<PAGE> 1
As filed with the Securities and Exchange Commission on January 24, 1997.
1933 ACT REGISTRATION NO. 33-12938
1940 ACT REGISTRATION NO. 811-5076
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [X]
</TABLE>
(Check appropriate box or boxes)
------------------
TAX-EXEMPT CALIFORNIA
MONEY MARKET FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
<S> <C>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
</TABLE>
Registrant's Telephone Number, including Area Code: (312) 537-7000
<TABLE>
<S> <C>
Philip J. Collora, Vice President and Secretary With a copy to:
Tax-Exempt California Money Market Fund Cathy G. O'Kelly
222 South Riverside Plaza David A. Sturms
Chicago, Illinois 60606 Vedder, Price, Kaufman & Kammholz
(Name and Address of Agent for Service) 222 N. LaSalle Street
Chicago, Illinois 60601
</TABLE>
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's fiscal year ended September 30,
1996 was filed on or about November 26, 1996.
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on February 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE> 2
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER
OF FORM N-1A LOCATION IN PROSPECTUS
<S> <C> <C>
1. Cover Page.............................. Cover Page
2. Synopsis................................ Summary; Summary of Expenses
3. Condensed Financial Information......... Financial Highlights; Performance
4. General Description of Registrant....... Capital Structure; Investment Objective,
Policies and Risk Factors
5. Management of the Fund.................. Investment Manager and Shareholder Services
5A. Management's Discussion of Fund
Performance............................. Inapplicable
6. Capital Stock and Other Securities...... Investment Objective, Policies and Risk
Factors; Dividends and Taxes; Purchase of
Shares; Capital Structure
7. Purchase of Securities Being Offered.... Purchase of Shares; Investment Manager and
Shareholder Services; Net Asset Value;
Special Features
8. Redemption or Repurchase................ Redemption of Shares
9. Pending Legal Proceedings............... Inapplicable
</TABLE>
<PAGE> 3
TAX-EXEMPT CALIFORNIA MONEY MARKET
FUND
222 South Riverside Plaza
Chicago, Illinois 60606
1-800-231-8568
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- --------------------------------------
<S> <C>
Summary 1
- ------------------------------------------------
Summary of Expenses 2
- ------------------------------------------------
Financial Highlights 2
- ------------------------------------------------
Investment Objective, Policies and Risk
Factors 3
- ------------------------------------------------
Municipal Securities and
Investment Techniques 4
- ------------------------------------------------
Net Asset Value 7
- ------------------------------------------------
Purchase of Shares 7
- ------------------------------------------------
Redemption of Shares 8
- ------------------------------------------------
Dividends and Taxes 10
- ------------------------------------------------
Investment Manager and Shareholder Services 12
- ------------------------------------------------
Special Features 13
- ------------------------------------------------
Performance 13
- ------------------------------------------------
Capital Structure 14
- ------------------------------------------------
</TABLE>
This prospectus contains information
about the Fund that a prospective
investor should know before investing
and should be retained for future
reference. A Statement of Additional
Information dated February 1, 1997,
has been filed with the Securities and
Exchange Commission and is
incorporated herein by reference. It
is available upon request without
charge from the Fund at the address or
telephone number on this cover or the
firm from which this prospectus was
received.
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.
TAX-EXEMPT
CALIFORNIA
MONEY MARKET
FUND
PROSPECTUS February 1, 1997
TAX-EXEMPT CALIFORNIA MONEY MARKET
FUND 222 South Riverside Plaza,
Chicago, Illinois 60606
1-800-231-8568.
The objective of the Fund is maximum
current income that is exempt from
federal and State of California income
taxes to the extent consistent with
stability of capital. The Fund pursues
its objective primarily through a
professionally managed, diversified
portfolio of short-term high quality
California Municipal Securities. The
Fund currently is available for sale
only in California.
AN INVESTMENT IN THE FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND
IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED, BY ANY BANK.
THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
THE FUND MAY INVEST A SIGNIFICANT
PERCENTAGE OF ITS ASSETS IN THE
SECURITIES OF A SINGLE ISSUER, AND
THEREFORE, AN INVESTMENT IN THE FUND
MAY BE SUBJECT TO MORE RISK THAN AN
INVESTMENT IN OTHER TYPES OF MONEY
MARKET FUNDS.
<PAGE> 4
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-231-8568
SUMMARY
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS. Tax-Exempt California Money
Market Fund (the "Fund") is registered as an open-end, diversified management
investment company. The Fund invests in a portfolio of short-term high quality
municipal obligations issued by or on behalf of the State of California, its
political subdivisions, authorities and corporations, and territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities the interest from which is, in the opinion of bond counsel to
the issuer, exempt from federal and State of California income taxes. The Fund
seeks maximum current income that is exempt from federal and State of California
income taxes to the extent consistent with stability of capital. Since the Fund
is concentrated in securities issued by the state of California or entities
within the state and may invest a significant percentage of its assets in the
securities of a single issuer, an investment in the Fund may be subject to more
risk than an investment in other types of money market funds. The Fund seeks to
maintain a net asset value of $1.00 per share. There is no assurance that the
objective of the Fund will be achieved or that the Fund will be able to maintain
a net asset value of $1.00 per share. See "Investment Objectives, Policies and
Risk Factors."
INVESTMENT MANAGER AND SERVICES. Zurich Kemper Investments, Inc. ("ZKI") is the
investment manager for the Fund and provides the Fund with continuous
professional investment supervision. ZKI is paid an annual investment management
fee, payable monthly, on a graduated basis of .22% of the first $500 million of
average daily net assets, .20% of the next $500 million, .175% of the next $1
billion, .16% of the next $1 billion and .15% of average daily net assets over
$3 billion. Kemper Distributors, Inc. ("KDI"), an affiliate of ZKI, is the
primary administrator, distributor and principal underwriter of the Fund and, as
such, provides information and services for existing and potential shareholders
and acts as agent of the Fund in the sale of its shares. KDI receives a
distribution services fee, payable monthly, at an annual rate of .33% of average
daily net assets of the Fund. As distributor, KDI normally pays financial
services firms that provide cash management and other services for their
customers at an annual rate ranging from .15% to .33% of average daily net
assets of those accounts that they maintain and service. See "Investment Manager
and Shareholder Services."
PURCHASES AND REDEMPTIONS. Shares of the Fund are available at net asset value
through selected financial services firms. The minimum initial investment is
$1,000 and the minimum subsequent investment is $100. See "Purchase of Shares."
Shares may be redeemed at the net asset value next determined after receipt by
the Fund's Shareholder Service Agent of a request to redeem in proper form.
Shares may be redeemed by written request or by using one of the Fund's
expedited redemption procedures. See "Redemption of Shares."
DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested in additional shares, unless the shareholder makes a
different election. See "Dividends and Taxes."
GENERAL INFORMATION AND CAPITAL. The Fund is organized as a business trust under
the laws of Massachusetts and may issue an unlimited number of shares of
beneficial interest. Shares are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
The Fund is not required to hold annual shareholder meetings; but will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. See "Capital Structure."
1
<PAGE> 5
SUMMARY OF EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES........................................................ None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees......................................................................... .22%
12b-1 Fees.............................................................................. .33%
Other Expenses.......................................................................... .17%
-----
Total Operating Expenses................................................................ .72%
=====
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS 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 time period: $ 7 $ 23 $ 40 $ 89
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. Investment dealers and other firms may independently charge
shareholders additional fees; please see their materials for details. As a
result of the accrual of 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers. The Example assumes a 5% annual rate
of return pursuant to requirements of the Securities and Exchange Commission.
This hypothetical rate of return is not intended to be representative of past or
future performance of the Fund. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The table below shows financial information for the Fund expressed in terms of
one share outstanding throughout the period. The information in the table is
covered by the report of the Fund's independent auditors. The report is
contained in the Fund's Registration Statement and is available from the Fund.
The financial statements contained in the Fund's 1996 Annual Report to
Shareholders are incorporated herein by reference and may be obtained by writing
or calling the Fund.
<TABLE>
<CAPTION>
JUNE 2,
1987 TO
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income and
dividends declared .03 .03 .02 .02 .02 .04 .05 .05 .04 .01
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN: 2.93% 3.23 1.97 1.88 2.64 4.02 5.16 5.69 4.58 1.25
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .72% .75 .71 .69 .69 .66 .64 .66 .67 .58
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.88% 3.16 1.94 1.87 2.62 3.99 5.03 5.54 4.48 3.82
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period
(in thousands) $118,884 105,292 101,148 122,560 128,822 150,522 224,854 236,506 128,958 46,347
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 6
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The investment objective of the Fund is maximum current income that is exempt
from federal and State of California income taxes to the extent consistent with
stability of capital. The Fund pursues its objective primarily through a
professionally managed, diversified portfolio of short-term high quality
municipal obligations, the income from which is exempt from federal and State of
California income taxes. The Fund is a money market mutual fund that has been
designed to provide investors with professional management of short-term
investment dollars. The Fund pools individual and institutional investors' money
which it uses to buy tax-exempt money market instruments. Because the Fund
combines its shareholders' money, it can buy and sell large blocks of
securities, which reduces transaction costs and maximizes yields. The Fund is
managed by investment professionals who analyze market trends to take advantage
of changing conditions. Its investments are subject to price fluctuations
resulting from rising or declining interest rates and are subject to the ability
of the issuers of such investments to make payment at maturity. Because of their
short maturities, liquidity and high quality, money market instruments, such as
those in which the Fund invests, are generally considered to be among the safest
available. There can be no assurance that the Fund will achieve its objective or
that it will maintain a net asset value of $1.00 per share.
Under normal market conditions, the Fund attempts to invest 100%, and will
invest at least 80%, of its total assets in tax-exempt debt obligations issued
by or on behalf of the State of California and other states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities ("Municipal Securities")
and will invest at least 65% of its total assets in tax-exempt obligations of
the State of California and its political subdivisions ("California Municipal
Securities"). In compliance with the position of the staff of the Securities and
Exchange Commission, the Fund does not consider "private activity" bonds as
described in "Dividends and Taxes" as Municipal Securities for purposes of the
80% limitation. This is a fundamental policy so long as the staff maintains its
position, after which it would become non-fundamental. Dividends to the extent
of interest income received on California Municipal Securities will be exempt
from both federal and State of California income tax provided at least 50% of
the Fund's total assets are invested in California Municipal Securities. Such
dividend income may be subject to local taxes. See "Dividends and Taxes." The
Fund's assets will consist of Municipal Securities, temporary investments, as
described below, and cash.
The Fund will invest only in Municipal Securities that at the time of purchase:
(a) are rated within the two highest ratings of municipal securities (Aaa or Aa)
assigned by Moody's Investors Service, Inc. ("Moody's") or (AAA or AA) assigned
by Standard & Poor's Corporation ("S&P"); (b) are guaranteed or insured by the
U.S. Government as to the payment of principal and interest; (c) are fully
collateralized by an escrow of U.S. Government securities; (d) have at the time
of purchase Moody's short-term municipal securities rating of MIG-2 or higher or
a municipal commercial paper rating of P-2 or higher, or S&P's municipal
commercial paper rating of A-2 or higher; (e) are unrated, if longer term
municipal securities of that issuer are rated within the two highest rating
categories by Moody's or S&P; or (f) are determined by the investment manager to
be at least equal in quality to one or more of the above ratings. In addition,
the Fund limits its investment to securities that meet the quality and
diversification requirements of Rule 2a-7 under the Investment Company Act of
1940 ("1940 Act"). See "Net Asset Value."
The investment objective of the Fund and the investment policies set forth in
the three preceding paragraphs are fundamental and may not be changed without
the affirmative vote of a majority of the outstanding shares of the Fund, as
defined below.
From time to time, a significant portion of the Fund's securities is supported
by credit and liquidity enhancements from third party banks and other financial
institutions, and as a result, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
From time to time, as a defensive measure or when acceptable short-term
Municipal Securities are not available, the Fund may invest in taxable
"temporary investments" that include: obligations of the U.S. Government, its
3
<PAGE> 7
agencies or instrumentalities; debt securities rated within the two highest
grades by Moody's or S&P; commercial paper rated in the two highest grades by
either of such rating services; certificates of deposit of domestic banks with
assets of $1 billion or more; and any of the foregoing temporary investments
subject to repurchase agreements. Under a repurchase agreement the Fund acquires
ownership of a security from a broker-dealer or bank that agrees to repurchase
the security at a mutually agreed upon time and price (which price is higher
than the purchase price), thereby determining the yield during the Fund's
holding period. Repurchase agreements with broker-dealer firms will be limited
to obligations of the U.S. Government, its agencies or instrumentalities.
Maturity of the securities subject to repurchase may exceed one year. Interest
income from temporary investments is taxable to shareholders as ordinary income.
Although the Fund is permitted to invest in taxable securities, it is the Fund's
primary intention to generate income dividends that are not subject to federal
or State of California income taxes. See "Dividends and Taxes." For a
description of the ratings, see "Appendix--Ratings of Investments" in the
Statement of Additional Information.
The Fund may also engage in "reverse repurchase agreements," that are repurchase
agreements in which the Fund, as the seller of securities, agrees to repurchase
them at an agreed upon time and price. Reverse repurchase agreements will only
be used by the Fund to raise cash on a temporary basis to meet redemptions when
it would like to retain the Municipal Securities in its portfolio and it expects
to be able to repurchase them in a short time with funds from maturing
investments and from net sales of Fund shares. Use of reverse repurchase
agreements, because of the lower transaction costs involved, is often preferable
to a regular sale and later repurchase of the securities.
The Fund may borrow money, including through reverse repurchase agreements, for
temporary purposes, but not for the purpose of purchase of investments, in an
amount up to one-third of the value of the Fund's total assets and may pledge up
to 10% of the Fund's net assets to secure borrowings. The Fund will not purchase
illiquid securities, including repurchase agreements maturing in more than seven
days, if, as a result thereof, more than 10% of the Fund's total assets valued
at the time of the transaction would be invested in such securities. Up to 25%
of the total assets of the Fund may be invested at any time in debt obligations
of a single issuer or of issuers in a single industry, although the Fund may
invest without limitation in Municipal Securities the income on which may be
derived from projects of a single type.
The Fund must meet the diversification requirements of Rule 2a-7 under the 1940
Act. Rule 2a-7 provides that a single state money fund shall not, as to 75% of
its assets, invest more than 5% of its assets in the securities of an individual
issuer, provided that the fund may not invest more than 5% of its assets in the
securities of an individual issuer unless the securities are First Tier
Securities (as defined in Rule 2a-7). This allows the Fund, as to 25% of its
assets, to invest more than 5% of its assets in the securities of an individual
issuer. Since the Fund is concentrated in securities issued by the state of
California or entities within the state and may invest a significant percentage
of its assets in the securities of a single issuer, an investment in the Fund
may be subject to more risk than an investment in other types of money market
funds. See "Investment Restrictions" in the Statement of Additional Information.
The Fund has adopted certain investment restrictions that are presented in the
Statement of Additional Information and that, together with the investment
objective and fundamental policies of the Fund, cannot be changed without
approval by holders of a majority of its outstanding voting shares. As defined
in the 1940 Act, this means the lesser of the vote of (a) 67% of the shares of
the Fund present at a meeting where more than 50% of the outstanding shares are
present in person or by proxy; or (b) more than 50% of the outstanding shares of
the Fund.
MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES
The two principal classifications of Municipal Securities consist of "general
obligation" and "revenue" issues. 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. Revenue bonds are payable only from the revenues 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
4
<PAGE> 8
source such as the user of the facility being financed. Industrial development
bonds held by the Fund are in most cases revenue bonds and are not payable from
the unrestricted revenues of the issuer. Among other types of instruments, the
Fund may purchase tax-exempt commercial paper, warrants and short-term municipal
notes such as tax anticipation notes, bond anticipation notes, revenue
anticipation notes, construction loan notes and other forms of short-term loans.
Such notes are issued with a short-term maturity in anticipation of the receipt
of tax payments, the proceeds of bond placements or other revenues. A more
detailed discussion of Municipal Securities and the Moody's and S&P ratings
outlined above under "Investment Objective, Policies and Risk Factors" is
contained in the Statement of Additional Information.
The Fund may purchase securities which provide for the right to resell them to
an issuer, bank or dealer at an agreed upon price or yield within a specified
period prior to the maturity date of such securities. Such a right to resell is
referred to as a "Standby Commitment." Securities may cost more with Standby
Commitments than without them. Standby Commitments will be entered into solely
to facilitate portfolio liquidity. A Standby Commitment may be exercised before
the maturity date of the related Municipal Security if the Fund's investment
manager revises its evaluation of the creditworthiness of the underlying
security or of the entity issuing the Standby Commitment. The Fund's policy is
to enter into Standby Commitments only with issuers, banks or dealers which are
determined by the Fund's investment manager to present minimal credit risks. If
an issuer, bank or dealer should default on its obligation to repurchase an
underlying security, the Fund might be unable to recover all or a portion of any
loss sustained from having to sell the security elsewhere. For purposes of
valuing the Fund's securities at amortized cost, the maturity of Municipal
Securities will not be considered shortened by any Standby Commitment to which
such security is subject.
The Fund may invest in certain Municipal Securities having rates of interest
that are adjusted periodically or that "float" continuously according to
formulae intended to minimize fluctuations in values of the instruments
("Variable Rate Notes"). The interest rate on Variable Rate Notes ordinarily is
determined by reference to or is a percentage of a bank's prime rate, the 90 day
U.S. Treasury bill rate, the rate of return on commercial paper or bank
certificates of deposit, or some similar objective standard. Generally, the
changes in the interest rate on Variable Rate Notes reduce the fluctuation in
the market value of such notes. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or capital depreciation is less
than for fixed rate obligations. Variable Rate Loan Participations are similar
to Variable Rate Notes except they are made available through a commercial bank
which arranges the tax-exempt loan. Variable Rate Notes and Variable Rate Loan
Participations typically are bought and sold among institutional investors. The
Fund currently intends to invest a substantial portion of its assets in Variable
Rate Notes and Variable Rate Loan Participations. Variable Rate Demand Notes
have a demand feature which entitles the purchaser to resell the securities at
par value. The rate of return on Variable Rate Demand Notes also varies
according to some objective standard, such as an index of short-term tax-exempt
rates. Variable rate instruments with a demand feature enable the Fund to
purchase instruments with a stated maturity in excess of one year. The Fund
determines the maturity of variable rate instruments in accordance with Rule
2a-7, which allows the Fund to consider certain of such instruments as having
maturities shorter than the maturity date on the face of the instrument.
The Fund may purchase high quality Certificates of Participation in trusts that
hold Municipal Securities. A Certificate of Participation gives the Fund an
undivided interest in the Municipal Security in the proportion that the Fund's
interest bears to the total principal amount of the Municipal Security. These
Certificates of Participation may be variable rate or fixed rate with remaining
maturities of one year or less. A Certificate of Participation may be backed by
an irrevocable letter of credit or guarantee of a financial institution that
satisfies rating agencies as to the credit quality of the Municipal Security
supporting the payment of principal and interest on the Certificate of
Participation. Payments of principal and interest would be dependent upon the
underlying Municipal Security and may be guaranteed under a letter of credit to
the extent of such credit. The quality rating by a rating service of an issue of
Certificates of Participation is based primarily upon the rating of the
Municipal Security held by the trust and the credit rating of the issuer of any
letter of credit and of any other guarantor providing credit support to the
issue. The Fund's investment manager considers these factors as well as others,
5
<PAGE> 9
such as any quality ratings issued by the rating services identified above, in
reviewing the credit risk presented by a Certificate of Participation and in
determining whether the Certificate of Participation is appropriate for
investment by the Fund. The Fund's investment manager anticipates that, for most
publicly offered Certificates of Participation, there will be a liquid secondary
market or there may be demand features enabling the Fund to readily sell its
Certificates of Participation prior to maturity to the issuer or a third party.
As to those instruments with demand features, the Fund intends to exercise its
right to demand payment from the issuer of the demand feature only upon a
default under the terms of the Municipal Security, as needed to provide
liquidity to meet redemptions, or to maintain a high quality investment
portfolio.
The Fund may purchase and sell Municipal Securities on a when-issued or delayed
delivery basis. A when-issued or delayed delivery transaction arises when
securities are bought or sold for future payment and delivery to secure what is
considered to be an advantageous price and yield to the Fund at the time it
enters into the transaction. In determining the maturity of portfolio securities
purchased on a when-issued or delayed delivery basis, the Fund will consider
them purchased on the date when it commits itself to the purchase.
A security purchased on a when-issued basis, like all securities held in the
Fund's portfolio, is subject to changes in market value based upon changes in
the level of interest rates and investors' perceptions of the creditworthiness
of the issuer. Generally such securities will appreciate in value when interest
rates decline and depreciate in value when interest rates rise. Therefore if, in
order to achieve higher interest income, the Fund remains substantially fully
invested at the same time that it has purchased securities on a when-issued
basis, there will be a greater possibility that the net asset value of the
Fund's shares will vary from $1.00 per share, since the value of a when-issued
security is subject to market fluctuation and no interest accrues to the
purchaser prior to settlement of the transaction. See "Net Asset Value."
The Fund will only make commitments to purchase Municipal Securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities, but the Fund reserves the right to sell these securities before
the settlement date if deemed advisable. The sale of securities may result in
the realization of gains that are not exempt from federal or State of California
income tax.
Yields on Municipal Securities are dependent on a variety of factors, including
the general conditions of the money market and the municipal bond market, and
the size, maturity and rating of the particular offering. The ratings of Moody's
and S&P represent their opinions as to the quality of the Municipal Securities
which they undertake to rate. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, Municipal
Securities with the same maturity, coupon and rating may have different yields.
Investors should be aware that certain California constitutional amendments,
legislative measures, executive orders, civil actions and voter initiatives, as
well as the general financial condition of the State, could result in certain
adverse consequences for owners of California Municipal Securities. For
instance, amendments in recent years to the California Constitution and statutes
that limit the taxing and spending authority of California governmental entities
may impair the ability of the issuers of some California Municipal Securities to
maintain debt service on their obligations. Other measures affecting the taxing
or spending authority of California or its political subdivisions may be
approved or enacted in the future. Some of the significant financial
considerations relating to the Fund's investments in California Municipal
Securities are summarized in the Statement of Additional Information.
In seeking to achieve its investment objective, the Fund may invest all or any
part of its assets in Municipal Securities that are industrial development
bonds. Moreover, although the Fund does not currently intend to do so on a
regular basis, it may invest more than 25% of its assets in Municipal Securities
which are repayable out of revenue streams generated from economically related
projects or facilities, if such investment is deemed necessary or appropriate by
the Fund's investment manager. To the extent that the Fund's assets are
concentrated in Municipal Securities payable from revenues on economically
related projects and facilities, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated.
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<PAGE> 10
NET ASSET VALUE
Fund shares are sold at their net asset value next determined after an order and
payment are received in the form described under "Purchase of Shares." The net
asset value of a Fund share is calculated by dividing the total assets of the
Fund less its liabilities by the total number of shares outstanding. The net
asset value per share of the Fund is determined on each day the New York Stock
Exchange is open for trading, at 11:00 a.m. and 3:00 p.m. Chicago time, and on
each other day on which there is a sufficient degree of trading in the Fund's
investments that its net asset value might be affected, except that the net
asset value will not be computed on a day on which no orders to purchase shares
were received and no shares were tendered for redemption. The Fund seeks to
maintain a net asset value of $1.00 per share.
The Fund values its portfolio instruments at amortized cost in accordance with
Rule 2a-7 under the 1940 Act, which means that they are valued at their
acquisition cost, as adjusted for amortization of premium or accretion of
discount, rather than at current market value. Calculations are made to compare
the value of the Fund's investments, valued at amortized cost, with market-based
values. Market-based valuations are obtained by using actual quotations provided
by market makers, estimates of market value, or values obtained from yield data
relating to classes of money market instruments published by reputable sources
at the mean between the bid and asked prices for the instruments. If a deviation
of 1/2 of 1% or more were to occur between the net asset value per share
calculated by reference to market-based values and the Fund's $1.00 per share
net asset value, or if there were any other deviation that the Board of Trustees
of the Fund believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would promptly consider what action, if any,
should be initiated. In order to value its investments at amortized cost, the
Fund purchases only securities with a maturity of 397 days or less and maintains
a dollar-weighted average portfolio maturity of 90 days or less. In addition,
the Fund limits its portfolio investments to securities that meet the quality
and diversification requirements of Rule 2a-7.
PURCHASE OF SHARES
Fund shares are sold at their net asset value with no sales charge through
selected financial services firms, such as broker-dealers and banks ("firms").
The minimum initial investment is $1,000 and the minimum subsequent investment
is $100. Under an automatic investment plan, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion. Firms offering Fund shares may set higher minimums for
accounts they service and may change such minimums at their discretion.
The Fund seeks to be as fully invested as possible at all times in order to
achieve maximum income. Since the Fund will be investing in instruments that
normally require immediate payment in Federal Funds (monies credited to a bank's
account with its regional Federal Reserve Bank), the Fund has adopted procedures
for the convenience of its shareholders and to ensure that it receives
investable funds. Orders for the purchase of shares received by wire transfer in
the form of Federal Funds will be effected at the next determined net asset
value. Shares purchased by wire will receive that day's dividend if effected at
or prior to the 11:00 a.m. Chicago time net asset value determination, otherwise
such shares will receive the dividend for the next business day. Orders for
purchase accompanied by a check or other negotiable bank draft drawn on a
domestic bank will be accepted and effected as of 3:00 p.m. Chicago time on the
next business day following receipt and such shares will receive the dividend
for the business day following the day the purchase is effected. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
on such check before shares will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
If payment is wired in Federal Funds, the payment should be directed to State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110,
the sub-custodian for the Fund. If payment is to be wired, call the firm from
which you received this prospectus for proper instructions.
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<PAGE> 11
CLIENTS OF FIRMS. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of Fund shares and the confirmation
thereof. Such firms are responsible for the prompt transmission of purchase and
redemption orders. Some firms may establish higher minimum investment
requirements than set forth above. A firm may arrange with its clients for other
investment or administrative services. Such firms may independently establish
and charge additional amounts to their clients for such services, which charges
would reduce the clients' yield or return. Firms may also hold Fund shares in
nominee or street name as agent for and on behalf of their clients. In such
instances, the Fund's transfer agent will have no information with respect to or
control over the accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
firm. Certain of these firms may receive compensation from the Fund through the
Shareholder Service Agent for recordkeeping and other expenses relating to these
nominee accounts. In addition, certain privileges with respect to the purchase
and redemption of shares (such as check writing redemptions) or the reinvestment
of dividends may not be available through such firms or may only be available
subject to conditions and limitations. Some firms may participate in a program
allowing them access to their clients' accounts for servicing including, without
limitation, transfers of registration and dividend payee changes; and may
perform functions such as generation of confirmation statements and disbursement
of cash dividends. Such firms, including affiliates of the Fund's principal
underwriter, may receive compensation from the Fund through the Shareholder
Service Agent for these services. The prospectus should be read in connection
with such firm's material regarding its fees and services.
OTHER INFORMATION. The Fund reserves the right to withdraw all or any part of
the offering made by this prospectus or to reject purchase orders. All orders to
purchase shares are subject to acceptance by the Fund and are not binding until
confirmed or accepted in writing. Any purchase that would result in total
account balances for a single shareholder in excess of $3 million is subject to
prior approval by the Fund. Share certificates are issued only on request to the
Fund and may not be available for certain types of accounts. A $10 service fee
will be charged when a check for purchase of Fund shares is returned because of
insufficient or uncollected funds or a stop payment order.
Shareholders should direct their inquiries to the firm from which they received
this prospectus or to Kemper Service Company, the Fund's Shareholder Service
Agent, 811 Main Street, Kansas City, Missouri 64105-2005.
REDEMPTION OF SHARES
GENERAL. Upon receipt by the Shareholder Service Agent of a request in the form
described below, shares will be redeemed by the Fund at the next determined net
asset value. If processed at 3:00 p.m. Chicago time, the shareholder will
receive that day's dividend. A shareholder may use either the regular or
expedited redemption procedures. Shareholders who redeem all their shares of the
Fund will receive the net asset value of such shares and all declared but unpaid
dividends on such shares.
If shares of the Fund to be redeemed were purchased by check or through certain
Automated Clearing House ("ACH") transactions, the Fund may delay transmittal of
redemption proceeds until it has determined that collected funds have been
received for the purchase of such shares, which will be up to 10 days from
receipt by the Fund of the purchase amount. Shareholders may not use expedited
redemption procedures (wire transfer or Redemption Check) until the shares being
redeemed have been owned for at least 10 days, and shareholders may not use such
procedures to redeem shares held in certificated form. There is no delay when
shares being redeemed were purchased by wiring Federal Funds.
If shares being redeemed were acquired from an exchange of shares of a mutual
fund that were offered subject to a contingent deferred sales charge as
described in the prospectus for that other fund, the redemption of such shares
by the Fund may be subject to a contingent deferred sales charge as explained in
such prospectus.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions, ACH transactions and exchange transactions for individual
and institutional accounts and pre-authorized telephone redemption transactions
for certain institutional accounts. Shareholders may choose these privileges on
the account application or by contacting the Shareholder Service Agent for
appropriate instructions. Please note that the
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<PAGE> 12
telephone exchange privilege is automatic unless the shareholder refuses it on
the account application. The Fund or its agents may be liable for any losses,
expenses or costs arising out of any fraudulent or unauthorized telephone
requests pursuant to these privileges unless the Fund and its agents reasonably
believe, based upon reasonable verification procedures, that the telephone
instructions are genuine. THE SHAREHOLDER WILL BEAR THE RISK OF LOSS, including
loss resulting from fraudulent or unauthorized transactions, so long as
reasonable verification procedures are followed. Verification procedures include
recording instructions, requiring certain identifying information before acting
upon instructions and sending written confirmations.
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem an account that falls below the minimum investment level,
currently $1,000. A shareholder will be notified in writing and will be allowed
60 days to make additional purchases to bring the account value up to the
minimum investment level before the Fund redeems the shareholder account.
Firms provide varying arrangements for their clients to redeem Fund shares. Such
firms may independently establish and charge additional amounts to their clients
for such services.
REGULAR REDEMPTIONS. Shareholders should contact the firm through which shares
were purchased for redemption instructions. However, when shares are held for
the account of a shareholder by the Fund's transfer agent, the shareholder may
redeem them by sending a written request with signatures guaranteed to Kemper
Service Company, P.O. Box 419153, Kansas City, Missouri 64141-6153. When
certificates for shares have been issued, they must be mailed to or deposited
with the Shareholder Service Agent, along with a duly endorsed stock power and
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account holder with signatures guaranteed by a
commercial bank, trust company, savings and loan association, federal savings
bank, member firm of a national securities exchange or other eligible financial
institution. The redemption request and stock power must be signed exactly as
the account is registered, including any special capacity of the registered
owner. Additional documentation may be requested, and a signature guarantee is
normally required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders, and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Shares purchased by check
or through certain ACH transactions may not be redeemed under this privilege of
redeeming shares by telephone request until such shares have been owned for at
least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by a federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to 11:00 a.m. Chicago time will result in
shares being redeemed that day and normally the proceeds will be sent to the
designated account that day. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-231-8568 or in writing,
subject to the limitations on liability
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<PAGE> 13
described under "General" above. The Fund is not responsible for the efficiency
of the federal wire system or the account holder's financial services firm or
bank. The Fund currently does not charge the account holder for wire transfers.
The account holder is responsible for any charges imposed by the account
holder's firm or bank.There is a $1,000 wire redemption minimum. To change the
designated account to receive wire redemption proceeds, send a written request
to the Shareholder Service Agent with signatures guaranteed as described above,
or contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through certain ACH transactions may not be redeemed by
wire transfer until the shares have been owned for at least 10 days. Account
holders may not use this privilege to redeem shares held in certificated form.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the expedited wire transfer redemption
privilege. The Fund reserves the right to terminate or modify this privilege at
any time.
EXPEDITED REDEMPTIONS BY DRAFT. Upon request, shareholders will be provided
with drafts to be drawn on the Fund ("Redemption Checks"). These Redemption
Checks may be made payable to the order of any person for not more than $5
million. Shareholders should not write Redemption Checks in an amount less than
$250 since a $10 service fee will be charged as described below. When a
Redemption Check is presented for payment, a sufficient number of full and
fractional shares in the shareholder's account will be redeemed as of the next
determined net asset value to cover the amount of the Redemption Check. This
will enable the shareholder to continue earning dividends until the Fund
receives the Redemption Check. A shareholder wishing to use this method of
redemption must complete and file an Account Information Form which is available
from the Fund or firms through which shares were purchased. Redemption Checks
should not be used to close an account since the account normally includes
accrued but unpaid dividends. The Fund reserves the right to terminate or modify
this privilege at any time. This privilege may not be available through some
firms that distribute shares of the Fund. In addition, firms may impose minimum
balance requirements in order to obtain this feature. Firms may also impose fees
to investors for this privilege or establish variations of minimum check amounts
if approved by the Fund.
Unless one signer is authorized on the Account Information Form, Redemption
Checks must be signed by all account owners. Any change in the signature
authorization must be made by written notice to the Shareholder Service Agent.
Shares purchased by check or through certain ACH transactions may not be
redeemed by Redemption Check until the shares have been owned for at least 10
days. Shareholders may not use this procedure to redeem shares held in
certificated form. The Fund reserves the right to terminate or modify this
privilege at any time.
The Fund may refuse to honor Redemption Checks whenever the right of redemption
has been suspended or postponed, or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption Check is presented to redeem
Fund shares in excess of the value of a Fund account or in an amount less than
$250; when a Redemption Check is presented that would require redemption of
shares that were purchased by check or certain ACH transactions within 10 days;
or when "stop payment" of a Redemption Check is requested. Firms may charge
different service fees.
DIVIDENDS AND TAXES
DIVIDENDS. Dividends are declared daily and paid monthly. Shareholders may
select one of the following ways to receive dividends:
1. REINVEST DIVIDENDS at net asset value into additional shares of the Fund.
Dividends are normally reinvested on the 15th day of each month if a business
day, otherwise on the next business day. Dividends will be reinvested unless the
shareholder elects to receive them in cash.
2. RECEIVE DIVIDENDS IN CASH if so requested. Checks will be mailed monthly to
the shareholder or any person designated by the shareholder.
The Fund reinvests dividend checks (and future dividends) in shares of the Fund
if checks are returned as undeliverable. Dividends and other distributions in
the aggregate amount of $10 or less are automatically
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<PAGE> 14
reinvested in shares of the Fund unless the shareholder requests that such
policy not be applied to the shareholder's account.
TAXES. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code") and, if so
qualified, will not be liable for federal income taxes to the extent its
earnings are distributed. The Fund also intends to meet the requirements of the
Code applicable to regulated investment companies distributing tax-exempt
interest dividends and, therefore, dividends representing net interest received
on Municipal Securities will not be includable by shareholders in their gross
income for federal income tax purposes, except to the extent such interest is
subject to the alternative minimum tax as discussed hereinafter. Dividends
representing taxable net investment income (such as net interest income from
temporary investments in obligations of the U.S. Government) and net short-term
capital gains, if any, are taxable to shareholders as ordinary income whether
received in cash or additional shares.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year in which declared for
federal income tax purposes. The Fund may adjust its schedule for dividend
reinvestment for the month of December to assist it in complying with reporting
and minimum distribution requirements contained in the Code.
Net interest on certain "private activity bonds" issued on or after August 8,
1986 is treated as an item of tax preference and may, therefore, be subject to
both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury,
exempt-interest dividends from the Fund are to be treated as interest on private
activity bonds in proportion to the interest the Fund receives from private
activity bonds, reduced by allowable deductions. For the 1996 calendar year, no
part of the net interest income of the Fund was derived from "private activity
bonds."
Exempt-interest dividends, except to the extent of interest from "private
activity bonds," are not treated as a tax preference item. For a corporate
shareholder, however, such dividends will be included in determining such
corporate shareholder's "adjusted current earnings." Seventy-five percent of the
excess, if any, of "adjusted current earnings" over the corporate shareholder's
other alternative minimum taxable income with certain adjustments will be a tax
preference item. Corporate shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences.
Shareholders will be required to disclose on their federal income tax returns
the amount of tax-exempt interest earned during the year, including
exempt-interest dividends received from the Fund.
Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to 85% of their Social Security benefits. Modified
income includes adjusted gross income, tax-exempt interest, including
exempt-interest dividends from the Fund, and 50% of Social Security benefits.
Individuals are advised to consult their tax advisers with respect to the
taxation of Social Security benefits.
Dividends to the extent of interest income received on California state and
local government issues, will be exempt from State of California income taxes
provided at least 50% of the Fund's total assets are invested in such issues at
the close of each quarter in the taxable year. The tax exemption for federal and
California income tax purposes of dividends from the Fund does not necessarily
result in exemptions under the income or other tax laws of any state or local
taxing authority. The laws of the several states and local taxing authorities
vary with respect to the taxation of such income, and shareholders of the Fund
are advised to consult their own tax advisers in that regard and as to the
status of their accounts under state and local tax laws.
The Fund is required by law to withhold 31% of taxable dividends paid to certain
shareholders who do not furnish a correct taxpayer identification number (in the
case of individuals, a social security number) and in certain other
circumstances.
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Shareholders normally will receive monthly confirmations of dividends and of
purchase and redemption transactions. Tax information will be provided annually.
Shareholders are encouraged to retain copies of their account confirmation
statements or year-end statements for tax reporting purposes. However, those who
have incomplete records may obtain historical account transaction information at
a reasonable fee.
INVESTMENT MANAGER AND SHAREHOLDER SERVICES
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. ZKI is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-eight years. ZKI and its
affiliates provide investment advice and manage investment portfolios for
affiliated insurance companies, the Kemper Funds, and other corporate, pension,
profit-sharing and individual accounts representing approximately $76 billion
under management, including approximately $9 billion in money market assets and
$5 billion in tax-exempt assets. ZKI acts as investment manager for 31 open-end
and seven closed-end investment companies, with 78 separate investment
portfolios, representing more than 2.5 million shareholder accounts. ZKI is an
indirect subsidiary of Zurich Insurance Company, an internationally recognized
company providing services in life and non-life insurance, reinsurance and asset
management.
Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by ZKI.
The investment management agreement provides that ZKI shall act as the Fund's
investment adviser, manage its investments and provide it with various services
and facilities. For the services and facilities furnished, the Fund pays an
annual investment management fee, payable monthly, on a graduated basis of .22%
of the first $500 million of average daily net assets, .20% of the next $500
million, .175% of the next $1 billion, .16% of the next $1 billion and .15% of
average daily net assets over $3 billion.
DISTRIBUTOR. Pursuant to an administration, shareholder services and
distribution agreement ("distribution agreement"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60603, an affiliate of
ZKI, serves as distributor, administrator and principal underwriter of the Fund
to provide information and administrative and distribution services for existing
and potential shareholders. The distribution agreement provides that KDI shall
act as agent for the Fund for the sale of its shares and shall appoint various
financial services firms ("firms"), such as broker-dealers and banks, to provide
cash management services for their customers or clients through the Fund. The
firms are to provide such office space and equipment, telephone facilities,
personnel and sales literature distribution as is necessary or appropriate for
providing information and services to the firm's clients. For its services under
the distribution agreement, the Fund pays KDI an annual distribution services
fee, payable monthly, of .33% of average daily net assets of the Fund. The fee
is accrued daily as an expense of the Fund.
KDI has related administration services and selling group agreements with
various broker-dealer firms to provide cash management and other services for
Fund shareholders. KDI also has services agreements with banking firms to
provide such services, except for certain underwriting or distribution services
which the banks may be prohibited from providing under the Glass-Steagall Act,
for their clients who wish to invest in the Fund. If the Glass-Steagall Act
should prevent banking firms from acting in any capacity or providing any of the
described services, management will consider what action, if any, is
appropriate. Management does not believe that termination of a relationship with
a bank would result in any material adverse consequences to the Fund. Banks or
other financial services firms may be subject to various state laws regarding
the services described above and may be required to register as dealers pursuant
to state law. KDI normally pays the firms at an annual rate ranging from .15% to
.33% of average daily net assets of those accounts that they maintain and
service. KDI may elect to keep a portion of the total distribution services fee
to compensate itself for functions performed for the Fund or to pay for sales
materials or other promotional activities. Since the distribution agreement
provides for
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<PAGE> 16
fees that are used by KDI to pay for distribution and administration services,
the agreement along with the related administration services and selling group
agreements and the plan contained therein are approved and reviewed in
accordance with Rule 12b-1 under the 1940 Act, which regulates the manner in
which an investment company may, directly or indirectly, bear the expenses of
distributing its shares.
Since the fee payable to KDI under the distribution agreement is based upon a
percentage of the average daily net assets of the Fund and not upon the actual
expenditures of KDI, the expenses of KDI (which may include overhead expense)
may be more or less than the fees received by it under the distribution
agreement. For example, during the fiscal year ended September 30, 1996, KDI
incurred expenses under the distribution agreement of approximately $375,000,
while it received an aggregate fee under the distribution agreement of $349,000.
If the distribution agreement is terminated in accordance with its terms, the
obligation of the Fund to make payments to KDI pursuant to the distribution
agreement will cease and the Fund will not be required to make any payments past
the termination date. Thus, there is no legal obligation for the Fund to pay any
excess expenses incurred by KDI over its fees under the distribution agreement
if, for any reason, the distribution agreement is terminated in accordance with
its terms. Any cumulative expenses incurred by KDI in excess of fees received
may or may not be recovered through future fees under the distribution
agreement.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and payment
for and collection of proceeds of securities bought and sold by the Fund. IFTC
also is the Fund's transfer and dividend-paying agent. Pursuant to a services
agreement with IFTC, Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105, an affiliate of ZKI, serves as Shareholder Service Agent of the
Fund and as such, performs all of IFTC's duties as transfer agent and
dividend-paying agent. For a description of custodian, transfer agent and
shareholder service agent fees, see "Investment Manager and Services" in the
Statement of Additional Information.
SPECIAL FEATURES
Certain firms that offer shares of the Fund also provide special redemption
features through charge or debit cards and checks that redeem Fund shares.
Various firms have different charges for their services. Shareholders should
obtain information from their firm with respect to any special redemption
features, applicable charges, minimum balance requirements and any special rules
of the cash management program being offered.
Information about the following special features is contained in the Statement
of Additional Information; and further information may be obtained without
charge from KDI: Exchange Privilege; Systematic Exchange Privilege; Systematic
Withdrawal Program and Electronic Funds Transfer Programs.
PERFORMANCE
The Fund may advertise several types of performance information including
"yield," "effective yield," and "tax equivalent yield." Each of these figures is
based upon historical earnings and is not representative of the future
performance of the Fund. The yield of the Fund refers to the net investment
income generated by a hypothetical investment in the Fund over a specific
seven-day period. This net investment income is then annualized, which means
that the net investment income generated during the seven-day period is assumed
to be generated each week over an annual period and is shown as a percentage of
the investment. The effective yield is calculated similarly, but the net
investment income earned by the investment is assumed to be compounded weekly
when annualized. The effective yield will be slightly higher than the yield due
to this compounding effect. Tax equivalent yield is the yield that a taxable
investment must generate in order to equal the Fund's yield for an investor in a
stated federal and State of California income tax bracket (normally assumed to
be the maximum tax rate). Tax equivalent yield is based upon, and will be higher
than, the portion of the Fund's yield that is tax-exempt.
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<PAGE> 17
The Fund's performance may be compared to that of other money market mutual
funds or mutual fund indexes as reported by independent mutual fund reporting
services such as Lipper Analytical Services, Inc. ("Lipper"). The Fund's
performance and its relative size also may be compared to other money market
mutual funds as reported by IBC Financial Data, Inc.'s or Money Market
Insight(R), reporting services on money market funds. Investors may want to
compare the Fund's performance on an after-tax basis to various certificate of
deposit indexes or to that of various bank products as reported by BANK RATE
MONITORTM, a financial reporting service that weekly publishes average rates of
bank and thrift institution money market deposit accounts and interest bearing
checking accounts. The performance of the Fund also may be compared on an after
tax basis to that of U.S. Treasury bills and notes. Certain of these alternative
investments may offer fixed rates of return and guaranteed principal and may be
insured. In addition, investors may want to compare the Fund's performance to
the Consumer Price Index either directly or by calculating its "real rate of
return," which is adjusted for the effects of inflation.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's yield will fluctuate. Shares of the Fund are not insured. Additional
information concerning the Fund's performance appears in the Statement of
Additional Information.
CAPITAL STRUCTURE
The Fund is an open-end diversified management investment company, organized as
a business trust under the laws of Massachusetts on February 25, 1987. The Fund
may issue an unlimited number of shares of beneficial interest in one or more
series or "Portfolios," all having no par value. While only shares of a single
Portfolio are presently being offered, the Board of Trustees may authorize the
issuance of additional Portfolios if deemed desirable, each with its own
investment objective, policies and restrictions. Since the Fund may offer
multiple Portfolios, it is known as a "series company." Shares of a Portfolio
have equal noncumulative voting rights and equal rights with respect to
dividends, assets and liquidation of such Portfolio. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Fund is not required to hold annual
shareholders' meetings and does not intend to do so. However, it will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. Subject to the Agreement and Declaration of Trust of the Fund,
shareholders may remove trustees. If shares of more than one Portfolio are
outstanding, shareholders will vote by Portfolio and not in the aggregate except
when voting in the aggregate is required under the 1940 Act, such as for the
election of trustees.
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TECM 2/97 (LOGO)printed on recycled paper
TAX-EXEMPT
CALIFORNIA
MONEY MARKET
FUND
PROSPECTUS
FEBRUARY 1, 1997
<PAGE> 19
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Municipal Securities; Investment
Restrictions;
Appendix--Ratings of Investments
14. Management of the Fund................... Investment Manager and Shareholder Services;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Manager and Shareholder Services
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions
18. Capital Stock and Other Securities....... Dividends, Net Asset Value and Taxes;
Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares
20. Tax Status............................... Dividends, Net Asset Value and Taxes
21. Underwriters............................. Investment Manager and Shareholder Services
22. Calculations of Performance Data......... Performance
23. Financial Statements..................... Financial Statements
</TABLE>
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1997
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-231-8568
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Tax-Exempt California Money Market Fund
(the "Fund") dated February 1, 1997. The prospectus may be obtained without
charge from the Fund.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Municipal Securities............................................... B-2
Investment Restrictions............................................ B-4
Investment Manager and Shareholder Services........................ B-5
Portfolio Transactions............................................. B-7
Purchase and Redemption of Shares.................................. B-8
Dividends, Net Asset Value and Taxes............................... B-8
Performance........................................................ B-10
Officers and Trustees.............................................. B-13
Special Features................................................... B-15
Shareholder Rights................................................. B-16
Appendix--Ratings of Investments................................... B-18
</TABLE>
The financial statements appearing in the Fund's 1996 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report to
Shareholders accompanies this Statement of Additional Information.
TECM 33 2/97 (LOGO)printed on recycled paper
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<PAGE> 21
MUNICIPAL SECURITIES
Municipal Securities that the Fund may purchase include, without limitation,
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, public utilities, schools,
streets, and water and sewer works. Other public purposes for which Municipal
Securities may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses and obtaining funds to loan to other public
institutions and facilities.
Municipal Securities, such as industrial development bonds, are issued by or on
behalf of public authorities to obtain funds for purposes including privately
operated airports, housing, conventions, trade shows, ports, sports, parking or
pollution control facilities or for facilities for water, gas, electricity or
sewage and solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the interest
paid thereon qualifies as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although the
current federal tax laws place substantial limitations on the size of such
issues.
Municipal Securities generally are classified as "general obligation" or
"revenue." General obligation notes are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue notes are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source. Industrial development bonds
which are Municipal Securities are in most cases revenue bonds and generally do
not constitute the pledge of the credit of the issuer of such bonds.
Examples of Municipal Securities which are issued with original maturities of
one year or less are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes, construction loan notes, pre-refunded municipal
bonds, warrants and tax-free commercial paper.
Tax anticipation notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future date.
Bond anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under the Federal Revenue Sharing Program. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by "Fannie Mae" (the Federal National Mortgage Association)
or "Ginnie Mae" (the Government National Mortgage Association) at the end of the
project construction period. Pre-refunded municipal bonds are bonds that are not
yet refundable, but for which securities have been placed in escrow to refund an
original municipal bond issue when it becomes refundable. Tax-free commercial
paper is an unsecured promissory obligation issued or guaranteed by a municipal
issuer. The Fund may purchase other Municipal Securities similar to the
foregoing that are or may become available, including securities issued to
pre-refund other outstanding obligations of municipal issuers.
The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material and adverse changes in
the rights of holders of obligations issued by such subdivisions or authorities.
Litigation challenging the validity under state constitutions of present systems
of financing public education has been initiated or adjudicated in a number of
states, and legislation has been introduced to effect changes in public school
finances in some states. In other instances there has been litigation
challenging the issuance of pollution control revenue bonds or the validity of
their issuance under state or federal law, which litigation ultimately could
affect the validity of those Municipal Securities or the tax-free nature of the
interest thereon.
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<PAGE> 22
The following information as to certain California risk factors is given to
investors because the Fund concentrates its investments in California state and
local municipal securities. Such information constitutes only a summary, does
not purport to be a complete description and is based upon information from
official statements relating to securities offerings of California issuers.
In recent years, California voters have approved a number of changes to the
State constitution that have limited the ability of State and local issuers to
raise revenues and adjust appropriations.
In 1978, California voters approved Proposition 13 which added Article XIII A to
the California Constitution. Article XIII A changed the definition of assessed
property value and placed restrictions on a taxing entity's ability to increase
real property taxes. In 1979, voters also approved Proposition 4, the so-called
Gann Initiative, which added Article XIII B to the California Constitution. The
purpose of Article XIII B was to limit the annual appropriations of the State
and any local government unit to the level of appropriations for the prior year,
as adjusted for changes in cost of living, population and services required.
Article XIII B also specified that debt service obligations incurred prior to
January 1, 1979 were excluded from the appropriations limits.
In the general elections of 1986, 1988, 1990 and 1996, California voters
approved various measures that amended Article XIII A and XIII B. Propositions
58 and 60 clarified the definitions of "purchased property" and "change of
ownership" found in Article XIII A and added Article XIII C and XIII D to the
state constitution. Propositions 58 and 60 clarified the definitions of
"purchased property" and "change of ownership" found in Article XIII A.
Proposition 98, in addition to guaranteeing a percent of State funding for
public schools, modified Article XIII B to permit excess State revenues to be
transferred to public schools and community colleges rather than returned to
taxpayers. Finally, Proposition 111 amended Article XIII B to ease restrictions
on certain expenditure categories in calculating the annual appropriation
ceiling. Article XIII C and XIII D place additional requirements on revenue
raising abilities of local government units.
Future voter initiatives, if proposed and adopted, could further modify Articles
XIII A, XIII B, XIII C and XIII D and place increased pressures on the ability
of State and local entities to raise revenue and increase appropriations.
California's economy is the largest among the 50 states and one of the largest
in the world. This diversified economy has major components in agriculture,
manufacturing, high technology, trade, entertainment, tourism, construction and
services. Total State gross domestic product of about $890 billion in 1995 was
larger than all but six nations in the world.
After suffering a severe recession in the early 1990s, California's economy has
experienced a steady recovery since 1994. This expansion has helped create a
larger number of jobs than were lost during the recession. The strongest growth
has been in export-related industries, business services, electronics,
entertainment and tourism. Current employment and personal income growth rates
exceed the national average. A recent economic forecast by the UCLA Business
Forecasting Project predicts that California's employment growth rate will
continue to outpace the nation through the year 2000.
The strengthening economy has had a generally positive impact on State finances.
The State's improved cash position allowed it to repay the $4.0 billion Revenue
Anticipation Warrants on April 25, 1996, and restore the State to a normal cash
flow borrowing cycle. According to the FY96-97 adopted budget, the State
projects an ending General Fund balance surplus of $611 million (modified
accrual basis).
California's economic and financial improvement prompted the three major rating
agencies to raise the State's general obligation bond rating in 1996. The
current ratings are A1/A+/A+.
Recent State budgets have included large cuts in local government transfer
payments. These reductions may cause deterioration in local issuer financial
performance and result in reduced bond ratings for some local government
issuers.
B-3
<PAGE> 23
On December 6, 1994, Orange County, California filed for bankruptcy protection
under Chapter 9 of the United States Bankruptcy Code. A Plan of Adjustment was
confirmed and successfully implemented in June 1996.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which cannot be changed
without approval by holders of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the Fund's shares present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more than 50% of
the Fund's shares.
The Fund may not:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(2) Purchase securities (other than securities of the United States Government,
its agencies or instrumentalities or of a state or its political subdivisions)
if as a result of such purchase more than 25% of the Fund's total assets would
be invested in any one industry.
(3) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation. For purposes of this
limitation, the Fund will regard the entity which has the primary responsibility
for the payment of interest and principal as the issuer.
(4) Invest more than 10% of its total assets in illiquid securities, including
repurchase agreements maturing in more than seven days.
(5) Invest more than 5% of the Fund's total assets in industrial development
bonds sponsored by companies which with their predecessors have less than three
years' continuous operation.
(6) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and policies).
(7) Borrow money except from banks for temporary purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed
one-third of the value of the Fund's total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might result in
the untimely disposition of securities; or pledge the Fund's securities or
receivables or transfer or assign or otherwise encumber them in an amount to
exceed 10% of the Fund's net assets to secure borrowings. Reverse repurchase
agreements made by the Portfolio are permitted within the limitations of this
paragraph. The Fund will not purchase securities or make investments while
reverse repurchase agreements or borrowings are outstanding.
(8) Make short sales of securities or purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
(9) Write, purchase or sell puts, calls or combinations thereof, although the
Fund may purchase Municipal Securities subject to Standby Commitments, Variable
Rate Demand Notes or Repurchase Agreements in accordance with its investment
objective and policies.
(10) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(11) Invest for the purpose of exercising control or management of another
issuer.
(12) Invest in commodities or commodity futures contracts or in real estate
except that the Fund may invest in Municipal Securities secured by real estate
or interests therein and securities of issuers which invest or deal in real
estate.
(13) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in Municipal Securities of issuers which invest
in or sponsor such programs.
B-4
<PAGE> 24
(14) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(15) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(16) Issue senior securities as defined in the Investment Company Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund may
invest more than 25% of its total assets in industrial development bonds. The
Fund did not borrow money as permitted by investment restriction number 7 during
its latest fiscal year, and it has no present intention of borrowing during the
current year.
INVESTMENT MANAGER AND SHAREHOLDER SERVICES
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI") is the Fund's
investment manager. ZKI is wholly-owned by ZKI Holding Corp. ZKI Holding Corp.
is a more than 90% owned subsidiary of Zurich Holding Company of America, Inc.,
which is a wholly-owned subsidiary of Zurich Insurance Company, an
internationally recognized company providing services in life and non-life
insurance, reinsurance and asset management. Pursuant to an investment
management agreement, ZKI acts as the Fund's investment adviser, manages its
investments, administers its business affairs, furnishes office facilities and
equipment, provides clerical, bookkeeping and administrative services and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Fund if elected to such positions. The Fund pays the
expenses of its operations, including the fees and expenses of independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, costs of calculating net
asset value, brokerage commissions or transaction costs, taxes, registration
fees, the fees and expenses of qualifying the Fund and its shares for
distribution under federal and state securities laws and membership dues in the
Investment Company Institute or any similar organization.
The agreement provides that ZKI shall not be liable for any error of judgment or
of law, or for any loss suffered by the Fund in connection with the matters to
which the agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of ZKI in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under the agreement.
The investment management agreement continues in effect from year to year so
long as its continuation is approved at least annually by a majority vote of the
trustees who are not parties to such agreement or interested persons of any such
party except in their capacity as trustees of the Fund, cast in person at a
meeting called for such purpose, and by the shareholders or the Board of
Trustees. It may be terminated at any time upon 60 days notice by either party,
or by a majority vote of the outstanding shares, and will terminate
automatically upon assignment. If additional Fund Portfolios become subject to
the investment management agreement, the provisions concerning continuation,
amendment and termination shall be on a Portfolio by Portfolio basis and the
management fee and the expense limitation shall be computed based upon the
average daily net assets of all Portfolios subject to the agreement and shall be
allocated among such Portfolios based upon the relative net assets of such
Portfolios. Additional Portfolios may be subject to a different agreement.
For the services and facilities furnished, the Fund pays an annual investment
management fee, payable monthly, on a graduated basis of .22% of the first $500
million of average daily net assets, .20% of the next $500 million, .175% of the
next $1 billion, .16% of the next $1 billion and .15% of average daily net
assets over $3 billion. Pursuant to the investment management agreement, the
Fund paid ZKI fees of $232,000, $217,000 and $247,000 for the fiscal years ended
September 30, 1996, 1995 and 1994, respectively. ZKI has agreed to reimburse the
Fund to the extent required by applicable state expense limitations should all
operating expenses of the Fund, including the investment management fee of ZKI
but excluding taxes, interest, the distribution services fees of KDI (described
below), extraordinary expenses and brokerage commissions or transaction costs,
exceed the applicable
B-5
<PAGE> 25
state expense limitations. Currently, there are no state expense limitations in
effect.
DISTRIBUTOR. Pursuant to a distribution services agreement ("distribution
agreement"), Kemper Distributors, Inc. ("KDI"), an affiliate of ZKI, serves as
distributor, administrator and principal underwriter to the Fund to provide
information and services for existing and potential shareholders. The
distribution agreement provides that KDI shall act as agent for the Fund in the
sale of its shares and shall appoint various firms to provide a cash management
service for their customers or clients through the Fund. The firms are to
provide such office space and equipment, telephone facilities, personnel and
sales literature distribution as is necessary or appropriate for providing
information and services to the firms' clients and prospective clients. The Fund
pays for the prospectus and shareholder reports to be set in type and printed
for existing shareholders and KDI pays for the printing and distribution of
copies thereof used in connection with the offering of shares to prospective
investors. KDI pays for supplementary sales literature and advertising. For its
services as distributor, the Fund pays KDI an annual distribution services fee,
payable monthly, of .33% of average daily net assets of the Fund. The
distribution agreement continues in effect from year to year so long as its
continuation is approved at least annually by a majority of the trustees who are
not parties to such agreement or interested persons of the Fund and who have no
direct or indirect financial interest in the agreement or in any agreement
related thereto. The agreement automatically terminates in the event of its
assignment and may be terminated at any time without penalty by the Fund or by
KDI upon 60 days' notice. Termination by the Fund may be by vote of a majority
of the Board of Trustees, or a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
agreement, or a majority vote of the outstanding shares. The fee payable
pursuant to the distribution agreement may not be increased without shareholder
approval and all material amendments must in any event be approved by the Board
of Trustees in the manner described above with respect to the continuation of
the agreement. If additional Portfolios are authorized by the Board of Trustees,
the provisions concerning the continuation, amendment and termination of the
distribution services agreement will be on a Portfolio by Portfolio basis.
KDI has related administration services and selling group agreements with
various broker-dealer firms to provide cash management and other services for
the Fund shareholders. Such services and assistance may include, but are not
limited to, establishing and maintaining shareholder accounts and records,
processing purchase and redemption transactions, providing automatic investment
in Fund shares of client account balances, answering routine inquiries regarding
the Fund, assisting clients in changing account options, designations and
addresses, and such other services as may be agreed upon from time to time and
as may be permitted by applicable statute, rule or regulation. KDI also has
services agreements with banking firms to provide the above listed services,
except for certain distribution services which the banks may be prohibited from
providing, for their clients who wish to invest in the Fund. KDI also may
provide some of the above services for the Fund. KDI normally pays the firms at
an annual rate ranging from .15% to .33% of average net assets of those accounts
that they maintain and service. KDI may elect to keep a portion of the total
administration fee to compensate itself for functions performed for the Fund or
to pay for sales materials or other promotional activities.
Since the distribution agreement provides for fees which are used by KDI to pay
for distribution and administration services, the agreement along with the
related administration services and selling group agreements are approved and
renewed in accordance with Rule 12b-1 under the Investment Company Act of 1940
which regulates the manner in which an investment company may, directly or
indirectly, bear expenses of distributing its shares.
For the fiscal year ended September 30, 1996, the Fund incurred distribution
fees of $349,000. Of such amount, KDI remitted $346,000 to various firms
pursuant to the related services agreements. For the fiscal year ended September
30, 1996, KDI incurred underwriting, distribution and administrative expenses in
the approximate amounts noted: service fees to firms $346,000; advertising and
literature $4,000; and marketing and sales expenses $25,000; for a total of
$375,000. A portion of the aforesaid marketing, sales and operating expenses
could be
B-6
<PAGE> 26
considered overhead expense; however, KDI has made no attempt to differentiate
between expenses that are overhead and those that are not.
Certain trustees or officers of the Fund are also directors or officers of ZKI
and KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and payment
for and collection of proceeds of securities bought and sold by the Fund. IFTC
is the transfer agent of the Fund (see "Purchase of Shares" in the prospectus).
Pursuant to a services agreement with IFTC, Kemper Service Company ("KSvC"), an
affiliate of ZKI, serves as "Shareholder Service Agent" of the Fund and, as
such, performs all of IFTC's duties as transfer agent and dividend paying
agents. IFTC receives, as transfer agent, and pays to KSvC annual account fees
of a maximum of $13 per account plus out-of-pocket expense reimbursement. For
the fiscal year ended September 30, 1996, IFTC remitted fees in the amount of
$57,000 to KSvC as Shareholder Service Agent.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the Fund's
investment objective in relation to movements in the general level of interest
rates, to invest money obtained from the sale of Fund shares, to reinvest
proceeds from maturing portfolio securities and to meet redemptions of Fund
shares. These transactions may increase or decrease the yield of the Fund
depending upon management's ability to correctly time and execute such
transactions. Since the Fund's assets will be invested in short-term Municipal
Securities, its portfolio will turn over several times a year. However, since
securities with maturities of less than one year are excluded from required
portfolio turnover rate calculations, the Fund's turnover rate for reporting
purposes will be zero.
ZKI and its affiliates furnish investment management services for the Kemper
Funds and other clients including affiliated insurance companies. These entities
may share some common research and trading facilities. At times investment
decisions may be made to purchase or sell the same investment security for the
Fund and for one or more of the other clients of ZKI or its affiliates. When two
or more of such clients are simultaneously engaged in the purchase or sale of
the same security through the same trading facility, the transactions are
allocated as to amount and price in a manner considered equitable to each.
ZKI, in effecting purchases and sales of portfolio securities for the account of
the Fund, will implement the Fund's policy of seeking the best execution of
orders. Consistent with this policy, orders for portfolio transactions are
placed with broker-dealer firms giving consideration to the quality, quantity
and nature of the firm's professional services, which include execution,
financial responsibility, responsiveness, clearance procedures, wire service
quotations and statistical and other research information provided to the Fund
and ZKI and its affiliates. Subject to seeking best execution of an order,
brokerage is allocated on the basis of all service provided. Any research
benefits derived are available for all clients, including clients of ZKI and its
affiliates. The Fund expects that purchases and sales of portfolio securities
usually will be principal transactions. Portfolio securities will normally be
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid by the Fund for
such purchases and none have been paid during the Fund's last three fiscal
years. Purchases from underwriters will include a commission or concession paid
by the issuer to the
B-7
<PAGE> 27
underwriter, and purchases from dealers serving as market makers will include
the spread between the bid and asked prices.
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold at their net asset value next determined after an order and
payment are received in the form described in the Fund's prospectus. The minimum
initial investment is $1,000 and the minimum subsequent investment is $100 but
such minimum amounts may be changed at any time. See the prospectus for certain
exceptions to these minimums. The Fund may waive the minimum for purchases by
trustees, directors, officers or employees of the Fund or ZKI and its
affiliates. An investor wishing to open an account should use the Account
Information Form available from the Fund or financial services firms. Orders for
the purchase of shares that are accompanied by a check drawn on a foreign bank
(other than a check drawn on a Canadian bank in U.S. Dollars) will not be
considered in proper form and will not be processed unless and until the Fund
determines that it has received payment of the proceeds of the check. The time
required for such a determination will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent (see "Purchase of Shares" in the
prospectus) of a request for redemption in proper form, shares will be redeemed
by the Fund at the applicable net asset value as described in the Fund's
prospectus. A shareholder may elect to use either the regular or expedited
redemption procedures.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable or (ii) it is not reasonably practicable for the Fund
to determine the value of its net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for protection of the
Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will pay
the redemption price in whole or in part by a distribution of portfolio
securities in lieu of cash, in conformity with the applicable rules of the
Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees may deem fair and equitable. If such a distribution
occurs, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be so liquid as a redemption
entirely in cash. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the Fund during any 90-day period for any one shareholder of record.
DIVIDENDS, NET ASSET VALUE AND TAXES
DIVIDENDS. Dividends are declared daily and paid monthly. Shareholders will
receive dividends in additional shares unless they elect to receive cash.
Dividends will be reinvested monthly in shares of the Fund normally on the
fifteenth day of each month, if a business day, otherwise on the next business
day. The Fund will pay shareholders who redeem their entire accounts all unpaid
dividends at the time of redemption not later than the next dividend payment
date. Upon written request to the Shareholder Service Agent, a shareholder may
elect to have Fund dividends invested without sales charge in shares of another
Kemper Fund offering this privilege at the net asset value of such other fund.
See "Special Features--Exchange Privilege" for a list of such other Kemper
Funds. To use this privilege of investing Fund dividends in shares of another
Kemper Fund, shareholders must maintain a minimum account value of $1,000 in
this Fund.
B-8
<PAGE> 28
The Fund calculates its dividends based on its daily net investment income. For
this purpose, net investment income consists of (a) accrued interest income plus
or minus amortized original issue discount or premium, (b) plus or minus all
short-term realized gains and losses on investments and (c) minus accrued
expenses. Expenses of the Fund are accrued each day. Since the Fund's
investments are valued at amortized cost, there will be no unrealized gains or
losses on such investments. However, should the net asset value so computed
deviate significantly from market value, the Board of Trustees could decide to
value the investments at market value and then unrealized gains and losses would
be included in net investment income above.
NET ASSET VALUE. As described in the prospectus, the Fund values its portfolio
instruments at amortized cost, which does not take into account unrealized
capital gains or losses. This involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the effect of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
Calculations are made to compare the value of the Fund's investments valued at
amortized cost with market-based values. Market-based valuations are obtained by
using actual quotations provided by market makers, estimates of market value, or
values obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. If a deviation of 1/2 of 1% or more were to occur between the
net asset value per share calculated by reference to market-based values and the
Fund's $1.00 per share net asset value, or if there were any other deviation
that the Board of Trustees of the Fund believed would result in a material
dilution to shareholders or purchasers, the Board of Trustees would promptly
consider what action, if any, should be initiated. If the Fund's net asset value
per share (computed using market-based values) declined, or were expected to
decline, below $1.00 (computed using amortized cost), the Board of Trustees of
the Fund might temporarily reduce or suspend dividend payments in an effort to
maintain the net asset value at $1.00 per share. As a result of such reduction
or suspension of dividends or other action by the Board of Trustees, an investor
would receive less income during a given period than if such a reduction or
suspension had not taken place. Such action could result in investors receiving
no dividend for the period during which they hold their shares and receiving,
upon redemption, a price per share lower than that which they paid. On the other
hand, if the Fund's net asset value per share (computed using market-based
values) were to increase, or were anticipated to increase above $1.00 (computed
using amortized cost), the Board of Trustees of the Fund might supplement
dividends in an effort to maintain the net asset value at $1.00 per share.
TAXES. Interest on indebtedness that is incurred to purchase or carry shares of
a mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Further, the Fund may not be an
appropriate investment for persons who are "substantial users" of facilities
financed by industrial development bonds held by the Fund or are "related
persons" to such users; such persons should consult their tax advisers before
investing in the Fund.
The "Superfund Act of 1986" (the "Superfund Act") imposes a separate tax on
corporations at a rate of 0.12 percent of the excess of such corporation's
"modified alternative minimum taxable income" over $2 million. A portion of
tax-exempt interest, including exempt-interest dividends from the Fund, may be
includible in modified alternative minimum taxable income. Corporate
shareholders are advised to consult with their tax advisers with respect to the
consequences of the Superfund Act.
To the extent that dividends are derived from earnings on California state and
local government issues, such dividends will be exempt from California income
taxes provided the Fund has complied with the requirement that at least 50% of
its assets at the close of each quarter in the taxable year be invested in
Municipal Securities of California state and local issuers.
B-9
<PAGE> 29
PERFORMANCE
As reflected in the prospectus, the historical performance calculation for the
Fund may be shown in the form of "yield," "effective yield," and "tax-equivalent
yield." These various measures of performance are described below.
The Fund's yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. Under that method, the yield
quotation is based on a seven-day period and is computed as follows. The first
calculation is net investment income per share, which is accrued interest on
portfolio securities, plus or minus amortized original issue discount or
premium, less accrued expenses. This number is then divided by the price per
share (expected to remain constant at $1.00) at the beginning of the period
("base period return"). The result is then divided by 7 and multiplied by 365
and the resulting yield figure is carried to the nearest one-hundredth of one
percent. Realized capital gains or losses and unrealized appreciation or
depreciation of investments are not included in the calculation. For the
seven-day period ended September 30, 1996, the Fund's yield was 3.17%.
The Fund's effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for the effective yield is: (base period return +1)365/7 - 1. For
the seven-day period ended September 30, 1996, the Fund's effective yield was
3.22%.
The tax-equivalent yield of the Fund is computed by dividing that portion of the
Fund's yield (computed as described above) which is tax-exempt by (one minus the
stated combined State of California and federal income tax rate) and adding the
result to that portion, if any, of the yield of the Fund that is not tax-exempt.
Based upon an assumed combined State of California and federal income tax rate
of 42.9% and the Fund's yield as computed as described above for the seven day
period ended September 30, 1996, the Fund's tax-equivalent yield was 5.55%.
Based upon an assumed federal income tax rate of 31% and the Fund's yield
computed as described above for the seven-day period ended September 30, 1996,
the Fund's tax-equivalent yield was 4.59%. For additional information concerning
tax-exempt yields, see "Tax-Exempt versus Taxable Yield" below.
The Fund's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in the Fund will
actually yield for any given future period. Actual yields will depend not only
on changes in interest rates on money market instruments during the period in
which the investment in the Fund is held, but also on such matters as Fund
expenses.
Investors have an extensive choice of money market funds and money market
deposit accounts and the information below may be useful to investors who wish
to compare the past performance of the Fund with that of its competitors. Past
performance is not a guarantee of future results.
As indicated in the prospectus (see "Performance"), the Fund's performance may
be compared to that of other mutual funds tracked by Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations include the reinvestment of all
capital gain and income dividends for the periods covered by the calculations.
The Fund's performance also may be compared to other money market funds as
reported by IBC Financial Data, Inc.'s ("IBC") or Money Market Insight(R)
reporting services on money market funds. As reported by IBC, all investment
results represent yield (annualized results for the period net of management
fees and other expenses) and one-year investment results are effective annual
yields assuming reinvestment of dividends.
The following investment comparisons are based upon information reported by
Lipper and IBC. In the comparison of the Fund's performance versus IBC average
yield for All Taxable Money Market Funds and Lipper performance of Money Market
Instrument Funds, the performance of the Fund has been adjusted on a taxable
equivalent basis assuming a combined California and federal tax rate of 42.9%
(see "Tax-Exempt versus Taxable Yield" below for more information concerning
taxable equivalent performance).
B-10
<PAGE> 30
IBC LIPPER ANALYTICAL SERVICES, INC.
<TABLE>
<CAPTION>
IBC
AVERAGE LIPPER
YIELD CALIFORNIA
TAX-EXEMPT CALIFORNIA TAX-EXEMPT TAX-EXEMPT
CALIFORNIA TAX-FREE CALIFORNIA MONEY
MONEY MONEY MONEY MARKET
MARKET MARKET MARKET FUNDS
PERIOD FUND FUNDS PERIOD FUND AVERAGE
- ----------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
7 Days Ended 9/30/96 3.17% 3.09% 1 Month Ended 9/30/96 .22% .23%
1 Month Ended 9/30/96 2.85 2.87 11 Months Ended 9/30/96 2.67 2.69
1 Year Ended 9/30/96 2.93 2.97 1 Year Ended 9/30/96 2.93 2.96
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT IBC TAX-EXEMPT
CALIFORNIA AVERAGE CALIFORNIA
MONEY YIELD MONEY LIPPER
MARKET ALL MARKET MONEY
FUND TAXABLE FUND MARKET
TAXABLE MONEY TAXABLE INSTRUMENT
EQUIVALENT MARKET EQUIVALENT FUNDS
PERIOD BASIS* FUNDS PERIOD BASIS* AVERAGE
- ------------------------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
7 Days Ended 9/30/96 5.55% 4.86% 1 Month Ended 9/30/96 .39% .38%
1 Month Ended 9/30/96 4.99 4.83 11 Months Ended 9/30/96 4.68 4.45
1 Year Ended 9/30/96 5.13 5.05 1 Year Ended 9/30/96 5.13 4.90
</TABLE>
- --------------------------------------------------------------------------------
* Source: Zurich Kemper Investments, Inc. (not reported in IBC or Lipper).
The Fund's performance also may be compared on an after-tax basis to various
bank products, including the average rate of bank and thrift institution money
market deposit accounts or interest bearing checking accounts as reported in the
BANK RATE MONITOR National Index(TM) of 100 leading bank and thrift institutions
as published by the BANK RATE MONITOR(TM), N. Palm Beach, Florida 33408. The
rates published by the BANK RATE MONITOR National Index(TM) are averages of the
personal account rates offered on the Wednesday prior to the date of publication
by 100 large banks and thrifts in the top ten Consolidated Standard Metropolitan
Statistical Areas. Account minimums range upward from $2,500 in each institution
and compounding methods vary. Interest bearing checking accounts generally offer
unlimited check writing while money market deposit accounts generally restrict
the number of checks that may be written. If more than one rate is offered, the
lowest rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Bank products
represent a taxable alternative income producing product. Bank and thrift
institution deposit accounts may be insured. Shareholder accounts in the Fund
are not insured. Bank passbook savings accounts share some liquidity features
with money market mutual fund accounts but they may not offer all the features
available from a money market mutual fund, such as check writing. Bank passbook
savings accounts normally offer a fixed rate of interest while the yield of the
Fund fluctuates. Bank checking accounts normally do not pay interest but share
some liquidity features with money market mutual fund accounts (e.g., the
ability to write checks against the account). Bank certificates of deposit may
offer fixed or variable rates for a set term. (Normally, a variety of terms are
available.) Withdrawal of these deposits prior to maturity normally will be
subject to a penalty. In contrast, shares of the Fund are redeemable at the net
asset value (normally $1.00 per share) next determined after a request is
received, without charge.
Investors also may want to compare the Fund's performance on an after-tax basis
to that of U.S. Treasury bills or notes because such instruments represent
alternative income producing products. Treasury obligations are issued in
selected denominations. Rates of U.S. Treasury obligations are fixed at the time
of issuance and payment of principal and interest is backed by the full faith
and credit of the U.S. Treasury. The market value of such instruments generally
will fluctuate inversely with interest rates prior to maturity and will equal
par value at maturity. Generally, the value of obligations with shorter
maturities will fluctuate less than those with longer maturities. The Fund's
yield will fluctuate. Also, while the Fund seeks to maintain a net asset value
per share of $1.00, there is no assurance that it will be able to do so.
B-11
<PAGE> 31
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with that of its competitors. Of course, past performance
cannot be a guarantee of future results.
The Fund's performance also may be compared to the Consumer Price Index, as
published by the U.S. Bureau of Labor Statistics, which is an established
measure of change over time in the prices of goods and services in major
expenditure groups.
TAX-EXEMPT VERSUS TAXABLE YIELD. You may want to determine which
investment--tax-exempt or taxable--will provide you with a higher after-tax
return. To determine the taxable equivalent yield, simply divide the yield from
the tax-exempt investment by [1 minus your marginal tax rate]. The tables below
are provided for your convenience in making this calculation for selected
tax-exempt yields and taxable income levels. These yields are presented for
purposes of illustration only and are not representative of any yield that the
Fund may generate. Both tables are based upon current law as to the 1996 tax
rate schedules.
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS UNDER
$117,950
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME YOUR
MARGINAL A TAX-EXEMPT YIELD OF:
FEDERAL TAX 2% 3% 4% 5% 6% 7%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$24,000 - $58,150 $40,100 - $96,900 28.0% 2.78 4.17 5.56 6.94 8.33 9.72
- ------------------------------------------------------------------------------------------------------------------------
Over $58,150 Over $96,900 31.0 2.90 4.35 5.80 7.25 8.70 10.14
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME COMBINED
CALIFORNIA
AND A TAX-EXEMPT YIELD OF:
FEDERAL TAX 2% 3% 4% 5% 6% 7%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$24,000 - $25,484 $40,100 - $50,968 32.3% 2.95 4.43 5.91 7.39 8.86 10.34
- ----------------------------------------------------------------------------------------------------------------------
$25,484 - $32,207 $50,968 - $64,414 33.8 3.02 4.53 6.04 7.55 9.06 10.57
- ----------------------------------------------------------------------------------------------------------------------
$32,207 - $58,150 $64,414 - $96,900 34.7 3.06 4.59 6.13 7.66 9.19 10.72
- ----------------------------------------------------------------------------------------------------------------------
Over $58,150 Over $96,900 37.4 3.19 4.79 6.39 7.99 9.58 11.18
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS OVER
$117,950*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME YOUR
MARGINAL A TAX-EXEMPT YIELD OF:
FEDERAL TAX 2% 3% 4% 5% 6% 7%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 58,150 - $121,300 $ 96,900 - $147,700 31.9% 2.94 4.41 5.87 7.34 8.81 10.28
------------------------------------------------------------------------------------------------------------------------
$121,300 - $263,750 $147,700 - $263,750 37.1 3.18 4.77 6.36 7.95 9.54 11.13
- ------------------------------------------------------------------------------------------------------------------------
Over $263,750 Over $263,750 40.8 3.38 5.07 6.76 8.45 10.14 11.82
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-12
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME COMBINED
CALIFORNIA
AND A TAX-EXEMPT YIELD OF:
FEDERAL TAX 2% 3% 4% 5% 6% 7%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------------
$ 58,150 - $111,695 $ 86,900 - $147,700 38.2% 3.24 4.85 6.47 8.09 9.71 11.33
- ------------------------------------------------------------------------------------------------------------------------
$111,695 - $121,300 38.7 3.26 4.89 6.53 8.16 9.79 11.42
- ------------------------------------------------------------------------------------------------------------------------
$147,700 - $223,390 42.9 3.50 5.25 7.01 8.76 10.51 12.26
- ------------------------------------------------------------------------------------------------------------------------
$121,300 - $223,390 $223,390 - $263,750 43.4 3.53 5.30 7.07 8.83 10.60 12.37
- ------------------------------------------------------------------------------------------------------------------------
$223,390 - $263,750 44.0 3.57 5.36 7.14 8.93 10.71 12.50
- ------------------------------------------------------------------------------------------------------------------------
$263,750 - $446,780 46.7 3.75 5.63 7.50 9.38 11.26 13.13
- ------------------------------------------------------------------------------------------------------------------------
Over $263,750 Over $446,780 47.3 3.80 5.69 7.59 9.49 11.39 13.28
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This table assumes a decrease of $3.00 of itemized deductions for each $100
of adjusted gross income over $117,950. For a married couple with adjusted
gross income between $176,950 and $299,450 (single between $117,950 and
$240,450), add 0.7% to the above Marginal Federal Tax Rate for each personal
and dependency exemption. The taxable equivalent yield is the tax-exempt
yield divided by: 100% minus the adjusted tax rate. For example, if the table
tax rate is 37.1% and you are married with no dependents, the adjusted tax
rate is 38.5% (37.1% + 0.7% + 0.7%). For a tax-exempt yield of 6%, the
taxable equivalent yield is about 9.8% (6% / (100% - 38.5%)).
OFFICERS AND TRUSTEES
The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with ZKI, the investment manager and
KDI, the principal underwriter, are as follows: (The number following each
person's title is the number of investment companies managed by ZKI and its
affiliates, for which he or she holds similar positions):
DAVID W. BELIN (6/20/28), Trustee, (25), 2000 Financial Center, 7th and Walnut,
Des Moines, Iowa; Member, Belin Lamson McCormick Zumbach Flynn, P.C.
(attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee, (25), 16410 Avila Boulevard, Tampa, Florida;
Director, Management Consulting Services, McNulty & Company; formerly, Executive
Vice President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee, (25), 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, (25), 800 North Lindbergh Boulevard, St.
Louis, Missouri; Senior Vice President and Chief Financial Officer, Monsanto
Company (chemical products); prior thereto, Vice President, FMC Corporation
(manufacturer of machinery and chemicals); prior thereto, Director, Executive
Vice President and Chief Financial Officer, Staley Continental, Inc. (food
products).
DONALD R. JONES (1/17/30), Trustee, (25), 1776 Beaver Pond Road, Inverness,
Illinois; Retired; Director, Motorola, Inc. (manufacturer of electronic
equipment and components); formerly, Executive Vice President and Chief
Financial Officer, Motorola, Inc.
DOMINIQUE P. MORAX (10/2/48), Trustee*, (38), 222 South Riverside Plaza,
Chicago, Illinois; Member, Extended Corporate Executive Board, Zurich Insurance
Company; Director, ZKI.
SHIRLEY D. PETERSON (9/3/41), Trustee (25), 401 Rosemont Avenue, Frederick,
Maryland; President, Hood College, Maryland; prior thereto, Partner, Steptoe &
Johnson (attorneys); prior thereto, Commissioner of Internal Revenue Service;
prior thereto, Assistant Attorney General, U.S. Department of Treasury.
WILLIAM P. SOMMERS (7/22/33), Trustee, (25), 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); prior thereto, Executive
B-13
<PAGE> 33
Vice President, Iameter (medical information and educational service provider);
prior thereto, Senior Vice President and Director, Booz, Allen & Hamilton, Inc.
(management consulting firm) (retired); Director, Rohr, Inc., Therapeutic
Discovery Corp. and Litton Industries.
STEPHEN B. TIMBERS (8/8/44), President and Trustee*, (38), 222 South Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, KDI and LTV Corporation.
JOHN E. NEAL (3/9/50), Vice President*, (38), 222 South Riverside Plaza,
Chicago, Illinois; President, Kemper Funds Group, a unit of KDI; Director, ZKI
and KDI.
CHARLES R. MANZONI, JR. (1/23/47), Vice President*, (38), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI; Secretary, ZKI Holding Corp.; Secretary, ZKI Agency, Inc.;
formerly, Partner, Gardner, Carton & Douglas (attorneys).
J. PATRICK BEIMFORD, JR. (5/25/50), Vice President*, (23), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President and Chief Investment Officer
- -- Fixed Income Investments, ZKI.
FRANK J. RACHWALSKI, JR. (3/26/45), Vice President*, (8), 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, ZKI.
JEROME L. DUFFY (6/29/36), Treasurer*, (38), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, (38), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, (30), 222 South Riverside
Plaza, Chicago, Illinois; Vice President, ZKI; and Vice President and Director
of State Registrations, KDI.
* Interested persons as defined in the Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Fund's 1996 fiscal year except that the information in the last column is for
calendar year 1996.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION KEMPER FUNDS
NAME OF TRUSTEE FROM FUND PAID TO TRUSTEES**
- ---------------------------------------------------------- ------------ -------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
David W. Belin*........................................... $2,700 $ 143,000
Lewis A. Burnham.......................................... $1,800 $ 88,800
Donald L. Dunaway*........................................ $3,000 $ 141,000
Robert B. Hoffman......................................... $1,900 $ 92,100
Donald R. Jones........................................... $1,900 $ 92,100
Shirley D. Peterson....................................... $1,800 $ 89,800
William P. Sommers........................................ $1,800 $ 87,500
</TABLE>
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Kemper Funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Kemper Money Funds --
Kemper Money Market Fund. Total deferred fees and interest accrued for
latest and prior fiscal years for this Fund are $16,700 for Mr. Belin and
$18,600 for Mr. Dunaway.
** Includes compensation for services as trustee on twenty-four fund boards
with forty-one portfolios. Each trustee currently serves as a trustee of
twenty-five Kemper Funds and forty-two fund portfolios.
As of January 6, 1997, the trustees and officers as a group owned less than 1%
of the then outstanding shares of the Fund and no person owned of record 5% or
more of the outstanding shares of the Fund, except that Southwest Securities,
Inc., 1201 Elm Street, Dallas, Texas 75270, owned of record 11.06% and Richard
C. Solari, P.O. Box 40, Capitola, California 95010, owned of record 6.79% of the
Fund's Shares.
B-14
<PAGE> 34
SPECIAL FEATURES
EXCHANGE PRIVILEGE. Subject to the limitations described below, Class A shares
(or the equivalent) of the following Kemper Mutual Funds may be exchanged for
each other at their relative net asset values: Kemper Technology Fund, Kemper
Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization Equity Fund,
Kemper Income and Capital Preservation Fund, Kemper Municipal Bond Fund, Kemper
Diversified Income Fund, Kemper High Yield Fund, Kemper U.S. Government
Securities Fund, Kemper International Fund, Kemper State Tax-Free Income Series,
Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip Fund, Kemper
Global Income Fund, Kemper Target Equity Fund (series are subject to a limited
offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves
Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund
Kemper-Dreman Fund, Inc., Kemper Value+Growth Fund, Kemper Horizon Fund, Kemper
Quantitative Equity Fund, Kemper Europe Fund, Kemper Asian Growth Fund and
Kemper Aggressive Growth Fund ("Kemper Mutual Funds") and certain "Money Market
Funds" (Kemper Money Funds, Cash Equivalent Fund, Tax-Exempt California Money
Market Fund, Cash Account Trust, Tax-Exempt New York Money Market Fund and
Investors Cash Trust). Shares of Money Market Funds and Kemper Cash Reserves
Fund that were acquired by purchase (not including shares acquired by dividend
reinvestment) are subject to the applicable sales charge on exchange. In
addition, shares of a Kemper Mutual Fund with a value in excess of $1,000,000,
other Kemper Cash Reserves Fund, acquired by exchange from another Fund may not
be exchanged thereafter until they have been owned for 15 days (the "15 Day Hold
Policy"). For purposes of determining whether the 15 Day Hold Policy applies to
a particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, direction or advice, including without limitation accounts administered
by a financial services firm offering market timing, asset allocation or similar
services. Series of Kemper Target Equity Fund are available on exchange only
during the Offering Period for such series as described in the prospectus for
such series. Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash
Account Trust, Tax-Exempt New York Money Market Fund and Investors Cash Trust
are available on exchange but only through a financial services firm having a
services agreement with KDI with respect to such Funds. Exchanges may only be
made for funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Tax-Exempt New York Money Market Fund is available
for sale only in New York, Connecticut, New Jersey and Pennsylvania.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Kemper fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, financial services
firms may charge for their services in expediting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis. Shareholders interested in exercising the
exchange privilege may obtain an exchange form and prospectuses of the other
funds from firms or KDI. Exchanges also may be authorized by telephone if the
account holder has given authorization. Once the authorization is on file, the
Shareholder Service Agent will honor requests by telephone at 1-800-231-8568,
subject to the limitations on liability described under "Redemption of Shares"
in the prospectus. Any share certificates must be deposited prior to any
exchange of such shares. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the telephone
exchange privilege. The exchange privilege is not a right and may be suspended,
terminated or modified at any time. Except as otherwise permitted by applicable
regulation, 60 days' prior written notice of any termination or material change
will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of the shares of a
Kemper Mutual Fund or Money Market Fund may authorize the automatic exchange of
a specified amount ($100 minimum) of such shares for shares of another such
Kemper Fund. Shareholders interested in the systematic exchange privilege may
obtain the
B-15
<PAGE> 35
appropriate forms and prospectuses of the other funds from firms or the
Shareholder Service Agent. If selected, exchanges will be made automatically
until the privilege is terminated by the shareholder or the other Kemper Fund.
Exchanges are subject to the terms and conditions described above under
"Exchange Privilege", except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.
SYSTEMATIC WITHDRAWAL PROGRAM. The owner of $5,000 or more of the Fund's shares
may provide for the payment from the owner's account of any requested dollar
amount up to $50,000 to be paid to the owner or a designated payee monthly,
quarterly, semi-annually or annually. The minimum periodic payment is $100.
Shares are redeemed so that the payee will receive payment approximately the
first of the month. Dividend distributions will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested, redemptions for the purpose of making such payments may reduce or
even exhaust the account. The right is reserved to amend the systematic
withdrawal program on thirty days notice. The program may be terminated at any
time by the shareholder or the Fund. Firms provide varying arrangements for
their clients to redeem Fund shares on a periodic basis. Such firms may
independently establish minimums for such services.
ELECTRONIC FUNDS TRANSFER PROGRAMS. For your convenience, the Fund has
established several investment and redemption programs using electronic funds
transfer via the Automated Clearing House (ACH). There is currently no charge by
the Fund for these ACH transactions. To use these features, your financial
institution (your employer's financial institution in the case of payroll
deposit) must be affiliated with an Automated Clearing House (ACH). This ACH
affiliation permits the Shareholder Service Agent to rely upon telephone
instructions from ANY PERSON to electronically transfer money between your bank
account, or employer's payroll bank in the case of Direct Deposit, and your Fund
account, subject to the limitations on liability under "Redemption of Shares" in
the prospectus. Your bank's crediting policies of these transferred funds may
vary. These features may be amended or terminated at any time by the Fund.
Shareholders should contact the Kemper Service Company at 1-800-621-1048 or the
firm through which their account was established for more information. These
programs may not be available through some firms that distribute shares of the
Fund.
SHAREHOLDER RIGHTS
The Fund generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Fund ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which shareholder approval is
required by the Investment Company Act of 1940 ("1940 Act"); (c) any termination
of the Fund to the extent and as provided in the Declaration of Trust; (d) any
amendment of the Declaration of Trust (other than amendments changing the name
of the Fund or any Portfolio, establishing a Portfolio, supplying any omission,
curing any ambiguity or curing, correcting or supplementing any defective or
inconsistent provision thereof); (e) as to whether a court action, proceeding or
claim should or should not be brought or maintained derivatively or as a class
action on behalf of the Fund or the shareholders, to the same extent as the
stockholders of a Massachusetts business corporation; and (f) such additional
matters as may be required by law, the Declaration of Trust, the By-laws of the
Fund, or any registration of the Fund with the Securities and Exchange
Commission or any state, or as the trustees may consider necessary or desirable.
The shareholders also would vote upon changes in fundamental investment
objectives, policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy on the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
B-16
<PAGE> 36
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the Fund could
take place even if less than a majority of the shareholders were represented on
its scheduled date. Shareholders would in such a case be permitted to take
action which does not require a larger vote than a majority of a quorum, such as
the election of trustees and ratification of the selection of auditors. Some
matters requiring a larger vote under the Declaration of Trust, such as
termination or reorganization of the Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Fund (or any Portfolio) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by ZKI remote and not
material, since it is limited to circumstances in which a disclaimer is
inoperative and the Fund itself is unable to meet its obligations.
B-17
<PAGE> 37
APPENDIX--RATINGS OF INVESTMENTS
The two highest ratings of Moody's Investors Service, Inc. ("Moody's") for
Municipal Securities are Aaa and Aa. Municipal Securities rated Aaa are judged
to be of the "best quality." The rating of Aa is assigned to Municipal
Securities which are of "high quality by all standards," but as to which margins
of protection or other elements make long-term risks appear somewhat larger than
Aaa rated Municipal Securities. The Aaa and Aa rated Municipal Securities
comprise what are generally known as "high grade."
The two highest ratings of Standard & Poor's Corporation ("S&P") for Municipal
Securities are AAA (Prime) and AA (High Grade). Municipal Securities 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."
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Loans designated MIG-1 are of 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. Loans designated MIG-2 are of high quality, with margins
of protection ample although not so large as in the preceding group.
An S&P municipal and corporate commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues assigned this
highest rating are regarded as having the greatest capacity for timely payment.
The designation A-1 indicates that the degree of safety regarding timely payment
is very strong. The designation A-2 indicates the capacity for timely payment is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1."
The "other debt securities" included in the definition of temporary investments
are corporate (as opposed to municipal) debt obligations rated AAA or AA by S&P
or Aaa or Aa by Moody's. Corporate debt obligations rated AAA by S&P are
"highest grade obligations." Obligations bearing the rating of AA also qualify
as "high grade obligations" and "in the majority of instances differ from AAA
issues only in small degree." The Moody's corporate debt ratings of Aaa and Aa
do not differ materially from those set forth above for Municipal Securities.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's. Among the factors considered by them in assigning ratings
are the following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (c) evaluation of
the issuer's products in relation to competition and customer acceptance; (d)
liquidity; (e) amount and quality of long-term debt; (f) trend of earnings over
a period of ten years; (g) financial strength of a parent company and the
relationships which exist with the issuer; and (h) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated Prime-1, 2 or 3.
After its purchase by the Fund, an issue of Municipal Securities or a temporary
investment may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event requires the elimination of
such obligation from the Fund's portfolio, but the Fund's investment adviser
will consider such an event in its determination of whether the Fund should
continue to hold such obligation in its portfolio. To the extent that the
ratings accorded by S&P or Moody's for Municipal Securities or temporary
investments may change as a result of changes in such organizations, or changes
in their rating systems, the Fund will attempt to use comparable ratings as
standards for its investments in Municipal Securities or temporary investments
in accordance with the investment policies contained herein.
B-18
<PAGE> 38
2
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
September 30, 1996
(Value in thousands)
<TABLE>
<CAPTION>
Value
- --------------------------------------------------------------------------------
<S> <C>
(A)VARIABLE RATE DEMAND SECURITIES
State of California
Pollution Control Financing Authority
Occidental Geothermal Inc. Project
3.55% $ 2,500
Pacific Gas and Electric Company
3.85% 2,700
- -------------------------------------------------------------
Auburn
Union School District
3.90% 3,625
- -------------------------------------------------------------
Costa Mesa
Performing Arts Center
3.65% 4,650
- -------------------------------------------------------------
Fremont
Multifamily Housing Revenue
3.70% 3,000
Public Financing Authority
3.90% 4,700
- -------------------------------------------------------------
Irvine
Assessment District
3.60% 2,000
East Investment Company Revenue
3.65% 1,750
Public Facilities and Infrastructure Authority
3.60% 3,500
- -------------------------------------------------------------
Kern County
Community College District
4.45% 4,500
Public Facilities Project
3.65% 3,400
- -------------------------------------------------------------
Los Angeles
Housing Authority
3.90% 3,400
Pension Obligation Bonds
3.70% 5,200
- -------------------------------------------------------------
Monterey County
Peninsula Water Management District
3.70% 4,500
Regional Waste Management Authority
3.90% 2,000
- -------------------------------------------------------------
Orange County
Multifamily Housing Revenue
3.80% 3,000
Sanitation District
3.90% 1,300
Water District
3.75% 3,100
- -------------------------------------------------------------
<CAPTION>
Value
<S> <C>
Palm Springs
Community Redevelopment Agency
3.75% $ 4,530
- -------------------------------------------------------------
Riverside County
Industrial Development Authority
3.65% 1,300
Tax and Revenue Anticipation Notes
3.70% 3,000
- -------------------------------------------------------------
Roseville
Finance Authority
3.70% 1,900
- -------------------------------------------------------------
Sacramento County
Multifamily Housing Revenue
Briarwood Apartments
3.90% 3,700
Stone Creek Apartments
3.95% 4,900
- -------------------------------------------------------------
San Bernardino
County Center
3.80% 2,100
Multifamily Housing Revenue
4.15% 1,500
- -------------------------------------------------------------
San Diego
Housing Authority
3.85% 2,600
- -------------------------------------------------------------
San Jose
Multifamily Housing Revenue
3.55% 3,000
- -------------------------------------------------------------
Santa Ana
School District
3.80% 3,000
- -------------------------------------------------------------
Santa Clara County
Transit District
3.90% 2,500
- -------------------------------------------------------------
Southeast Resource
Recovery Facilities Authority
3.95% 1,000
- -------------------------------------------------------------
Ventura County
Triunfo Sanitation District
3.90% 2,400
- -------------------------------------------------------------
TOTAL VARIABLE RATE DEMAND
SECURITIES--81.0%
(average maturity: 5 days) 96,255
- -------------------------------------------------------------
</TABLE>
<PAGE> 39
3
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER SECURITIES Value
<S> <C>
State of California
Pollution Control Financing Authority
3.55%-3.60%, 11/13/96-12/10/96 $ 7,000
Public Capital Improvements Financing Authority
3.80%, 12/15/96 4,500
Revenue Anticipation Notes
3.97%, 6/30/97 3,011
- ----------------------------------------------------------
Riverside County
Transportation Commission
3.70%, 10/17/96 3,000
- ----------------------------------------------------------
San Diego County
Teeter Obligation Notes
3.65%, 11/7/96 3,000
- ----------------------------------------------------------
<CAPTION>
Value
<S> <C>
Puerto Rico
Industrial Development Authority
3.40%, 11/7/96 $ 2,000
- ----------------------------------------------------------
TOTAL OTHER SECURITIES--18.9%
(average maturity: 79 days) 22,511
- ----------------------------------------------------------
TOTAL INVESTMENTS--99.9%
(average maturity: 19 days) 118,766
- ----------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.1% 118
- ----------------------------------------------------------
NET ASSETS--100% $118,884
- ----------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
Interest rates represent annualized yield to date of maturity, except for
variable rate securities described in Note (a). For each security, cost (for
financial reporting and federal income tax purposes) and carrying value are the
same. Likewise, carrying value approximates principal amount.
(a) Variable rate demand securities are payable within five business days and
are backed by credit support agreements from banks or insurance
institutions. The rates shown are the current rates at September 30, 1996.
See accompanying Notes to Financial Statements.
<PAGE> 40
4
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Exempt California Money Market Fund as of
September 30, 1996, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the fiscal periods since 1992.
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 investments owned as of
September 30, 1996 by correspondence with the custodian and brokers. 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
Tax-Exempt California Money Market Fund at September 30, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the fiscal periods since 1992, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1996
<PAGE> 41
5
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
(in thousands)
- ----------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------
Investments, at amortized cost $118,766
- ----------------------------------------------------------
Cash 34
- ----------------------------------------------------------
Receivable for:
Interest 392
- ----------------------------------------------------------
Fund shares sold 3
- ----------------------------------------------------------
Securities sold 80
- ----------------------------------------------------------
Total assets 119,275
- ----------------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------------
Payable for:
Dividends 141
- ----------------------------------------------------------
Fund shares redeemed 97
- ----------------------------------------------------------
Management fee 22
- ----------------------------------------------------------
Distribution services fee 33
- ----------------------------------------------------------
Custodian and transfer agent fees
and related expenses 15
- ----------------------------------------------------------
Other 83
- ----------------------------------------------------------
Total liabilities 391
- ----------------------------------------------------------
Net assets applicable to
shares outstanding $118,884
- ----------------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------------
Shares outstanding 118,884
- ----------------------------------------------------------
Net asset value and
redemption price per share $1.00
- ----------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year ended September 30, 1996
(in thousands)
- ----------------------------------------------------------
<TABLE>
<S> <C>
INTEREST INCOME $3,813
- ----------------------------------------------------------
EXPENSES:
Management fee 232
- ----------------------------------------------------------
Distribution services fee 349
- ----------------------------------------------------------
Custodian and transfer agent
fees and related expenses 103
- ----------------------------------------------------------
Professional fees 41
- ----------------------------------------------------------
Reports to shareholders 19
- ----------------------------------------------------------
Registration costs 3
- ----------------------------------------------------------
Trustees' fees and other 19
- ----------------------------------------------------------
Total expenses 766
- ----------------------------------------------------------
Net investment income $3,047
- ----------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Years ended September 30, 1996 and 1995
(in thousands)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,047 3,115
- -----------------------------------------------------------
Dividends to shareholders from
net investment income (3,047) (3,115)
- -----------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (DOLLAR
AMOUNTS AND NUMBER OF SHARES
ARE THE SAME):
Shares sold 370,566 382,622
- -----------------------------------------------------------
Shares issued in reinvestment
of dividends 3,038 3,065
- -----------------------------------------------------------
373,604 385,687
Shares redeemed (360,012) (381,543)
- -----------------------------------------------------------
Net increase from capital share
transactions and total increase in
net assets 13,592 4,144
- -----------------------------------------------------------
NET ASSETS:
Beginning of year 105,292 101,148
- -----------------------------------------------------------
End of year $ 118,884 105,292
- -----------------------------------------------------------
</TABLE>
<PAGE> 42
6
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
Tax-Exempt California Money Market Fund is an open-end management investment
company organized as a business trust under the laws of Massachusetts.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION
Investments are stated at amortized cost, which approximates market value. In
the event that a deviation of 1/2 of 1% or more exists between the Fund's $1.00
per share net asset value, calculated at amortized cost, and the net asset value
calculated by reference to market-based values, or if there is any other
deviation that the Board of Trustees believes would result in a material
dilution to shareholders or purchasers, the Board of Trustees will promptly
consider what action should be initiated.
INVESTMENT TRANSACTIONS AND INTEREST INCOME
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis and
includes amortization of premium on investments.
FUND SHARE VALUATION AND DIVIDENDS TO SHAREHOLDERS
Fund shares are sold and redeemed on a continuous basis at net asset value. On
each day that the New York Stock Exchange is open for trading, the Fund
determines its net asset value per share at 11:00 a.m. and 3:00 p.m. Chicago
time by dividing the total value of the Fund's investments and other assets,
less liabilities, by the number of Fund shares outstanding. The Fund declares a
daily dividend, equal to its net investment income for that day, payable
monthly. Net investment income consists of all interest income, plus (minus) all
realized gains (losses) on portfolio securities, minus all expenses of the Fund.
FEDERAL INCOME TAXES
The Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies and therefore no federal income tax provision
is required.
3. TRANSACTIONS WITH AFFILIATES
MANAGEMENT AGREEMENT
The Fund has a management agreement with Zurich Kemper Investments, Inc. (ZKI)
and pays a management fee at an annual rate of .22% of the first $500 million of
average daily net assets declining to .15% of average daily net assets in excess
of $3 billion. During the year ended September 30, 1996, the Fund incurred a
management fee of $232,000.
DISTRIBUTION AGREEMENT
The Fund also has an administration, shareholder services and distribution
agreement with Kemper Distributors Inc. (KDI). For distribution services, the
Fund pays KDI an annual fee of .33% of average daily net assets of the Fund. KDI
has related service agreements with various firms to provide cash management and
other services for Fund shareholders. Under these agreements, KDI pays such
firms at an annual rate ranging from .15% to .33% of the average daily net
assets of those accounts that they maintain and service. During the year ended
September 30, 1996, the Fund incurred a distribution services fee of $349,000,
of which KDI, pursuant to the related service agreements, remitted $346,000 to
various firms.
SHAREHOLDER SERVICES AGREEMENT
Pursuant to a services agreement with the Fund's transfer agent, Kemper Service
Company (KSvC) is the shareholder service agent of the Fund. Under the
agreement, KSvC received shareholder services
<PAGE> 43
7
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
fees of $57,000 for the year ended September 30, 1996.
OFFICERS AND TRUSTEES
Certain officers or trustees of the Fund are also officers or directors of ZKI.
During the year ended September 30, 1996, the Fund made no payments to its
officers and incurred trustees' fees of $16,000 to independent trustees.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .03 .03 .02 .02 .02
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.93% 3.23 1.97 1.88 2.64
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .72% .75 .71 .69 .69
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.88% 3.16 1.94 1.87 2.62
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $118,884 105,292 101,148 122,560 128,822
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FEDERAL TAX STATUS OF 1996 DIVIDENDS
All of the dividends constitute tax-exempt interest which is not taxable for
federal or State of California income tax purposes.
<PAGE> 44
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Financial statements included in Part A of the Registration
Statement:
Financial Highlights.
(ii) Financial Statements included in Part B of the Registration
Statement:
Statement of assets and liabilities--September 30, 1996.
Statement of operations for the year ended September 30, 1996.
Statement of changes in net assets for each of the two years in
the period ended September 30, 1996.
Portfolio of investments--September 30, 1996.
Notes to financial statements.
Schedules II, III, IV and V have been omitted as the required
information is not present.
Schedule I has been omitted as the required information is presented in
the portfolio of investments at September 30, 1996.
(b) Exhibits
<TABLE>
<S> <C>
99.B1. Agreement and Declaration of Trust.*
99.B2. By-Laws.*
99.B3. Inapplicable.
99.B4. Text of Share Certificate.*
99.B5. Investment Management Agreement.*
99.B6. (a) Administration, Shareholder Services and Distribution Agreement.*
99.B6. (b) Form of Administration Services and Selling Group Agreement.*
99.B7. Inapplicable.
99.B8. Custody Agreement.*
99.B9. (a) Agency Agreement.*
99.B9. (b) Supplement to Agency Agreement.
99.B10. Inapplicable.
99.B11. Report and Consent of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14. Inapplicable.
99.B15. See Items 6(a) and (b) above.
99.B16. Performance Calculations.*
99.B18. Inapplicable.
99.B24. Powers of Attorney.
27. Financial Data Schedule.
485. (b) Representation of Counsel (Rule 485(b)).
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's Registration
Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
------------------------------------------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4, 5, 6(a), 6(b), 8, 9(a), and 16 9 1/22/96
</TABLE>
C-1
<PAGE> 45
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of January 6, 1997, there were 272 holders of record of the sole series
of shares of Registrant.
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-2
<PAGE> 46
ITEM 28(a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment advisers is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Manager and Shareholder
Services" and to the section of the Statement of Additional Information
captioned "Investment Manager and Shareholder Services."
Zurich Kemper Investments, Inc., investment adviser of the Registrant, is
investment adviser of:
Kemper Mutual Funds:
Kemper Technology Fund
Kemper Total Return Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Income and Capital Preservation Fund
Kemper Money Funds
Kemper National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Fund
Cash Equivalent Fund
Kemper U.S. Government Securities Fund
Kemper International Fund
Kemper Portfolios
Kemper State Tax-Free Income Series
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
Kemper Global Income Fund
Kemper Target Equity Fund
Cash Account Trust
Investors Cash Trust
Tax-Exempt New York Money Market Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Europe Fund
Kemper Asian Growth Fund
Kemper Aggressive Growth Fund
Kemper Closed-End Funds:
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund
Zurich Kemper Investments, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors Fund
and Kemper International Bond Fund.
C-3
<PAGE> 47
Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Adviser
TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Kemper Service Company
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
NEAL, JOHN E.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
CHENG, LAURENCE W.
Director, Zurich Kemper Investments, Inc.
President and Chief Executive Officer, Zurich Investment
Management Group
C-4
<PAGE> 48
MORAX, DOMINQUE P.
Director, Zurich Kemper Investments, Inc.
Senior Vice President, Member Extended Corporate Executive Board,
Zurich Insurance Company
Trustee, Kemper Funds
CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.
VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan
BEIMFORD, JR., JOSEPH P.
Executive Vice President, Chief Investment Officer - Fixed
Income, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Galaxy Offshore, Inc.
Vice President, Investors Cash Trust
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Global Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper International Bond Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Income Fund
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper U.S. Government Securities Fund
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
COXON, JAMES H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Vice President, Galaxy Offshore, Inc.
C-5
<PAGE> 49
Executive Vice President, Zurich Investment Management, Inc.
GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.
LANGBAUM, GARY A.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Total Return Fund
Vice President, Kemper Investors Fund
MANZONI, JR., CHARLES R.
Executive Vice President, Secretary & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
Secretary, Kemper Service Company
Secretary, Kemper Distributors, Inc.
Secretary, ZKI Holding Corporation
MURRIHY, MAURA J.
Executive Vice President, Zurich Kemper Investments, Inc.
REYNOLDS, STEVEN H.
Executive Vice President, Chief Investment Officer - Equities, Zurich
Kemper Investments, Inc.
Vice President, Kemper Technology Fund
Vice President, Kemper Total Return Fund
Vice President, Kemper Growth Fund
Vice President, Kemper Small Capitalization Equity Fund
Vice President, Kemper International Fund
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
C-6
<PAGE> 50
ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Kemper Service Company
WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Investment Management, Inc.
BUKOWSKI, DANIEL J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Investors Fund
BUTLER, DAVID H.
Senior Vice President, Zurich Kemper Investments, Inc.
CERVONE, DAVID M.
Senior Vice President, Zurich Kemper Investments, Inc.
CESSINE, ROBERT S.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Investors Fund
CHESTER, TRACY McCORMICK
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Target Equity Fund
CHIEN, CHRISTINE
Senior Vice President, Zurich Kemper Investments, Inc.
CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Kemper Service Company
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds
C-7
<PAGE> 51
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.
DUDASIK, PATRICK H.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Director and Treasurer, Zurich Investment Management Limited
Treasurer, ZKI Agency, Inc.
DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds
FENGER, JAMES E.
Senior Vice President, Zurich Kemper Investments, Inc.
FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.
GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.
KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
KLEIN, MARTY
Senior Vice President, Zurich Kemper Investments, Inc.
KORTH, FRANK D.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Technology Fund
McNAMARA, MICHAEL A.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
C-8
<PAGE> 52
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MOELLER, JAMES V.
Senior Vice President, Zurich Kemper Investments, Inc.
MOORE, C. PERRY
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
MIER, CHRISTOPHER J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Municipal Income Trust
RABIEGA, CRAIG F.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
RACHWALSKI, JR. FRANK J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Investors Cash Trust
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Portfolios
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
REGNER, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
RESIS, JR., HARRY E.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
SCHUMACHER, ROBERT T.
Senior Vice President, Zurich Kemper Investments, Inc.
SILVIA, JOHN E.
Senior Vice President, Zurich Kemper Investments, Inc.
SMITH, JR., EDWARD BYRON
Senior Vice President, Zurich Kemper Investments, Inc.
SWANSON, DAVID
Senior Vice President, Zurich Kemper Investments, Inc.
C-9
<PAGE> 53
VANDENBERG, RICHARD
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper U.S. Government Securities Fund
Vice President, Kemper Portfolios
Vice President, Kemper Adjustable Rate U.S. Government Fund
VINCENT, CHRISTOPHER T.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich Investment Management, Inc.
WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
BAZAN, KENNETH M.
First Vice President, Zurich Kemper Investments, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
BOEHM, JONATHAN J.
First Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
BURROW, DALE R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
BYRNES, ELIZABETH A.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Intermediate Government Trust
CHIEN, CHRISTINE
First Vice President, Zurich Kemper Investments, Inc.
CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
COHEN, JERRI I.
First Vice President, Zurich Kemper Investments, Inc.
DeMAIO, CHRIS C.
First Vice President, Zurich Kemper Investments, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company
C-10
<PAGE> 54
DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.
DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.
HALE, DAVID D.
First Vice President, Zurich Kemper Investments, Inc.
HAUSKEN, PHILIP D.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
HORTON, ROBERT J.
First Vice President, Zurich Kemper Investments, Inc.
INNES, BRUCE D.
First Vice President, Zurich Kemper Investments, Inc.
Co-President, International Association of Corporate and
Professional Recruiters
JACOBS, PETER M.
First Vice President, Zurich Kemper Investments, Inc.
KEELEY, MICHELLE M.
First Vice President, Zurich Kemper Investments, Inc.
KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.
KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.
LAUGHLIN, ANN M.
First Vice President, Zurich Kemper Investments, Inc.
LENTZ, MAUREEN P.
First Vice President, Zurich Kemper Investments, Inc.
McCRINDLE-PETRARCA, SUSAN
First Vice President, Zurich Kemper Investments, Inc.
MINER, EDWARD
First Vice President, Zurich Kemper Investments, Inc.
MURRAY, SCOTT S.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.
C-11
<PAGE> 55
PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.
PONTECORE, SUSAN E.
First Vice President, Zurich Kemper Investments, Inc.
RADIS, STEVE A.
First Vice President, Zurich Kemper Investments, Inc.
RATEKIN, DIANE E.
First Vice President, Assistant General Counsel and Assistant
Secretary, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.
SMITH, ROBERT G.
First Vice President, Zurich Kemper Investments, Inc.
STUEBE, JOHN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
TEPPER, SHARYN A.
First Vice President, Zurich Kemper Investments, Inc.
TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
WETHERALD, ROBERT F.
First Vice President, Zurich Kemper Investments, Inc.
WILLSON, STEPHEN R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
WITTNEBEL, MARK E.
First Vice President, Zurich Kemper Investments, Inc.
ADAMS, DONALD
Vice President, Zurich Kemper Investments, Inc.
ALLEN, PATRICIA L.
Vice President, Zurich Kemper Investments, Inc.
ANDREASEN, AMY
Vice President, Zurich Kemper Investments, Inc.
ANTONAK, GEORGE A.
Vice President, Zurich Kemper Investments, Inc.
BALASUBRAMANIAM, KALAMADI
Vice President, Zurich Kemper Investments, Inc.
BARRY, JOANN M.
Vice President, Zurich Kemper Investments, Inc.
C-12
<PAGE> 56
BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.
BODEM, RICHARD A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
BRENNAN, ELEANOR R.
Vice President, Zurich Kemper Investments, Inc.
BUCHANAN, PAMELA S.
Vice President, Zurich Kemper Investments, Inc.
BURKE, MARY PAT
Vice President, Zurich Kemper Investments, Inc.
BURSHTAN, DAVID H.
Vice President, Zurich Kemper Investments, Inc.
CARNEY, ANNE T.
Vice President, Zurich Kemper Investments, Inc.
CACCIOLA, RONALD
Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.
COHEN, JERRI I.
Vice President, Zurich Kemper Investments, Inc.
COULTER, STEVAN F.
Vice President, Zurich Kemper Investments, Inc.
ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
FRIHART, THORA A.
Vice President, Zurich Kemper Investments, Inc.
GERACI, AUGUST L.
Vice President, Zurich Kemper Investments, Inc.
GOLAN, JAMES S.
Vice President, Zurich Kemper Investments, Inc.
GOODWIN, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.
GRAY, PATRICK
Vice President, Zurich Kemper Investments, Inc.
GROOTENDORST, TONYA
Vice President, Zurich Kemper Investments, Inc.
HECHT, MARC L.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.
Assistant Secretary, ZKI Holding Corporation
Assistant Secretary, ZKI Agency, Inc.
C-13
<PAGE> 57
HUOT, LISA L.
Vice President, Zurich Kemper Investments, Inc.
JASINSKI, R. ANTHONY
Vice President, Zurich Kemper Investments, Inc.
KARWOWSKI, KENNETH F.
Vice President, Zurich Kemper Investments, Inc.
KENNEDY, PATRICK J.
Vice President, Zurich Kemper Investments, Inc.
KOBS, MICHAEL G.
Vice President, Zurich Kemper Investments, Inc.
KOCH, DEBORAH L.
Vice President, Zurich Kemper Investments, Inc.
KOURY, KATHRYN E.
Vice President, Zurich Kemper Investments, Inc.
KOWALCZYK, MARK A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
KRANZ, KATHY J.
Vice President, Zurich Kemper Investments, Inc.
KRUEGER, PAMELA D.
Vice President, Zurich Kemper Investments, Inc.
KYCE, JOYCE
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
LASKA, ROBERTA E.
Vice President, Zurich Kemper Investments, Inc.
LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.
LeFEBVRE, THOMAS J.
Vice President, Zurich Kemper Investments, Inc.
McGINN, MARTHA R.
Vice President, Zurich Kemper Investments, Inc.
McGOVERN, KAREN B.
Vice President, Zurich Kemper Investments, Inc.
MILLER, GARY L.
Vice President, Zurich Kemper Investments, Inc.
MILLIGAN, BRIAN J.
Vice President, Zurich Kemper Investments, Inc.
C-14
<PAGE> 58
MULLEN, TERRENCE
Vice President, Zurich Kemper Investments, Inc.
MURPHY, THOMAS M.
Vice President, Zurich Kemper Investments, Inc.
NEVILLE, BRIAN P.
Vice President, Zurich Kemper Investments, Inc.
NORMAN, JR., DONALD L.
Vice President, Zurich Kemper Investments, Inc.
NOWAK, GREGORY J.
Vice President, Zurich Kemper Investments, Inc.
PANOZZO, ALBERT R.
Vice President, Zurich Kemper Investments, Inc.
PAXTON, THOMAS
Vice President, Zurich Kemper Investments, Inc.
QUADRINI, LISA L.
Vice President, Zurich Kemper Investments, Inc.
RANDALL, JR., WALTER R.
Vice President, Zurich Kemper Investments, Inc.
ROBINSON, DEBRA A.
Vice President, Zurich Kemper Investments, Inc.
RODGERS, JOHN B.
Vice President, Zurich Kemper Investments, Inc.
ROKOSZ, PAUL A.
Vice President, Zurich Kemper Investments, Inc.
ROSE, KATIE M.
Vice President, Zurich Kemper Investments, Inc.
RUDIN, MICHELLE I.
Vice President, Zurich Kemper Investments, Inc.
SAENGER, MARYELLEN
Vice President, Zurich Kemper Investments, Inc.
SHULTZ, KAREN D.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.
C-15
<PAGE> 59
SPILLER, KATHLEEN A.
Vice President, Zurich Kemper Investments, Inc.
SPURLING, CHRIS
Vice President, Zurich Kemper Investments, Inc.
STROMM, LAWRENCE D.
Vice President, Zurich Kemper Investments, Inc.
THOMAS, JILL
Vice President, Zurich Kemper Investments, Inc.
VANDEMERKT, RICHARD J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.
WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End Mutual Funds
WILNER, MITCHELL
Vice President, Zurich Kemper Investments, Inc.
WIZER, BARBARA K.
Vice President, Zurich Kemper Investments, Inc.
ZURAWSKI, CATHERINE N.
Vice President, Zurich Kemper Investments, Inc.
C-16
<PAGE> 60
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, the offices of Registrant's investment adviser, Zurich Kemper
Investments, Inc. and Kemper Distributors, Inc., the Registrant's principal
underwriter, 222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case
of records concerning custodial functions, at the offices of the custodian,
Investors Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas City,
Missouri 64105 or, in the case of records concerning transfer agency functions,
at the offices of IFTC and of the Shareholder Service Agent, Kemper Service
Company, 811 Main Street, Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-17
<PAGE> 61
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 Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 24th day
of January, 1997.
TAX-EXEMPT CALIFORNIA MONEY MARKET
FUND
by /s/ STEPHEN B. TIMBERS
-----------------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 24, 1997 on behalf of
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<C> <S>
/s/ STEPHEN B. TIMBERS President
- --------------------------------------------- (Principal Executive Officer) and Trustee
Stephen B. Timbers
/s/ DAVID W. BELIN* Trustee
- ---------------------------------------------
David W. Belin
/s/ LEWIS A. BURNHAM* Trustee
- ---------------------------------------------
Lewis A. Burnham
/s/ DONALD L. DUNAWAY* Trustee
- ---------------------------------------------
Donald L. Dunaway
/s/ ROBERT B. HOFFMAN* Trustee
- ---------------------------------------------
Robert B. Hoffman
/s/ DONALD R. JONES* Trustee
- ---------------------------------------------
Donald R. Jones
/s/ DOMINIQUE P. MORAX* Trustee
- ---------------------------------------------
Dominique P. Morax
/s/ SHIRLEY D. PETERSON* Trustee
- ---------------------------------------------
Shirley D. Peterson
/s/ WILLIAM P. SOMMERS* Trustee
- ---------------------------------------------
William P. Sommers
/s/ JEROME L. DUFFY Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Jerome L. Duffy
* Philip J. Collora signs this document
pursuant to powers of attorney filed
herein.
/s/ PHILIP J. COLLORA
- ---------------------------------------------
Philip J. Collora
</TABLE>
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
99.B1. Agreement and Declaration of Trust.*
99.B2. By-Laws.*
99.B3. Inapplicable.
99.B4. Text of Share Certificate.*
99.B5. Investment Management Agreement.*
99.B6. (a) Administration, Shareholder Services and Distribution Agreement.*
99.B6. (b) Form of Administration Services and Selling Group Agreement.*
99.B7. Inapplicable.
99.B8. Custody Agreement.*
99.B9. (a) Agency Agreement.*
99.B9. (b) Supplement to Agency Agreement.
99.B10. Inapplicable.
99.B11. Report and Consent of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14. Inapplicable.
99.B15. See Items 6(a) and (b) above.
99.B16. Performance Calculations.*
99.B18. Inapplicable.
99.B24. Powers of Attorney.
27. Financial Data Schedule.
485. (b) Representation of Counsel (Rule 485(b)).
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's Registration
Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
------------------------------------------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4, 5, 6(a), 6(b), 8, 9(a), and 16 9 1/22/96
</TABLE>
<PAGE> 1
SUPPLEMENT TO AGENCY AGREEMENT
Supplement to Agency Agreement ("Supplement") made as of April 1, 1995
and between the registered investment company executing this document (the
"Fund") and Investors Fiduciary Trust Company ("Agent").
WHEREAS, the Fund and Agent are parties to an Agency Agreement ("Agency
Agreement"), as supplemented from time to time;
WHEREAS, Section 5.A. of the Agency Agreement provides that the fees
payable by the Fund to Agent thereunder shall be as set forth in a separate
schedule to be agreed to by the Fund and Agent; and
WHEREAS, the parties desire to reflect in this Supplement the revised
fee schedule for the Agency Agreement as in effect as of the date hereof;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein provided, the parties agree as follows:
1. The revised fee schedule for services provided by Agent to the
Fund under the Agency Agreement as in effect as of the date hereof is set forth
in Exhibit A attached hereto.
2. This Supplement shall become a part of the Agency Agreement and
subject to its terms and shall supersede all previous fee schedules under such
agreement as of the date hereof.
<PAGE> 2
IN WITNESS WHEREOF, the Fund and Agent have duly executed this
Supplement as of the day and year first set forth above.
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
By: /s/ John E. Peters
-----------------------------------
Title: Vice President
--------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Stephen E. Hilliard
-----------------------------------
Title: Executive Vice President
--------------------------------
EXHIBIT A
FEE SCHEDULE
Transfer Agency Function Fee Payable by Fund
- ------------------------ -------------------
1. Maintenance of open shareholder $13.00 per year per account.
account.
2. Maintenance of closed shareholder $6.00 per year per account.
account.
The out-of-pocket expenses of IFTC will be reimbursed by Fund in accordance
with the provisions of Section 5 of the Agency Agreement.
As reflected in Section 21 of the Agency Agreement, the responsibilities of
IFTC under the Agency Agreement have been assigned to Kemper Service Company
("KSVC"). KSVC will, from time to time, enter into Omnibus Account Services
Agreements ("Omnibus Agreements") with one or more financial services firms
("Firms") that will maintain shares of the Fund owned by their clients
("client-shareholders") in one or more "street-name" or "omnibus" accounts
("omnibus accounts") on the books of KSVC and will provide recordkeeping and
other services with respect to the accounts of such client-shareholders. For
services provided under the Omnibus Agreements, KSVC will provide compensation
to the Firms. For purposes of determining the fees payable by the Fund
to IFTC under the Agency Agreement relating to such omnibus accounts, the fees
noted above for maintenance of open and closed shareholder accounts (but not
for disaster recovery) will be based upon the number of client shareholder
accounts on the records of the Firms maintaining shares in such omnibus
accounts.
<PAGE> 1
EXHIBIT 99.B11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights" and "Independent Auditors and Reports to
Shareholders" and to the use of our report dated November 18, 1996 in
the Registration Statement (Form N-1A) and its incorporation by
reference in the related Prospectus and Statement of Additional
Information of Tax-Exempt California Money Market Fund, filed with
the Securities and Exchange Commission in this Post-Effective
Amendment No. 10 to the Registration Statement under the Securities
Act of 1933 (File No. 33-12938) and in this Amendment No. 11 to the
Registration Statement under the Investment Company Act of 1940 (File
No. 811-5076).
/s/ ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
Chicago, Illinois
January 21, 1997
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Tax-Exempt California Money Market Fund
We have audited the accompanying statement of assets and
liabilities, including the portfolio of investments, of Tax-
Exempt California Money Market Fund as of September 30, 1996, and
the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the fiscal
periods since 1987. 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
investments owned as of September 30, 1996, by correspondence
with the custodian and brokers. 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 Tax-Exempt California Money Market Fund at
September 30, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for
each of the fiscal periods since 1987, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1996
<PAGE> 1
EXHIBIT 99.B24
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the
capacity stated below such registration statements,
amendments, post-effective amendments, exhibits, applications
and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering
of shares of Tax-Exempt California Money Market Fund.
Signature Title Date
/s/ Stephen B. Timbers Trustee September 5, 1996
---------------------------
<PAGE> 2
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as his attorney-in-fact to sign and
file on his behalf individually and in the capacity stated
below such registration statements, amendments,
post-effective amendments, exhibits, applications and other
documents with the Securities and Exchange Commission or any
other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-
Exempt California Money Market Fund.
Signature Title Date
/s/ David W. Belin Trustee September 5, 1996
---------------------------
<PAGE> 3
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as his attorney-in-fact to sign and
file on his behalf individually and in the capacity stated
below such registration statements, amendments,
post-effective amendments, exhibits, applications and other
documents with the Securities and Exchange Commission or any
other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-
Exempt California Money Market Fund.
Signature Title Date
/s/ Lewis A. Burnham Trustee September 5, 1996
---------------------------
<PAGE> 4
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the
capacity stated below such registration statements,
amendments, post-effective amendments, exhibits, applications
and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering
of shares of Tax-Exempt California Money Market Fund.
Signature Title Date
/s/ Donald L. Dunaway Trustee September 5, 1996
---------------------------
<PAGE> 5
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as his attorney-in-fact to sign and
file on his behalf individually and in the capacity stated
below such registration statements, amendments,
post-effective amendments, exhibits, applications and other
documents with the Securities and Exchange Commission or any
other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-
Exempt California Money Market Fund.
Signature Title Date
/s/ Robert B. Hoffman Trustee September 5, 1996
---------------------------
<PAGE> 6
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as his attorney-in-fact to sign and
file on his behalf individually and in the capacity stated
below such registration statements, amendments,
post-effective amendments, exhibits, applications and other
documents with the Securities and Exchange Commission or any
other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-
Exempt California Money Market Fund.
Signature Title Date
/s/ Donald R. Jones Trustee September 5, 1996
---------------------------
<PAGE> 7
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the
capacity stated below such registration statements,
amendments, post-effective amendments, exhibits, applications
and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering
of shares of Tax-Exempt California Money Market Fund.
Signature Title Date
/s/ Dominique P. Morax Trustee September 5, 1996
---------------------------
<PAGE> 8
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the
capacity stated below such registration statements,
amendments, post-effective amendments, exhibits, applications
and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering
of shares of Tax-Exempt California Money Market Fund.
Signature Title Date
/s/ Shirley D. Peterson Trustee September 5, 1996
---------------------------
<PAGE> 9
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints
Stephen B. Timbers, Charles R. Manzoni, Jr. and Philip J.
Collora and each of them, any of whom may act without the
joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the
capacity stated below such registration statements,
amendments, post-effective amendments, exhibits, applications
and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering
of shares of Tax-Exempt California Money Market Fund.
Signature Title Date
/s/ William P. Sommers Trustee September 5, 1996
---------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000811911
<NAME> TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 118,766
<INVESTMENTS-AT-VALUE> 118,766
<RECEIVABLES> 475
<ASSETS-OTHER> 34
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119,275
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 391
<TOTAL-LIABILITIES> 391
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118,884
<SHARES-COMMON-STOCK> 118,884
<SHARES-COMMON-PRIOR> 105,292
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 118,884
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,813
<OTHER-INCOME> 0
<EXPENSES-NET> (766)
<NET-INVESTMENT-INCOME> 3,047
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,047)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 370,566
<NUMBER-OF-SHARES-REDEEMED> (360,012)
<SHARES-REINVESTED> 3,038
<NET-CHANGE-IN-ASSETS> 13,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 766
<AVERAGE-NET-ASSETS> 104,618
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
Exhibit 99.485(b)
[VEDDER PRICE LETTERHEAD]
January 24, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Tax-Exempt California Money Market Fund
---------------------------------------
To The Commission:
We are counsel to the above-referenced investment company (the "Fund")
and as such have participated in the preparation and review of Post-Effective
Amendment No. 10 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485, we hereby represent that such amendment does not contain
disclosures that would render it ineligible to become effective pursuant to
paragraph (b) thereof.
Very truly yours,
/s/ Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
