventions or trade shows, pollution control, and airport, mass transit, port
and parking facilities. Such obligations are included within the term municipal
securities if the interest paid thereon is exempt from federal income tax .
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. In some instances, the taxes that can be levied for the
payment of debt service may be limited as to rate, amount or special
assessments. Revenue bonds are payable only from the revenue derived from a
particular facility or class of facilities, or, in some cases, from the proceeds
of a special excise tax or other specific revenue source. Although industrial
development bonds are issued by municipal authorities, they are generally not
secured by the taxing power of the municipality but are secured by the revenues
derived from payments from specific projects by the industrial user.
There are, in addition to the two principal classifications described above,
a variety of hybrid and special types of municipal obligations as well as
numerous differences in the security of municipal bonds.
Municipal notes include tax, revenue and bond anticipation notes of short
maturity, generally less than three years, which are issued to obtain funds for
various public purposes.
Project notes are issued by local public agencies created under the laws of
a state, territory or U. S. possession and have maturities of up to one year.
They generally relate to financing of housing, redevelopment or urban renewal
programs and are backed by agreements between the issuing agencies and the U. S.
Department of Housing and Urban Development . Thus, while the local agency
issuing project notes is the primary obligor, such notes are secured by the full
faith and credit of the U. S. Government. Ratings of Municipal Bonds: The four
highest ratings of Moody's for municipal bonds are Aaa, Aa, A and Baa. Municipal
bonds rated Aaa are judged to be of the "best quality". The rating of Aa is
assigned to municipal bonds which are of "high quality by all standards",
together with the Aaa group they comprise what are generally known as "high
grade bonds". They are rated lower than Aaa bonds because margins of protection
may not be as large or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than Aaa securities. Municipal bonds rated A possess many
favorable investment attributes and are considered "upper medium grade
obligations". Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future. Municipal bonds rated Baa are considered
"medium grade" obligations. They are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
The four highest ratings of Standard & Poor's for municipal bonds are AAA
(Prime), AA (High Grade), A (Good Grade) and BBB (Medium Grade). Municipal bonds
rated AAA are "obligations of the highest quality". The rating of AA is accorded
issues with investment characteristics "only slightly less marked than those of
the prime quality issues". The category of A describes "the third strongest
capacity for payment of debt service". Principal and interest payments on bonds
in this category are regarded as safe. It differs from the two higher ratings
because, with respect to general obligation bonds, there is some weakness,
either in the local economic base, in debt burden, in the balance between
revenues and expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer to
meet debt obligations at some future date. With respect to revenue bonds, debt
service coverage is good, but not exceptional. Stability of the pledged revenues
could show some variations because of increased competition or economic
influences on revenues. Basic security provisions, while satisfactory, are less
stringent. Management performance appears adequate. The BBB rating is the lowest
"investment grade" security rating. The difference between A and BBB ratings is
that the latter shows more than one fundamental weakness, or one very
substantial fundamental weakness, whereas the former shows only one deficiency
among the factors considered. With respect to revenue bonds, debt coverage is
only fair. Stability of the pledged revenues could show substantial variations,
with the revenue flow possibly being subject to erosion over time. Basic
security provisions are no more than adequate and management performance could
be stronger.
MOODY'S RATING OF MUNICIPAL NOTES:
MIG 1: the best quality, enjoying strong protection from established cash
flows of funds for their servicing or from established and broad-based access to
the market for refinancing, or both.
13
<PAGE>
MIG 2: high quality, with margins of protection ample although not so large
as in the preceding group.
MIG 3: favorable quality, with all security elements accounted for but
lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MUNICIPAL COMMERCIAL PAPER RATINGS: Commercial paper rated A-l by Standard &
Poor's has the following characteristics: Liquidity ratios are adequate to meet
cash requirements. Long term senior debt is rated "A" or better, although in
some cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with an
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are questioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-l, A-2 or A-3.
The rating Prime-l is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (l) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to the competition and customer acceptance;
(4) liquidity; (5) amount and quality of long term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or which may arise as a result of public
interest questions and preparations to meet such obligations.
14
<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 Leasing Program** ....... 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>
15
<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
---------
SOUTHCAROLINA: 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>
16
<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
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
* 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>
---------------------------------------------
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
ASSETS
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
===========
The Notes to Financial Statements are an integral part of these statements.
17
<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
==========
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENTS OF CHANGES INNET ASSETS
Years ended December 31, 1996 and 1995
1996 1995
---------- ----------
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.
18
<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
Transactions (at $1.00 per share) in capital stock were as follows:
Year ended Year ended
December 31, December 31,
1996 1995
----------- ------------
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)
========== ==========
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.
19
<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
20
<PAGE>
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1996 was filed
electronically on February 27, 1997 (as form type N-30D). Financial statements
from this 1996 Annual Report have been included in the Statement of Additional
Information.
Page in the Statement
(a) Financial statements: of Additional Information
--------------------- -------------------------
Report of Independent Auditors 14
dated February 14, 1997
Statement of Net Assets (Including 15
the Portfolio of Investments) at
December 31, 1996 (1)
Statement of Assets and Liabilities 18
at December 31, 1996
Statement of Operations for the year 19
ended December 31, 1996 (2)
Statements of Changes in Net Assets for 19
the years ended December 31, 1996
and 1995
Notes to Financial Statements 20
Schedules II-VII and other Financial Statements, for
which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission,
are omitted because they are not required under the
related instructions, they are inapplicable, or the
required information is presented in the financial
statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of
Realized Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
----------------------------------------
(b) Exhibits:
1. Articles of Incorporation - Filed electronically
2. By-Laws - Filed electronically
3. Not Applicable
4. Stock Certificate Specimen - Filed 9/27/77 -
Incorporated by reference
5. Investment Advisory Agreement between
Registrant and Lexington Management Corporation -
Filed electronically on April 29, 1996 -
Incorporated by reference
6. Distribution Agreement between Registrant and
Lexington Funds Distributor, Inc. - Filed electronically
7. Not Applicable
8. Form of Custodian Agreement between
Registrant and Chase Manhattan Bank, N.A.- Filed
electronically 4/28/95 - Incorporated by reference
9a. Transfer Agency Agreement between Registrant and
State Street Bank and Trust Company - filed
electronically on April 29, 1996 - Incorporated by reference
9b. Form of Administrative Services Agreement
between Registrant and Lexington Management
Corporation - Filed electronically 4/28/95 -
Incorporated by reference
10. Opinion of Counsel as to Legality of Securities being
registered - Filed 7/18/77 - Incorporated by reference
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Performance Calculation - Filed 5/2/88 -
Incorporated by reference
17. Financial Data Schedule - Filed electronically
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to
each such person indicate (1) if a company, the state or other
sovereign power under the laws of which it is organized, (2) the
percentage of voting securities owned or other basis of control by the
person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number
of record holders of each class of securities of the Registrant.
The following information is given as of April 21, 1997:
Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 1,062
($1.00 par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or
statute under which any director, officer, underwriter or affiliated
person of the Registrant is insured or indemnified in any manner
against any liability which may be incurred in such capacity, other
than insurance provided by any director, officer, affiliated person or
underwriter for their own protection.
Under the terms of the Maryland General Corporation Law and the
Company's By-Laws, the Company may indemnify any person who was or is
a director, officer or employee of the Company to the maximum extent
permitted by the Maryland General Corporation Law; provided, however,
that Company only as authorized in the specific case upon a
determination that indemnification of such persons is proper in the
circumstances. Such determination shall be made (i) by the Board of
Directors, by a majority vote of a quorum which consists of directors
who are neither "interested persons" of Company as defined in Section
2(a)(19) of the 1940 Act, nor parties to the proceeding, or (ii) if
the required quorum is not obtainable or if a quorum of such directors
so directs by independent legal counsel in a written opinion. No
indemnification will be provided by the Company to any director or
officer of the Company for any liability to the Company or
Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment
of a substantial nature in which the investment adviser of the
Registrant, and each director, officer or partner of any such
investment adviser, is or has been, at any time during the past two
fiscal years, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee.
See Prospectus Part A and Statement of Additional Information
Part B ("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Tax Free Money Fund, Inc.
Lexington Growth and Income Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Ramirez Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Strategic Silver Fund, Inc.
Lexington Convertible Securities Fund
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Lexington SmallCap Value Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- ------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa Curcio* Vice President and Secretary
Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer, Vice President and
Vice President & Director Treasurer
Lawrence Kantor* Executive Vice President Director & Vice
and Director President
Richard Lavery* Vice President Vice President
Janice Violette* Assistant Treasurer None
(c)
Not Applicable.
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document
required to be maintained by Section 31(a) of the 1940 Act and the
Rules (17 CFR 270, 31a-1 to 31a-3) promulgated thereunder, furnish the
name and address of each person maintaining physical possession of
each such account, book or other document.
The Registrant, Lexington Tax Free Money Fund, Inc., Park
80 West - Plaza Two, Saddle Brook, New Jersey 07663 will maintain
physical possession of each such account, book or other document of
the Company, except for those maintained by the Registrant's
Custodian, Chase Manhattan Bank, N.A., 1211 Avenue of the Americas,
New York, New York 10036, or Transfer Agent, State Street Bank and
Trust Company, c/o National Financial Data Services, 1004 Baltimore,
Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B of
this Form (because the contract was not believed to be material to a
purchaser of securities of the Registrant) under which services are
provided to the Registrant, indicating the parties to the contract,
the total dollars paid and by whom for the last three fiscal years.
None.
Item 32. Undertakings -
--------------
The Registrant, Lexington Tax Free Money Fund, Inc.
undertakes to furnish a copy of the Fund's latest annual
report, upon request and without charge, to every person
to whom a prospectus is delivered.
The Registrant will hold a meeting of its public shareholders, if
requested to do so by the holders of at least 10 percent of the
Registrant's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal of a director
or directors and to assist in communications with other shareholders.
<PAGE>
Registration No. 2-57786
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON TAX FREE MONEY FUND, INC.
<PAGE>
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to
this filing:
Form of Articles of Incorporation including amendments thereto
Form of By-Laws
Form of Distribution Agreement between the Registrant and Lexington Funds
Distributor
Consent of Kramer, Levin, Naftalis & Frankel
Consent of independent auditors for the inclusion of their report herein
Article 6 Financial Data Schedule
Cover
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940 the Registrant certifies that
it meets all of the requirements for effectiveness of this amendment
to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to be signed
on its behalf by the Undersigned, thereunto duly authorized, in the
City of Saddle Brook and State of New Jersey, on the 30th day of
April, 1997.
LEXINGTON TAX FREE MONEY FUND, INC.
/s/ Robert M. DeMichele
_______________________________________
By: Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of
1933, this amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Robert M. DeMichele
__________________________ Chairman of the Board April 30, 1997
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
__________________________ Principal Financial April 30, 1997
Richard M. Hisey and Accounting Officer
/s/ Lisa Curcio
__________________________ Principal Compliance April 30, 1997
Lisa Curcio Officer
*SMS Chadha Director April 30, 1997
__________________________
SMS Chadha
*Beverley C. Duer, P.E. Director April 30, 1997
__________________________
Beverley C. Duer, P.E.
*Barbara M. Evans Director April 30, 1997
__________________________
Barbara M. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Director April 30, 1997
__________________________
Lawrence Kantor
*Jerard F. Maher Director April 30, 1997
__________________________
Jerard F. Maher
*Andrew M. McCosh Director April 30, 1997
__________________________
Andrew M. McCosh
*Donald B. Miller Director April 30, 1997
__________________________
Donald B. Miller
*John G. Preston Director April 30, 1997
__________________________
John G. Preston
*Margaret W. Russell Director April 30, 1997
__________________________
Margaret W. Russell
/s/ Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
Contents of this exhibit are as follows:
Articles of Amendment (Share Issuance) dated 5/28/86
Articles of Amendment (Name Change & Authorizations) dated 4/26/83
Articles of Amendment (Name Change & Share Issuance) dated 5/1/80
Articles of Incorporation dated November 15, 1976
- -----------------------------------------------------------------------------
ARTICLES OF AMENDMENT
OF
LEXINGTON TAX FREE MONEY FUND, INC.
Lexington Tax Free Money Fund, Inc., a Maryland corporation having its
principal office in Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Articles of Incorporation of the Corporation are hereby
amended by striking out the text of Article Fourth of such Articles and
inserting in lieu thereof the following:
The aggregate number of shares which the Corporation is authorized to
issue is $1,000,000 shares of capital stock, $.01 par value, all of one
class, and of the aggregate par value of $10,000,000.
SECOND: The board of directors of the Corporation, at a meeting duly
convened and held on February 25, 1986 adopted a resolution in which was set
forth the foregoing amendment to the charter, declaring that the said
amendment of the charter was advisable and, said board of directors by vote of
majority of their entire number, approved and adopted said amendment, pursuant
to Section 603 of the Corporations and Associations Article of the Annotated
Code of Maryland. The stockholders of the Corporation approved the foregoing
amendment to the charter on April 11, 1986.
IN WITNESS WHEREOF, Lexington Tax Free Money Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereunto affixed and attested
by its Secretary or one of its Assistant Secretaries on May 27, 1986.
Attest: LEXINGTON TAX FREE MONEY FUND, INC.
_____________________________ ________________________________
Lisa Curcio Lawrence Kantor
Assistant Secretary Vice President
- ------------------------------------------------------------------------------
LEXINGTON TAX FREE DAILY INCOME FUND, INC.
ARTICLES OF AMENDMENT
LEXINGTON TAX FREE DAILY INCOME FUND, INC., a Maryland corporation having
its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by striking out
ARTICLE FIRST and inserting in lieu thereof the following:
FIRST: The name of the Corporation is Lexington Tax Free Money Fund, Inc.
ARTICLE TENTH, SUBPARAGRAPH 8: Notwithstanding any provision of the
Maryland General Corporation Law requiring a greater proportion than a
majority of the vote entitled to be cast in order to take or authorize any
action, such corporate action (including, but without limitation, any
amendment to its Articles of Incorporation) may be authorized or taken upon
the affirmative vote of the holders of a majority of the outstanding shares of
stock entitled to vote thereon.
SECOND: The board of directors of the Corporation, at a meeting duly
convened and held on February 15, 1983, adopted a resolution in which was set
forth the foregoing amendment to the charter, declaring that the said
amendment of the charter was advisable and directing that it be submitted for
action thereon at the annual meeting of the stockholders of the Corporation to
be held on April 21, 1983.
THIRD: Notice setting forth the said Amendment of charter (or a summary
of the changes to be effected by said amendment of the charter) and stating
that a purpose of the meeting of the stockholders would be to take action
thereon, was given as required by law, to all stockholders of the Corporation
entitled to vote thereon; and like notice was given to all stockholders of the
Corporation not entitled to vote thereon, whose contract rights as expressly
set forth in the charter would be altered by the amendment. The amendment of
the charter of the Corporation as hereinabove set forth was approved by the
stockholders of the Corporation at said meeting by the affirmative vote of
two-thirds of all the votes entitled to be cast thereon.
IN WITNESS WHEREOF, Lexington Tax Free Daily Income Fund, Inc. has
caused these presents to be signed in its name and on its behalf by its
President and its corporate seal to be hereunto affixed and attested by its
Secretary on April 21, 1983.
Attest: By:________________________________
Daniel Calabria, President
_________________________________
Priscilla L. Britnell, Secretary
- ------------------------------------------------------------------------------
LEXINGTON TAX FREE INCOME FUND, INC.
ARTICLES OF AMENDMENT
Lexington Tax Free Income Fund, Inc., a Maryland corporation having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article First thereof and inserting in lieu thereof the following:
"First: The name of the corporation shall be: LEXINGTON TAX FREE
DAILY INCOME FUND, INC. hereinafter called the Corporation'."
SECOND: The charter of the Corporation is hereby further amended by
striking out Article Fourth thereof and inserting in lieu thereof the
following:
"Fourth: The aggregate number of shares which the Corporation is
authorized to issue is 100,000,000 shares of capital stock, $.10
par value, all of one class and of the aggregate par value of
$10,000,000."
THIRD: The Board of Directors of the Corporation, by written consent to
such action signed by all the members thereof and filed with the minutes of
proceedings of the board, adopted resolutions in which was set forth the
foregoing amendments to the charter declaring that said amendments of the
charter were advisable and directing that they be submitted for action thereon
at the annual meeting of the stockholders of the Corporation to be held on
April 29, 1980.
FOURTH: Notice setting forth the said amendments of charter and stating
that a purpose of the meeting of the stockholders would be to take action
thereon, was given as required by law, to all stockholders of the Corporation.
The amendments of the charter of the Corporation as hereinabove set forth were
approved by the stockholders of the Corporation at said meeting by the
affirmative vote of two-thirds of all the votes entitled to be cast thereon.
FIFTH: The amendments of the charter of the Corporation as hereinabove
set forth has been duly advised by the board of directors and approved by the
stockholders of the Corporation.
SIXTH: (a) The total number of shares of all classes of stock of the
Corporation heretofore authorized, and the number and par value of the shares
of each class are as follows:
"10,000,000 shares of capital stock, $1.00 par value, all of one
class, and of the aggregate par value of $10,000,000."
(b) The total number of shares of all classes of stock of the
Corporation as increased, and the number and par value of the shares of each
class, are as follows:
"100,000,000 shares of capital stock, $.10 par value, all of one
class, and of the aggregate par value of $10,000,000.
The capital stock of the Corporation is not divided into classes.
IN WITNESS WHEREOF, Lexington Tax Free Income Fund, Inc. caused these
presents to be signed in its name and on its behalf by its President or one of
its Vice Presidents and its corporate seal to be hereunto affixed and attested
by its Secretary or one of its Assistant Secretaries, on April 29, 1980.
LEXINGTON TAX FREE INCOME FUND, INC.
________________________________ By: _______________________________
Robert C. Miller, Secretary Grover O'Neill, Jr.,
Vice President
- ------------------------------------------------------------------------------
ARTICLES OF INCORPORATION
OF
LEXINGTON TAX FREE INCOME FUND, INC.
The subscriber, PIERRE A. TONACHEL, whose post-office address is
405 Lexington Avenue, New York, N.Y. 10017, being at least eighteen
years of age, does, under and by virtue of the General Laws of the State
of Maryland authorizing the formation of corporations, execute and file
these Articles with the intention of forming a corporation.
First: The name of the corporation shall be:
LEXINGTON TAX FREE INCOME FUND, INC.
hereinafter called the Corporation.
Second: The location of the principal office of the Corporation in the
State of Maryland is c/o United States Corporation Company, 1300
Mercantile Bank and Trust Building, 2 Hopkins Plaza, Baltimore, Maryland
21201.
United States Corporation Company, 1300 Mercantile Bank and Trust
Building, 2 Hopkins Plaza, Baltimore, Maryland 21201 is designated as
resident agent therein, and upon whom process against this corporation
may be served. Said resident agent is a corporation of the State of
Maryland.
Third: The purposes for which the Corporation is formed and the nature
of the business to be transacted by it are as follows:
(1) To conduct, operate and carry on the business of an
investment company and hold, invest and reinvest its funds, and in
connection therewith to hold part or all of its funds in cash, and to
purchase or otherwise acquire, hold for investment or otherwise, sell,
assign, negotiate, transfer, exchange or otherwise dispose of or turn to
account or realize upon, securities (which term securities shall for
the purposes of this Article, without limitation of the generality
thereof, be deemed to include any stocks, shares, bonds, debentures,
notes, certificates of deposit issued by banks, mortgages or other
obligations or evidences of indebtedness, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any
other rights or interests therein, or in any property or assets) created
or issued by any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments or subdivisions thereof; and to
exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for
the preservation, protection, improvement and enhancement in value of
any and all such securities.
(2) To issue and sell shares of its own capital stock in
such amounts and on such terms and conditions, for such purposes and for
such amount or kind of consideration (including, without limitation
thereto, securities) now or hereafter permitted by the laws of Maryland
and by these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the consideration per share to be
received by the Corporation upon the sale of any shares of its capital
stock shall not be less than the net asset value per share of such
capital stock outstanding at the time as of which the computation of
such net asset value shall be made.
(3) To purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of
the stockholders of the Corporation) shares of its capital stock, in any
manner and to the extent now or hereafter permitted by the laws of said
State and by these Articles of Incorporation.
(4) To conduct its business in all its branches at one or
more offices in Maryland and elsewhere in any part of the world, without
restriction or limit as to extent.
(5) To carry out all or any of the foregoing objects and
purposes as principal or agent, and alone or with associates or, to the
extent now or hereafter permitted by the laws of Maryland, as a member
of, or as the owner or holder of any stock of, or shares of interest in,
any firm, association, corporation, trust or syndicate; and in
connection therewith to make or enter into such deeds or contracts with
any persons, firms, associations, corporations, syndicates, governments
or subdivisions thereof, and to do such acts and things and to exercise
such powers, as a natural person could lawfully make, enter into, do or
exercise.
(6) To do all and everything necessary, suitable and proper
for the accomplishment of any of the purposes or the attainment of any
of the objects or the furtherance of any of the powers hereinbefore set
forth, either alone or in association with other corporations, firms or
individuals, and to do every other act or acts, thing or things,
incidental or appurtenant to or growing out of or connected with the
aforesaid business or powers or any part or parts thereof, provided the
same be not inconsistent with the laws under which this Corporation is
organized.
(7) The business or purpose of the Corporation is from time
to time to do any one or more of the acts and things hereinabove set
forth, and it shall have power to conduct and carry on its said
business, or any part thereof, and to have one or more offices, and to
exercise any or all of its corporate powers and rights, in the State of
Maryland and in the various other states and dependencies of the United
States, in the District of Columbia, and in all or any foreign
countries.
(8) The enumeration herein of the objects and purposes of
the Corporation shall be construed as powers as well as objects and
purposes and shall not be deemed to exclude by inference any powers,
objects or purposes which the Corporation is empowered to exercise,
whether expressly by force of the laws of the State of Maryland now or
hereafter in effect, or impliedly by the reasonable construction of the
said laws.
Fourth: The aggregate number of shares which the Corporation is
authorized to issue is 10,000,000 shares of capital stock, $1.00 par
value, all of one class, and of the aggregate par value of $10,000,000.
Fifth: The number of directors constituting the first board is five
(5), and the names and addresses of the persons who are to serve as such
directors are:
NAMES ADDRESSES
Fletcher Hodges III 177 North Dean Street
Englewood, New Jersey 07631
Charles W. Cheek P.O. Drawer W-1
Greensboro, North Carolina 27402
William E. S. Griswold, Jr. Griswold Point
Old Lyme, Connecticut 06371
Kenneth J. Hanau, Jr. P.O. Box 301
Walden, New York 12586
Philip C. Smith Lord's Highway
Weston, Connecticut 06880
However, the By-Laws of the Corporation may fix the number of directors
at a number greater than that named in this Certificate of Incorporation
and may authorize the Board of Directors, by the vote of a majority of
the entire Board of Directors, to increase or decrease the number of
directors fixed by this Certificate of Incorporation or by the By-Laws
within limits specified in the By-Laws, provided that in no case shall
the number of directors be less than three, and to fill the vacancies
created by any such increase in the number of directors. Unless
otherwise provided by the By-Laws of the Corporation, election of
directors of the Corporation need not be by ballot.
Sixth: Subject to the provisions hereinafter set forth, the holders of
shares of capital stock of the Corporation shall have the right on any
business day, upon request accompanied by surrender of the certificates
for any or all of such shares held by them, to require the shares so
surrendered to be repurchased by the Corporation, subject to Maryland
law, out of surplus.
Such repurchase shall be made and the repurchase price determined and
paid as follows:
1. There shall be tendered to the Corporation or to a
person, firm or corporation designated for the purpose by the
Corporation, during such usual business hours on a business day as the
Board of Directors may designate:
(a) The certificate representing the shares to be
repurchased, in satisfactory form for transfer to the Corporation or
endorsed in blank, as the Corporation may request, together with such
proof of ownership, power to surrender and authenticity of signatures as
may be required by the Corporation and with necessary stock transfer tax
stamps; and
(b) A request for the repurchase of such shares in form
acceptable to the Corporation.
Such tender shall be irrevocable and the Corporation or person, firm or
corporation designated for the purpose shall, except as provided in
Paragraph 4 below, receive and accept such documents and repurchase such
shares in the manner herein provided.
2. The repurchase price per share to be paid by the
Corporation shall be the redemption value per share (determined in
accordance with Paragraph 2 of Article Seventh hereof) of the shares to
be repurchased. Such redemption value shall be computed as of the close
of the New York Stock Exchange on the day on which the certificates
representing the shares to be repurchased have been properly tendered
pursuant to Paragraph 1 above if, in fact, such certificates have been
tendered prior to such close, or if such certificates have been so
tendered after such close, then such redemption value shall be computed
as of the close of the New York Stock Exchange on the next succeeding
day on which such Exchange is open (or, if the New York Stock Exchange
is not open on said date, then as of the closing of the New York Stock
Exchange on the next day on which said Exchange is open) or as of such
other time as the Board of Directors may properly and lawfully provide.
Such price per share, if resulting in a fraction of a cent, shall be
adjusted to the next lower cent.
3. Payment of the repurchase price shall be made at such
time and in such manner as may be determined by the Board of Directors
to be in the best interests of the Corporation; provided, however, that
except as otherwise may be permitted pursuant to Paragraph 4 below, such
payment shall in no event be made later than seven days following proper
tender of the certificates to be repurchased in accordance with
Paragraph 1 above. Payment of the redemption price may be made in cash
or in whole or in part in portfolio securities selected in such manner
as the Board of Directors may deem equitable and valued at the same
value given such securities in the determination of the amount of the
repurchase price.
4. The Corporation may not suspend the right of
repurchase provided for above or postpone the date of payment of the
repurchase price for a period of more than seven days following proper
tender of the certificates to be repurchased, in accordance with
Paragraph above; provided, however, that notwithstanding the foregoing,
such right may be suspended or such payment postponed (I) for any
period during which the New York Stock Exchange is closed other than
customary weekend and holiday closings or trading thereon is restricted,
(ii) for any period during which any emergency as defined by rules and
regulations of the Securities and Exchange Commission or any successor
thereto exists as a result of which it is impractical for the
Corporation to determine the value of its assets or to dispose thereof,
or (iii) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of security holders of
the Corporation.
5. The right of a holder of shares to receive dividends
thereon, and all other rights with respect to such shares, shall
forthwith cease and terminate from and after the time of the acceptance
of such shares by the Corporation for repurchase, except the right of
such holder to receive, in cash or in kind or partly in cash and partly
in kind, the repurchase price of such shares from the Corporation.
Seventh: Net asset value and redemption value of any shares of the
Corporation outstanding (exclusive of treasury stock) shall be
determined for the purposes of this certificate of Incorporation by, or
pursuant to the direction of, the Board of Directors, in accordance with
the following Paragraphs 1 to 3 inclusive:
1. Net asset value shall be determined by dividing:
(a) the total value of the assets of the Corporation
determined as provided in paragraph 3 below (except that there may be
added to the market value of all securities listed or traded in on any
Exchange, if the Board of Directors so determines, brokerage, stamp
taxes and odd-lot premiums at, or substantially at, the rates which
would be applicable if such securities were being presently purchases),
less, to the extent determined by or pursuant to the direction of the
Board of Directors, in accordance with generally accepted accounting
practice, all debts, obligations and liabilities of the Corporation
(which debts, obligations and liabilities shall include, without
limitation of the generality of the foregoing, any and all debts,
obligations, liabilities, or claims of any and every kind and nature,
fixed, accrued, unmatured or contingent, including the estimated accrued
expense of management and supervision, and any reserves or charges for
any or all of the foregoing, whether for taxes, expenses, contingencies,
or otherwise) but excluding the Corporation s liability upon its shares
and its surplus, by
(b) the total number of shares of the Corporation
outstanding. Shares sold by the Corporation, whether or not paid for,
shall be treated as outstanding from the time of acceptance of the
subscription therefor and the entry thereof on the books of the
Corporation and of the determination of the net price therefor
(which net price shall be deemed to be an asset). Shares purchased by
the Corporation, whether or not paid for, from the time of determination
of the redemption value thereof (which price until paid shall be a
liability of the Corporation) and treasury shares shall be treated as
not outstanding.
2. Redemption value shall be determined in the same manner
as net asset value, except that there shall be excluded the brokerage,
stamp taxes and odd-lot premiums, if any, included in the computation of
net asset value and there may be deducted from the market value of all
securities listed or traded in on any exchange, if the Board of
Directors so determines, brokerage, stamp taxes and odd-lot premiums at,
or substantially at, the rates which would be applicable if such
securities were being presently sold.
3. In determining for the purpose of this Certificate of
Incorporation the total value of the assets of the Corporation at any
time, investments and any other assets of the Corporation shall be
valued in such manner as may be determined from time to time by the
Board of Directors, which is empowered, in its absolute discretion, to
establish such methods for determining such net asset value as are
deemed by it to be necessary in order to enable the Corporation to
comply with, or are deemed by it to be desirable provided they are not
inconsistent with, any provision of the Investment Company Act of 1940
or any rule or regulation thereunder including any rule or
regulation made or adopted pursuant to Section 22 of the Investment
Company Act of 1940 by the Securities and Exchange Commission or any
securities association registered under the Securities Exchange Act of
1934.
Eighth: No holder of stock of any class of the Corporation shall be
entitled as of right to subscribe for or purchase any shares of stock of
any class whether now or hereafter authorized, or any bonds, debentures,
or other evidences of indebtedness whether or not convertible into or
exchangeable for stock, but shares of stock of any class, or bonds,
debentures, or other evidences of indebtedness may be issued, sold or
otherwise disposed of by the Board of Directors on such terms and for
such consideration, so far as may be permitted by law, and to such
person or persons as the Board of Directors in its absolute discretion
may deem advisable.
Ninth: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and it is
expressly provided that the same are intended to be in furtherance and
not in limitation or exclusion of the powers conferred by law:
1. The stockholders and the Board of Directors of the
Corporation shall each have power to hold their meetings, to have an
office or offices, and to keep the books of the Corporation, subject to
the provisions of the laws of the State of Maryland, outside of said
State at such place or places as may be duly designated in accordance
with the By-Laws.
2. All corporate powers, including but not limited to the
mortgaging, hypothecation and pledge of the whole or any part of the
corporate property (including after acquired property) and the purchase,
acquisition and lease of any property, real or personal, within or
without the State of Maryland, may be exercised by the Board of
Directors, without the assent of or other action by the stockholders,
except as otherwise provided by law or by this Certificate of
Incorporation. The Board of Directors shall also have power, with the
consent in writing, or upon the affirmative vote given at a
meeting called for the purpose, of the holders of a majority of the
issued and outstanding stock then entitled to vote thereon, to sell,
assign, transfer, convey, mortgage, pledge, lease, exchange, or
otherwise dispose of, all the property and the entire good will and all
its assets, privileges, franchises and rights, of whatever sort, for
such consideration and upon such terms and conditions as the Board of
Directors shall deem expedient and in the best interest of the
Corporation.
3. The Board of Director shall have power: from time to
time to fix and determine and vary the amount of the working capital of
the Corporation; subject to the provisions of this Certificate of
Incorporation, to direct and determine the use and disposition of any
net profits or surplus from whatever source arising; to create or
abolish a reserve or reserves for any proper purpose; and in its
discretion, but only to the extent permitted by law and by this
Certificate of Incorporation, to use and apply and such profits or
surplus in purchasing or acquiring bonds or other obligations of the
Corporation or shares of the capital stock of the Corporation, to such
extent and in such manner and on such terms and conditions as the Board
of Directors shall deem expedient, and, except as may be otherwise
required by law, any shares of such capital stock so purchased or
acquired may be resold, at the discretion of the Board of Directors, for
such consideration and upon such terms and conditions as the Board of
Directors may determine.
4. To the extent permitted by law, and except as otherwise
provided in this Certificate of Incorporation, the Board of Directors
shall have absolute discretion as to the declaration, amount and nature
of dividends, and may invest and reinvest the funds of the Corporation
to such extent and in such manner as in its absolute discretion it
may deem advisable.
5. The By-Laws may confer upon the Board of Directors
power in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon them by law, but only to the extent
permitted by law and by the provisions of this Certificate of
Incorporation.
6. Except as otherwise provided in the By-Laws, the Board
of Directors may from time to time, by resolution or resolutions adopted
by a majority of the directors then in office, designate an Executive
Committee consisting of two or more directors, which Executive Committee
shall have and may exercise, to the extent provided in such resolution
or resolutions, or in the By-Laws and to the extent permitted by law,
the powers of the Board of Directors in the management of the business
and affairs of the Corporation; and such other committees, consisting of
such number of directors and having such powers, as shall be provided in
such resolution or resolutions or in the By-Laws.
7. Except as otherwise provided by law, at any meeting of
stockholders a majority in number of The outstanding shares of stock
entitled to vote at such meeting, without distinction as between
classes, present in person or represented by proxy, shall be necessary
and sufficient to constitute a quorum for the transaction of business.
8. Except as otherwise provided by law, or by this
Certificate of Incorporation, any action, authorized by the affirmative
vote of holders of a majority in number of the shares of stock entitled
to vote, without distinction as between classes, represented at any
meeting of stockholders at which a quorum is present shall constitute
action by the stockholders.
9. By-Laws may be made in the first instance by the
incorporator. Thereafter, except as otherwise provided in a By-Law made
by the incorporator or by the stockholders, the Board of Directors may
from time to time make, amend or repeal By-Laws; provided that any By-
Law made, amended or repealed, by the Board of Directors may be amended
or repealed, and new By-Laws may be made, by the stockholders entitled
to vote.
10. The fact of membership on the Board of Directors shall
not disqualify any director rendering unusual or special services to the
Corporation, or any corporation and who may, as such officer, agent or
employee, render services to the Corporation otherwise than in his
capacity as a director, from receiving compensation appropriate to
the value of such services, and the Board of Directors may, in its
discretion, cause such compensation to be paid.
11. Subject to the provisions of the Investment Company Act
of 1940, in the absence of actual fraud, no contract or other
transaction of Corporation, or in which the Corporation is interested,
shall be in any way affected by the fact that any of the directors or
officers of the Corporation is in any way interested in or connected
with such contract or transaction, as a party thereto or otherwise or
any other party to such contract or transaction, and any such director
or officer, and each and every person who may become a director or
officer of the Corporation, is (except as herein provided) hereby
released from any liability that might otherwise result from contracting
with the Corporation for the benefit of himself or of any other party in
or with which he may be in any way interested or connected, provided
that nothing herein shall be construed to protect or purport to protect
any such director or officer against any liability to the Corporation or
its stockholders to which such director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Any and all directors of the Corporation who are so interested in, or so
connected with, such other party or such contract or transaction may be
counted in determining the presence of a quorum at any meeting of the
Board of Directors which shall authorize or ratify any such contract or
transaction, with like force and effect as if they were not so
interested or connected. No ratification by stockholders of any such
contract or transaction shall be necessary to the validity thereof.
12. The Board of Directors shall have power to authorize the
determination, in accordance with generally accepted accounting
practice, of what constitutes annual or other net profits, and the net
asset value and redemption value (as defined herein), of the shares of
the Corporation.
13. The Board of Directors shall have power to authorize the
purchase of shares of the Corporation in the open market or otherwise at
prices not in excess of their then redemption value (as defined herein),
and to take all other steps deemed necessary or advisable in connection
therewith.
Tenth: The name Lexington included in the name of the Corporation shall
be used pursuant to a royalty-free, non-exclusive license from Lexington
Management Corporation, a Delaware corporation, incidental to and as
part of an investment advisory agreement which may be entered into by
the Corporation with Lexington Management Corporation, of the registered
service mark Lexington (registration number 836-058). The license may
be revoked by Lexington Management Corporation in the event that the
Corporation ceases to engage Lexington Management Corporation or its
affiliates as investment advisor or distributor in accordance with
contracts that may be entered into, in which case the Corporation shall
have no further right to use the name Lexington in its corporate name
or otherwise and the Corporation, the holders of its capital stock and
its officers and directors shall promptly take whatever action may be
necessary to change its name accordingly. The name Lexington may be
used, licensed or sub-licensed by Lexington Management Corporation or
its affiliates in connection with other investment companies, subject to
the requirements of the Investment Act of 1940, or any other business
enterprise during the term of the license agreement or thereafter and
the Corporation, the holders of its capital stock and its directors and
officers agree to take promptly whatever action may be necessary to
permit such use.
Eleventh: The Corporation shall indemnify each and all of its directors
and officers and former directors and officers and any person who may
have served at its request as a director or officer of another
corporation in which it owns shares of capital stock or of which it is a
creditor against expenses, including attorney s fees, actually and
necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they, or any of them, are made
parties or a party by reason of being or having been directors or
officers or a director or officer of the Corporation, or of such other
corporation, except in relation to matters as to which any such director
or officer or former director or officer or person shall be adjudged in
such action, suit or proceeding to be liable for negligence or
misconduct (which as used herein include, without limitation, willful
misfeasance, bad faith, gross negligence and reckless disregard of the
duties involved in the conduct of his office) in the performance of
duty; provided, however, that such indemnification shall not cover
liabilities in connection with any matter which shall be disposed of
through payment of a compromise settlement by such director or officer
or person, pursuant to a consent decree or otherwise, without
adjudication, unless two-thirds of those members of the Board of
Directors who are not involved in the action, suit or proceeding, or the
holders of a majority of the outstanding stock of the Corporation at the
time having the right to vote for directors, not counting any stock
owned by any interested director, officer or person, by a vote or in
writing, determine that the director or officer or the other person to
be indemnified, has no liability by reason of negligence or misconduct,
and provided further that if a majority of the members of the Board of
Directors of the Corporation are involved in the action, suit or
proceeding, such determination shall have been made either by the
stockholders as provided above or by a written opinion of independent
counsel; that amounts paid in such settlement shall not exceed the
costs, fees, and expenses which would have been reasonably incurred if
the action, suit or proceeding had been litigated to a conclusion; and
that such a determination by the Board of Directors or by the
stockholders or by independent counsel, and the payments of amounts by
the Corporation on the basis thereof, shall not prevent a stockholder
from challenging such indemnification by appropriate legal proceedings
on the grounds that the person indemnified was liable to the Corporation
or the stockholders by reason of negligence or misconduct. The rights
of indemnification hereby provided shall not be exclusive of or affect
other rights to which any director or officer may otherwise be entitled.
Twelfth: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein
on shareholders, directors and officers are subject to this reserved
power.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the
15th day of November, 1976.
________________________________
Pierre A. Tonachel, Incorporator
* * * * *
BY - LAWS
of
LEXINGTON TAX FREE DAILY INCOME FUND, INC.
(hereinafter the "Corporation")
As Amended through August 31, 1981
BY-LAW ONE: LOCATION OF OFFICES
Section 1.1: The post office address of the principal office
of the Corporation in the State of Maryland is 1300 Mercantile Bank &
Trust Building, Baltimore, Maryland 21201, and the Corporation's
resident agent at such office is United States Corporation Company.
Section 1.2: The Corporation may have other offices, either
within or without the State of Maryland at such place or places as the
Board of Directors may from time to time appoint or the business of the
Corporation may require.
BY-LAW TWO: STOCKHOLDERS
Section 2.1: Annual meetings of stockholders for the election
of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without
the State of Maryland and at such time and date as the Board of
Directors, by resolution, shall determine and as set forth in the notice
of the meeting. In the event the Board of Directors fails to so
determine the time, date and place of meeting, the annual meeting of
stockholders shall be held at the registered office of the Corporation
in Maryland on the last Wednesday in May.
If the date of the annual meeting shall fall upon a legal holiday,
the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect a Board of
Directors and they may transact such other corporate business as shall
be stated in the notice of meeting.
Section 2.2: Special Meetings. Special Meetings of the
stockholders shall be called by the President, Secretary or an Assistant
Secretary of the Corporation when so authorized by the President or the
Board of Directors, or when so requested in writing by stockholders
owning a majority in amount of the outstanding capital stock, which
requests shall state the purpose or purposes of the proposed meeting.
Section 2.3 Quorum. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat present in person or
represented by proxy shall constitute a quorum at all meetings of the
stockholders, except as otherwise provided by statute. If a quorum
shall not be present or represented, the stockholders entitled to vote
thereat present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. This Section 2.3
can be altered or repealed only by vote of the stockholders as provided
in Section 2.4.
Section 2.4 Voting. The vote of the holders of a majority
of the stock having voting power present in person or represented by
proxy at any meeting at which a quorum is present, shall decide any
question brought before such meeting, unless the question is one upon
which by express provision of law, of the Articles of Incorporation or
of the By-Laws a different vote is required, in which case such express
provision shall govern and control the decision of such question.
However, no proxy shall be voted after three years from its date unless
such proxy provides for a longer period. Wherever a vote of
stockholders is required to alter or repeal any By-Law, the vote, at the
annual or a special meeting of the stockholders of the Company duly
called, (A) of 67 per centum or more of the voting securities present at
such meeting, if the holders or more than 50 per centum of the
outstanding voting securities of such company are present or represented
by proxy; or (B) of more than 50 per centum of the outstanding voting
securities of such company, whichever is the less, shall be required.
This Section 2.4 can be altered or repealed only by vote of the
stockholders as provided herein.
A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of
each, and the number of shares held by each, shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 2.5: Notice of Meetings. Written notice, stating the
place, date and time of the meeting, and the general nature of the
business to be considered, shall be given to each stockholder entitled
to vote thereat at his address as it appears on the records of the
corporation, not less than ten nor more than sixty days before the date
of the meeting.
No notice of the time, place or purpose of the meeting of
stockholders, whether prescribed by law or by the By-Laws, need be given
to any stockholders who attend in person or by proxy or to any
stockholder who, in writing or by telegraph or cable filed with the
records of the meeting, either before or after the holding thereof,
waives such notice.
Irregularities in the notice or in the giving thereof as well as
the accidental omission to give notice of any meeting to, or the non-receipt
of any such notice by, any of the stockholders shall not invalidate any action
taken by or at any such meeting.
BY-LAW THREE: BOARD OF DIRECTORS
Section 3.1: Number and Term. The number of directors shall
be not less than three (3) nor more than fifteen (15). The directors
shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his successor shall be elected
and shall qualify. Directors need not be stockholders.
Section 3.2 Resignations. Any director, member of a
committee or other officer may resign at any time. Such resignation
shall be made in writing, and shall take effect at the time specified
therein, and if no time be specified, at the time of its receipt by the
President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
Section 3.3: Vacancies. If the office of any director or
directors becomes vacant, the remaining directors in office, though less
than a quorum, by a majority vote, may appoint any qualified person to
fill such vacancy, who shall hold office for the unexpired term and
until his successor shall be duly chosen, subject, however to Section
3.6.
Section 3.4: Removal. Any director or directors may be
removed either for or without cause at any time by the affirmative vote
of the holders of a majority of all the shares of stock outstanding and
entitled to vote, at a special meeting of the stockholders called for
the purpose and the vacancies thus created may be filled, at the meeting
held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Section 3.5: Increase or Reduction of Number. Within the
limits specified in Section 3.1 the number of Directors shall be
determined by resolution of the Board of Directors. Any newly created
places on the Board of Directors shall be filled by vote of the
stockholders of the Corporation.
Section 3.6: New Board of Directors to be Elected by
Stockholders if a Majority has been Elected by Directors. If at any
time, less than a majority of the Directors in office shall consist of
Directors elected by stockholders, or if a majority of the Directors
holding office at the beginning of any twelve-month period shall have
died, resigned, or been removed, a meeting of the stockholders shall be
called within sixty (60) days for the purpose of electing an entire new
Board of Directors, and the terms of office of the Directors then in
office shall terminate upon the election and qualification of such new
Board of Directors. This Section 3.6 can be altered or repealed only by
vote of the stockholders as provided in Section 2.4.
Section 3.7 Committees. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole board,
designate one or more executive committees, each committee to consist of
two or more of the directors of the Corporation. The board may
designate one or more directors and alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, or in these By-Laws, shall have and may exercise
all the powers and authority of the Board of Directors in the management
of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require
it; but no such committee shall have the power or authority in reference
to amending the Articles of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of
the corporation or a revocation of a dissolution, or amending the By-Laws of
the Corporation; and, unless the resolution, these By-Laws, or
the Articles of Incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize
the issuance of stock.
Section 3.8 Powers. The Board of Directors shall exercise
all of the powers of the Corporation except such as are by law, or by
the Articles of Incorporation of the Corporation or by these By-Laws
conferred upon or reserved to the stockholders.
Section 3.9: Meetings. Regular meeting of the directors
shall be held as soon as practicable after the annual meeting of the
stockholders and at such other times as shall be determined from time to
time by resolution of the directors.
Special meetings of the board may be called by the President or a
Vice President at any time and shall be called by the Secretary on the
written request of any two directors on at least two days' notice to
each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the
meeting.
Section 3.10: Quorum. The presence of one-third (1/3) of the
total number of Directors in office but in no event less than two (2)
Directors shall be necessary to constitute a quorum at any meeting of
the Board. If a quorum shall not be present at any meeting of
directors, the Directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting,
until a quorum shall be present.
Section 3.11: Voting. At all meetings of the Board of
Directors, each Director is to have one (1) vote. Any act of a majority
of the Directors present at a meeting at which there is a quorum shall
be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation or
by these By-Laws.
Section 3.12: Remuneration. Each of the Directors shall
receive such remuneration as the Board of Directors of the Corporation
shall, from time to time, fix by resolution.
Section 3.13: Action Without Meeting. Unless otherwise
provided by statute, the Articles of Incorporation or these By-Laws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting,
if a written consent thereto is signed by all members of the board, or
of such committee as the case may be, and such written consent is filed
with the minutes of proceedings of the board or committee.
BY-LAW FOUR: WAIVER OF NOTICE
Section 4.1: Whenever by statute, the provisions of the
Articles of Incorporation or these By-Laws, the stockholders or the
Board of Directors or an Executive Committee of the Board of Directors
are authorized to take any action after notice, such notice may be
waived in writing before or after the holding of the meeting by the
person or persons entitled to such notice or, in the case of a
stockholder, by his attorney thereunto authorized.
BY-LAW FIVE: OFFICERS
Section 5.1: Officers. The officers of the Corporation shall
be a President, a Vice-President, a Treasurer, and a Secretary, all of
whom shall be elected by the Board of Directors and who shall hold
office until their successors are elected and qualified. In addition,
the Board of Directors may elect a Chairman, additional Vice-Presidents
and such Assistant Secretaries, Assistant Vice-Presidents, Assistant
Treasurers and Transfer Clerks as they may deem proper. The President
shall but none of the other officers of the Corporation need be
directors. The officers shall be elected at the first meeting of the
Board of Directors after each annual meting. More than two offices may
be held by the same person.
Section 5.2: Other Officers, Agents, Vacancies. The Board of
Directors may appoint such other officers and agents as it may deem
advisable, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors. Any vacancy occurring in any
office of the Corporation by death, resignation, removal, or otherwise
may be filled by the Board of Directors at any regular or special
meeting.
Section 5.3: Chairman. The Chairman of the Board of
Directors, if one be elected, shall preside at all meetings of the Board
of Directors and he shall have and perform such other duties as form
time to time may be assigned to him by the Board of Directors.
Section 5.4. President. The President shall be the chief
executive officer of the Corporation and shall have the general powers
and duties of supervision and management usually vested in the office of
President of a Corporation. He shall preside at all meetings of the
stockholders if present thereat, and in the absence or non-election of
the Chairman of the Board of Directors, at all meetings of the Board of
Directors, and shall have general supervision, direction and control of
the business of the Corporation. Except as the Board of Directors shall
authorize the execution thereof in some other manner, he shall execute
contracts in behalf of the Corporation, and shall cause the seal to be
affixed to any instrument requiring it and when so affixed the seal
shall be attested by the signature of the Secretary or the Treasurer or
an Assistant Secretary or an Assistant Treasurer.
Section 5.5: Vice-President and Assistant Vice-Presidents.
Each Vice-President shall have such powers and perform such duties as
may be assigned to him by the Board of Directors. In the case of
absence or disability of the President, any Vice-President may exercise
the powers and perform the duties of the President.
The Assistant Vice-Presidents in the absence or disability of any
Vice-President shall perform the duties and exercise the powers of such
Vice-President. They shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Section 5.6: Treasurer and Assistant Treasurers. The
Treasurer shall have general charge of the finances of the Corporation.
He shall render to the Board of Directors, whenever directed by the
Board, an account of the financial condition of the Corporation, and as
soon as possible after the close of each financial year he shall make
and submit to the Board of Directors a like report for such financial
year. He shall have charge and custody of and be responsible for
keeping the books of account of the Corporation.
The Assistant Treasurers in the absence or disability of the
Treasurer shall perform the duties and exercise the powers of the
Treasurer. They shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 5.7: Secretary and Assistant Secretaries. The
Secretary shall attend to the giving and service of all notices of the
Corporation and shall keep the minutes of all meetings of the
stockholders and of the Board of Directors. He shall keep in safe
custody the seal of the Corporation. He shall perform such other duties
as pertain to this office as may be required by the Board of Directors.
Assistant Secretaries shall in the absence or disability of the
Secretary perform the duties and exercise the powers of the Secretary.
They shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 5.8 Transfer Clerks. The Board of Directors may
appoint one or more Transfer Clerks who shall, subject to the discretion
of the Board of Directors and upon proper evidence, transfer the shares
of the Corporation and record such transactions upon its books.
Section 5.9: Removal. The Board of Directors may remove any
officer by a majority vote at any time with or without cause.
BY-LAW SIX: CERTIFICATES OF STOCK
Section 6.1: The certificates of stock of the Corporation
shall be numbered and entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and the number of
shares and shall be signed by the President or a Vice-President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary and shall bear the corporate seal. Such seal may be a
facsimile, engraved or printed. Where any such certificate is signed by
a Transfer Clerk, transfer agent or by a registrar, the signatures of
any such officers may be by facsimile, engraved or printed.
Section 6.2: Lost Certificates. The Board of Directors or
the President and the Treasurer may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board
of Directors or the President and the Treasurer may, in their discretion
and as a condition precedent to the issuance thereof, require the owner
of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation
with respect to the Certificate alleged to have been lost or destroyed.
Section 6.3: Transfer of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
for shares duly endorsed, or accompanied by proper evidence of
succession, assignment or authority of transfer, it shall be the duty of
the Corporation to issue a new certificate for the person entitled
thereto, cancel the old certificate and record the transaction upon its
books.
Section 6.4: Bookkeeping Arrangements. The Corporation may
establish procedures whereby it will not issue certificates representing
shares of its capital stock except upon specific request of a
stockholder and whereunder the Corporation or the transfer agent of the
Corporation shall, at least annually or upon the occasion of any change
in the holdings of any stockholder, issue to each stockholder or to each
stockholder affected by such change a written statement of his holdings
at the time such statement is issued. The Board of Directors may authorize
the execution of any agreement, contract or other document necessary or
desirable in order to carry out the intent of this provision of the By-Laws.
BY-LAW SEVEN: REGISTERED STOCKHOLDERS
Section 7.1: The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by
the laws of Maryland.
BY-LAW EIGHT: GENERAL PROVISIONS
Section 8.1: Dividends. The Board of Directors shall by vote declare
dividends from any fund legally available therefore of the Corporation
whenever, in their opinion, the condition of the Corporation's affairs will
render it expedient for such dividends to be declared. The Board of
Directors may make such arrangements with its stockholders as it may deem
desirable whereby dividends may be reinvested in additional shares of stock
of the Corporation instead of being paid in cash to the stockholders, unless
and until such stockholders inform the Corporation in writing to the
contrary.
Section 8.2: Reports to Stockholders. The Corporation shall
transmit to stockholder reports containing information and financial
statements derived from the books of account of the Corporation and as
required by applicable statutes, the Articles of Incorporation or the
By-laws, as of the close of each annual and semi-annual fiscal period of
the Corporation. Reports made as of the close of the Corporation's
fiscal year shall relate to the whole of such fiscal year and shall be
accompanied by a certificate of an independent public accountant.
Section 8.3: Negotiable Instruments. All checks or demands
for money and notes of the Corporation shall be signed by such officers
or officer or such other person or persons as the Board of Directors may
from time to time designate.
Section 8.4: Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 8.5: Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Maryland". The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Section 8.6: Indemnity of Directors and Officers. The
Corporation shall, to the full extent permitted by the general laws of
the State of Maryland, as amended from time to time, indemnify all
persons whom it may or must indemnify pursuant thereto.
Such right of indemnification, and such indemnification payments,
shall not be deemed exclusive of any other rights to which those persons
indemnified hereby may be entitled according to the Articles of
Incorporation, By-Law, agreement, vote of stockholders or otherwise
provided, however, that no provision of the Articles of Incorporation or
By-Laws of the Corporation shall be deemed to protect or indemnify any
officer or director of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
This Section 8.6 can be altered or repealed only by vote of the
stockholders as provided in Section 2.4.
Section 8.7: Amendments. These By-Laws may be altered, amended or
repealed at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration or amendment or repeal be contained
in the notice of such special meeting, except as otherwise provided in any
By-Law or Section thereof.
BY-LAW NINE: INVESTMENT POLICY
Section 9.1: All Articles of By-Law Nine, including this
Section 9.1, can be altered or repealed only by vote of the stockholders
as provided in Section 2.4.
Section 9.2: The Corporation will be classified under the Investment
Company Act of 1940 as a diversified, open-end investment company of the
management type. The Corporation is subject to the restrictions of the
Investment Company Act of 1940 enacted by the Congress of the United States.
Section 9.3 (a) The Corporation's investment objective is to
achieve current income exempt from Federal income taxes, while maintaining
stability of principal, liquidity, and preservation of capital.
The Corporation will seek to achieve its goal through investment in
short-term municipal securities issued by states, territories, and
possessions of the United States and by the District of Columbia, and
their political subdivisions, and duly constituted authorities and
corporations. It will limit its portfolio purchases, including repurchase
agreements, to those United States dollar-denominated instruments which its
Board of Directors determines present minimal credit risks and which are of
"high quality" as determined by any major rating service or, in the case of
any instrument that is not rated, are of comparable quality as determined by
its Board of Directors. The Corporation will maintain a dollar-weighted
average portfolio maturity of not more than 120 days and will not acquire
any portfolio security with a remaining maturity of more than one year.
The Corporation may also hold cash or, subject to the limitations and
exceptions in the following sentence, invest up to 20% of its assets in
obligations, the interest from which may be subject to Federal income tax.
The Corporation will not purchase any security if, as a result, less
than 80% of the Corporation's net income is derived from securities the
income from which, in the opinion of counsel for the issuers thereof, is
exempt from Federal income tax; provided, however, that the Corporation may
temporarily invest in taxable obligations resulting in taxable income in
excess of 20% of the Corporation's net income in extraordinary circumstances
when adverse market conditions dictate a defensive position.
(b) The Corporation shall not
(1) issue senior securities;
(2) borrow money, except from banks as a temporary measure
for extraordinary or emergency purposes and not for investment
purposes or through reverse repurchase agreements; no borrowing
shall be made if such borrowing, combined with any then
outstanding borrowings, shall exceed 5% of the Corporation's
total assets;
(3) underwrite securities of other issuers;
(4) concentrate its investments to an extent greater than 25% of
the value of its total assets in either (a) securities of
issuers located in single state or (b) revenue bonds which
derive revenue from projects of a similar type or class of
facilities; these limitations not being applicable to
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, certificates of deposit
or banker's acceptances;
(5) purchase or sell real estate, commodity contracts or
commodities or invest in interests in oil, gas or other mineral
exploration or development programs (however, the Corporation
may purchase municipal bonds secured by real estate or interests
therein);
(6) make loans to other persons except (A) through the purchase of
a portion or portions of an issue or issues of municipal bonds
or notes or other publicly distributed bonds, notes, debentures
and evidences of indebtedness authorized by its investment
policy, (B) through investments in repurchase agreements (which
are arrangements under which the Corporation acquires a debt
security subject to an obligation of the seller to repurchase
it at a fixed price within a short period), provided that no
more than 10% of the Corporation's assets may be invested in
repurchase agreements which mature in more than seven days, or
(C) through loans of securities held in the Corporation's
portfolio to responsible borrowers and subject to 100%
collateral requirements in accordance with guidelines
established by the Corporation's directors and applicable
federal regulations;
(7) purchase the securities of another investment company or
investment trust, except in the open market and then only if no
profit, other than the customary broker's commission, results
to a sponsor or dealer, or by merger or other reorganization;
(8) purchase any security on margin or effect a short sale
of a security;
(9) buy securities from or sell securities (other than securities
issued by the Corporation) to any of its officers, directors or
its investment adviser, as principal;
(10) contract to sell any security or evidence of interest therein,
except to the extent that the same shall be owned by the
Corporation;
(11) purchase or retain securities of an issuer when one or
more of the officers and directors of the Corporation or of its
investment adviser, or a person owning more than 10% of the
stock of either, own beneficially more than 1/2 of 1% of the
securities of such issuer and such persons owning more than 1/2
of 1% of such securities together own beneficially more than
5% of the securities of such issuer;
(12) invest more than 5% of its total assets in the securities of
any one issuer (except securities issued or guaranteed by the
United States Government or any of its agencies or
instrumentalities), except that such restriction shall not
apply to 25% of the Corporation's portfolio so long as the net
asset value of the portfolio does not exceed $2,000,000; for the
purposes of this limitation each government subdivision (county,
city) and any subdivision, agency or instrumentality thereof
(school district, authority) shall be considered as a separate
issuer;
(13) purchase an industrial revenue bond if as a result of such
purchase more than 5% of the Corporation's total assets would
be invested in industrial revenue bonds where the payment of
principal and interest are the responsibility of a company with
less than three years operating history;
(14) purchase any security restricted as to disposition under Federal
securities laws; or
(15) buy or sell puts, calls or other options.
The Corporation shall be deemed to have complied with the provisions of
subparagraph (11) of this Section 9.3(b) if within ten (10) days after the end
of each quarter-annual period each officer and director of the Corporation,
each person or organization furnishing investment advisory services to the
Corporation and each officer, director, partner or trustee of, or person owning
of record more than ten (10) percent of the stock of, any such organization,
is furnished with a complete list of the securities or evidences of interest
in securities held by the Corporation as of the end of such quarter, and is
requested to advise the Corporation promptly in the event that he or its owns
beneficially more than one-half (1/2) of one (1) percent of the outstanding
securities, or evidences of interest in more than one-half (1/2) of one (1)
percent of the outstanding securities, of any issuer whose securities, or
evidences of interest therein appear on such list, as to the number or
principal amount of securities, or evidences of interest therein so owned by
him and if the Corporation thereafter disposes of all securities, and evidences
of interest therein, of any issuer which, on the basis of information so
received, the Corporation is prohibited from retaining by the provisions of
this subdivision, such disposal to take place as soon as may be practical in
view of market conditions and the possibility of loss which might result from
immediate disposal, but in any event not more than thirty (30) days after the
existence of such holdings in excess of five (5) percent has been so ascertained
by the Corporation.
BY-LAW TEN: MANAGEMENT CONTRACTS
Section 10.1: All Sections of By-Law TEN, including this Section 10.1,
can be altered or repealed only by vote of the stockholders as provided in
Section 2.4.
Section 10.2: Any management contract to which the Corporation shall
be a party whereby, subject to the control of the Board of Directors of the
Corporation, the investment portfolio of the Corporation shall be managed or
supervised by the other party to such contract, shall provide, among other
things, that such management contract shall be automatically terminated in
the event it is assigned by such other party. Such management contract shall
prohibit the other party and its officers and directors from making short
sales of shares of capital stock of the Corporation and from taking long or
short positions in the shares of the Corporation or purchasing shares
otherwise than for investment.
BY-LAW ELEVEN: CUSTODIAN
Section 11.1: All Sections of By-Law Eleven, including this Section 11.1,
can be altered or repealed only by vote of the stockholders as provided in
Section 2.4.
Section 11.2: All securities owned by the Corporation and all cash
representing the proceeds from the sales of securities owned by the Corporation
and from the issuance of shares of the capital stock of the Corpus, payments
of principal upon securities owned by the Corporation and distributions in
respect of securities owned by the Corporation which at the time of payment
are represented by the distributing corporation to be capital distribution
shall be held by a custodian which shall be a trust company or a national bank
of good standing, having a capital surplus and undivided profits aggregating
not less than Five Hundred Thousand Dollars ($500,000) provided such a
custodian can be found ready and willing to act. The custodian shall be
appointed from time to time by the Board of Directors, which shall fix its
remuneration and the terms under which it shall act and hold in custody
such securities and cash. Upon the resignation or inability to serve of any
such custodian, the Corporation shall (a) use its best efforts to obtain a
successor custodian, (b) require the cash and securities of the Corporation
held by the custodian to be delivered to the successor custodian and (c) in
the event that no successor custodian can be found, submit to the stockholders
of the Corporation, before permitting delivery of such cash and securities to
anyone other than a successor custodian, the question whether the Corporation
shall be dissolved or shall function without a custodian; provided, however,
that nothing herein contained shall prevent the termination at any time on
not more than ninety (90) days' notice of any agreement between the Corporation
and any such custodian by the Board of Directors of the Corporation or by the
affirmative vote of the holders of a majority of all the shares of the capital
stock of the Corporation at the time outstanding and entitled to vote. Upon
its resignation or inability to serve, the custodian may deliver any assets
of the Corporation held by it to a qualified bank or trust company in the
City of New York or Boston selected by it, such assets to be held subject to
the terms of custody which governed such retiring custodian, pending action
by the Corporation as set forth in this Section 11.2.
DISTRIBUTION AGREEMENT
between
LEXINGTON TAX FREE MONEY FUND, INC.
and
LEXINGTON FUNDS DISTRIBUTOR, INC.
THIS AGREEMENT made this 21st day of August, 1990 by and between
LEXINGTON TAX FREE MONEY FUND, INC., a Maryland Corporation (hereinafter
referred to as the "Fund"), and LEXINGTON FUNDS DISTRIBUTOR, INC., a
Delaware Corporation (hereinafter referred to as the "Distributor").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt whereof is hereby acknowledged,
the parties hereto agree as follows:
FIRST: The Fund hereby appoints the Distributor as its exclusive
underwriter to promote the sale and to arrange for the sale of shares of
common stock of the Fund in jurisdictions wherein shares may legally be
offered for sale.
The Fund agrees to sell and deliver its unissued shares, as from time
to time shall be effectively registered under the Securities Act of 1933,
upon the terms hereinafter set forth.
SECOND: The Fund hereby authorizes the Distributor, subject to law
and the Articles of Incorporation of the Fund, to accept, for the account
of the Fund, orders for the purchase of its shares, satisfactory to the
Distributor, as of the time of receipt of such orders or as otherwise
described in the then current prospectus of the Fund.
THIRD: The public offering price of such shares shall be based on the
net asset value per share (as determined by the Fund) of the outstanding
shares of the Fund. The net asset value shall be regularly determined on
every business day as of the time of closing of the New York Stock Exchange.
It is expected that the New York Stock Exchange will be closed on Saturdays
and Sundays and on New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. The
public offering price shall become effective as set forth from time to time
in the Fund's current prospectus; such net asset value shall also be
regularly determined, and the public offering price based thereon shall
become effective, as of such other times for the regular determination of
net asset value as may be required or permitted by rules of the National
Association of Securities Dealers, Inc. or of the Securities and Exchange
Commission. The Fund shall furnish the Distributor, with all possible
promptness, a statement of each computation of net asset value, and of the
details entering into such computation.
The Distributor may, and when requested by the Fund shall, suspend its
efforts to effectuate sales of the shares of common stock at any time when
in the opinion of the Distributor or of the Fund no sales should be made
because of market or other economic considerations or abnormal circumstances
of any kind.
The Fund may withdraw the offering of its common stock (i) at any time
with the consent of the Distributor, or (ii) without such consent when so
required by the provisions of any statute or of any order, rule or
regulation of any governmental body or securities exchange having
jurisdiction. It is mutually understood and agreed that the Distributor
does not undertake to sell all or any specific portion of the shares of
common stock of the Fund.
FOURTH: The Distributor agrees that it will use its best efforts with
reasonable promptness to promote and sell shares of the Fund; but so long
as it does so, nothing herein contained shall prevent the Distributor from
entering into similar arrangements with other funds and to engage in other
activities. The Fund reserves the right to issue shares in connection with
any merger or consolidation of the Fund with any other investment company
or any personal holding company or in connection with offers of exchange
exempted from Section 11(a) of the Investment Company Act of 1940.
FIFTH: Upon a receipt by the Fund at its principal place of business
or other place designated by the Fund of an order from the Distributor,
together with delivery instructions, the Fund shall, as promptly as
practicable, cause the shareholder's account or certificates for the shares
called for in such order to be credited or delivered in such amount and in
such names as shall be specified by the Distributor, against payment
therefor in such manner as may be acceptable to the Fund.
SIXTH: All sales literature and advertisements used by the
Distributor in connection with sales of the shares of the Fund shall be
subject to the approval of the Fund. The Fund authorizes the Distributor
in connection with the sale or arranging for the sales of its shares to give
only such information and to make only such statements or representations
as are contained in the current prospectus and statement of additional
information or in sales literature or advertisements approved by the Fund
or in such financial statements and reports as are furnished to the
Distributor pursuant to this Agreement. The Fund shall not be responsible
in any way for any information, statements or representatives given or made
by the Distributor or its representatives or agents other than such
information, statements or representations contained in the then current
prospectus and statement of additional information or other financial
statements of the Fund.
SEVENTH: The Distributor as agent of the Fund is authorized, subject
to the direction of the Fund, to accept shares for redemption at their net
asset value, determined as prescribed in the then current prospectus of the
Fund. The Fund shall reimburse the Distributor monthly for its out-of-
pocket expenses reasonably incurred for carrying out the foregoing
authorization, but the Distributor shall not be entitled to any commissions
or other compensation in respect to such redemptions.
EIGHTH: The Fund shall bear:
(A) the expenses of qualification of the shares for sale in connection
with such public offerings in such states as shall be selected by the
Distributor and of continuing the qualification continued; and
(B) all legal expenses in connection with the foregoing.
NINTH: The Distributor shall bear:
(A) the expenses of printing and distributing prospectuses and
statements of additional information (other than those prospectuses and
statements of additional information required by applicable laws and
regulations to be distributed to the Fund's shareholders by the Fund) and
any other promotional or sales literature which are used by the Distributor
or furnished by the Distributor to purchasers or dealers in connection with
the Distributor's activities pursuant to this Agreement;
(B) expenses of any advertising used by the Distributor in connection
with such public offering; and
(C) all legal expenses in connection with the foregoing.
TENTH: The Distributor will accept orders for shares of the Fund only
to the extent of purchase orders actually received and not in excess of such
orders, and it will not avail itself of any opportunity of making a profit
by expediting or withholding orders.
ELEVENTH: The Fund shall keep the Distributor fully informed with
regard to its affairs, shall furnish the Distributor with a certified copy
of all financial statements, and a signed copy of each report, prepared by
independent public accountants, and with such reasonable number of printed
copies of each semi-annual and annual report of the Fund as the Distributor
may request, and shall cooperate fully in the efforts of the Distributor to
sell and arrange for the sale of its shares and in the performance by the
Distributor of all its duties under the Agreement.
TWELFTH: The Fund agrees to register, from time to time as necessary,
additional shares with the Securities and Exchange Commission, state and
other regulatory bodies and to pay the related filing fees therefor and to
file such amendments, reports and other documents as may be necessary in
order that there may be no untrue statement of a material fact in the
Registration Statement or prospectus or necessary in order that there may
be no omission to state a material fact therein necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As used in this Agreement, the term "Registration
Statement" shall mean from time to time the Registration Statement most
recently filed by the Fund with the Securities and Exchange Commission and
effective under the Securities Act of 1933, as amended, as such Registration
Statement is amended at such time, and the terms "Prospectus" shall mean for
the purposes of this Agreement from time to time the form of prospectus and
statement of additional information authorized by the Fund for use by
Distributor and by dealers.
THIRTEENTH:
(A) The Fund and Distributor shall each comply with all applicable
provisions of the Investment Company Act of 1940, the Securities Act of
1933, and the rules and regulations of the National Association of
Securities Dealers, Inc. and of all other Federal and State laws, rules and
regulations governing the issuance and sale of shares of the Fund.
(B) In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part of the
Distributor, the Fund agrees to indemnify the Distributor and any
controlling person of the Distributor against any and all claims, demands,
liabilities and expenses including reasonable costs of any alleged
litigation which the Distributor may incur under the Securities Act of 1933,
or common law on otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in any registration statement,
statement of additional information or prospectus of the Fund, or any
omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission
was made in reliance upon, and in conformity with written information
furnished to the Fund in connection with written information furnished to
the Fund in connection therewith by or on behalf of the Distributor. The
Distributor agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of
or based upon any act or deed of sales representatives of the Distributor
which is outside the scope of their authority under this Agreement.
(C) The Distributor agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act of 1933, or common law or otherwise, arising out of or based
upon any alleged untrue statement of material fact contained in any
registration statement, statement of additional information or prospectus
of the Fund, relating to the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Fund in connection
therewith by or on behalf of the Distributor.
FOURTEENTH: Nothing herein contained shall require the Fund to take
any action contrary to any provision of its Declaration of Trust or to any
applicable statute or regulation.
FIFTEENTH: This Agreement has been approved by the Directors of the
Fund and shall become effective at the close of business on the date hereof.
This Agreement shall continue in force and effect for successive annual
periods, provided that such continuance is specifically approved at least
annually (a) (i) by the Board of Directors of the Fund, or (ii) by vote of
a majority of the Fund's outstanding voting securities (as defined in
Section 2 (a) (42) of the Investment Company Act of 1940), and (b) by vote
of majority of the Fund's Directors who are not interested persons (as
defined in Section 2 (a) (19) of the Investment Company Act of 1940) of the
Distributor by votes cast in person at a meeting called for such purposes.
SIXTEENTH: The Distributor, as the owner of the registered service
mark "Lexington" (registration number 836-088), hereby sublicenses and
authorizes the Fund to include the word "Lexington" as part of its corporate
name, subject, however, to revocation by the Distributor in the event that
the Fund ceases to engage the Distributor or affiliates of the Distributor
as investment advisor or distributor. The Fund agrees upon demand of the
Distributor to change its corporate name to delete the word "Lexington"
therefrom.
SEVENTEENTH
(A) This Agreement may be terminated at any time, without the payment
of any penalty, by vote of the Board of Directors of the Fund or by vote of
a majority of the outstanding voting securities of the Fund, or by the
Distributor, on sixty (60) days written notice of the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning
defined in Section 2(a)(4) of the Investment Company Act of 1940.
EIGHTEENTH: Any notice under this Agreement shall be in writing,
addressed and delivered, or mailed, postage paid, to the other party at such
address as such other party may designate for the receipt of such notices.
Until further notice to the other party, it is agreed that the address of
the Fund shall be Park 80 West, Plaza Two, Saddle Brook, New Jersey and
Distributor shall be Park 80 West, Plaza Two, Saddle Brook, New Jersey.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate on the day and year first above written.
LEXINGTON TAX FREE MONEY FUND, INC.
Attest: By:
__________________________________
LEXINGTON FUNDS DISTRIBUTOR, INC.
Attest: By:
___________________________________
Kramer, Levin, Naftalis & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT NUMBER
(212) 715-9100
April 28, 1997
Lexington Tax Free Money Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Re: Lexington Tax Free Money Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Gentlemen:
We hereby consent to the reference to our firm as counsel in the Post-Effective
Amendment to the Registration Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors Consent
To the Board of Directors and Shareholders
Lexington Tax Free Money Fund, Inc.:
We consent to the use of our report dated February 14, 1997 included in the
Registration Statement on Form N-1A and to the references to our firm under
the headings Financial Highlights and Counsel and Independent Auditors in
the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from year-end
audited financial statements dated December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 26,815,504
<INVESTMENTS-AT-VALUE> 26,815,504
<RECEIVABLES> 164,844
<ASSETS-OTHER> 123,465
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,103,813
<PAYABLE-FOR-SECURITIES> 509,461
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78,812
<TOTAL-LIABILITIES> 588,273
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,515,540
<SHARES-COMMON-STOCK> 26,515,540
<SHARES-COMMON-PRIOR> 28,231,264
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 26,515,540
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 979,752
<OTHER-INCOME> 0
<EXPENSES-NET> 273,778
<NET-INVESTMENT-INCOME> 705,974
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (705,974)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,634,926
<NUMBER-OF-SHARES-REDEEMED> (21,985,097)
<SHARES-REINVESTED> 634,447
<NET-CHANGE-IN-ASSETS> (1,715,724)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 136,524
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 296,528
<AVERAGE-NET-ASSETS> 27,304,640
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .026
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.026)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
