<PAGE> 1
1
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DEAR SHAREHOLDERS:
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We are pleased to provide you with the Tax-Exempt California Money Market Fund
annual report for the year ended September 30, 1998.
Your fund's management greatly appreciates your decision to invest in Tax-Exempt
California Money Market Fund. During the past year, the fund registered solid
performance and achieved its objective of providing maximum current income
consistent with stability of principal.
ECONOMIC REVIEW AND OUTLOOK
The log jam for Federal Funds set at 5.50% since March 1997 was broken on
September 29th when the Fed lowered its trading target by 25 basis points. The
predominant reasons were the much-publicized, adverse economic developments,
which are reflected in our volatile stock market, the associated stresses placed
on the credit worthiness of many of our financial institutions and the
likelihood of a slowing pace of economic growth in the months ahead.
Our investment strategy still favors lengthening the maturities in the
portfolios. The reason is our expectation that the Fed will err on the side of
ease until signs of financial stress abate and prospects for economic growth
brighten. The market supply of acceptable California issues is limited and
therefore we may have a shorter or longer average maturity than a national
tax-exempt fund.
Money market funds such as Tax-Exempt California Money Market Fund offer the
opportunity for attractive yields and should continue to be an excellent place
to invest your money.
Your fund's management thanks you for the vote of confidence you have shown
through your investment and continues its dedication to performance. We look
forward to serving your investment needs for years to come.
Sincerely,
Frank J. Rachwalski
Frank Rachwalski
Vice President and Portfolio Manager
October 22, 1998
Frank Rachwalski is a Managing Director of Scudder Kemper Investments, Inc. and
Vice President and Lead Portfolio Manager of Tax-Exempt California Money Market
Fund. Mr. Rachwalski holds B.B.A. and M.B.A. degrees from Loyola University.
PORTFOLIO RESULTS
For the year ended September 30, 1998, the Tax-Exempt California Money Market
Fund had a net yield of 2.67% and a tax-equivalent yield of 4.68%.
NOTES
Like all money funds, an investment in the fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
The fund's net yield for the year ended September 30, 1998, is the sum of the
daily dividend rates for the period. Yields are historical and may not represent
future yields, which will fluctuate.
The tax-equivalent yield is based upon the fund's yield and a combined Federal
and State of California marginal income tax rate of 42.9%. Income may be subject
to local taxes and for some investors, the alternative minimum tax.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated above. The manager's views
are subject to change at any time, based on market and other conditions.
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Tax-Exempt California Money Market Fund
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PORTFOLIO OF INVESTMENTS
September 30, 1998
(Value in thousands)
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<TABLE>
<CAPTION>
Value
(A)VARIABLE RATE DEMAND SECURITIES
<S> <C>
State of California
Eastern Municipal Water District
3.60% $ 5,000
Economic Development Authority
4.35% 3,000
Health Facilities Financing Authority
3.00% 6,500
Pollution Control Financing Authority
Occidental Geothermal, Inc. Project
3.30% 1,400
Pacific Gas and Electric Co.
3.72% 8,000
Solid Waste Disposal
Browning-Ferris Industries
3.20% 5,000
Taormina Industries, Inc. Project
4.70% 5,000
Southern California Public Power Authority
3.00% 3,700
Statewide Communities Development Authority
Leveche LLC Project
4.25% 3,835
Watt Four LLC Project
4.50% 1,400
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Alameda-Contra Costa
Schools Financing Authority
3.55% 1,770
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Alhambra
Multifamily Housing Revenue
5.15% 2,200
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Anaheim
Public Improvement Corp.
3.00% 1,300
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Berkeley
YMCA of Berkeley
3.65% 2,000
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Fremont
Building and Equipment Financing Project
4.50% 1,925
Certificates of Participation
4.50% 2,000
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Hayward
Multifamily Housing Revenue
3.10% 2,000
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<CAPTION>
Value
<S> <C>
Irvine
Assessment District
Improvement Bonds
3.23% $ 6,840
Limited Obligation Improvement Bond
3.80% 1,200
Ranch Water District
3.80% 5,500
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Kern County
Public Facilities Project
3.00% 800
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Los Angeles County
Community Development Commission
3.20% 1,000
Industrial Development Authority
3.75% 1,500
Pension Obligation Bonds
3.00% 3,000
Transportation Commission
3.00% 3,700
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Monterey County
Peninsula Water Management District
4.50% 1,500
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Oakland County
Joint Powers Financing Authority
3.57% 5,200
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Orange County
Apartment Development Revenue
5.00% 4,200
Foothill/Eastern Transportation Corridor Agency
3.60% 5,200
Sanitation Districts
3.96% 7,300
Water District
3.88% 1,000
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Palm Springs
Community Redevelopment Agency
3.75% 2,600
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Riverside County
Public Facilities Project
3.90% 1,300
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Roseville
Hospital Lease Revenue
3.05% 1,850
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</TABLE>
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3
Tax-Exempt California Money Market Fund
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<TABLE>
<CAPTION>
Value
<S> <C>
Sacramento County
Administrative Center & Courthouse Project
3.50% $ 2,400
Multifamily Housing Revenue
3.00% 1,750
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Santa Ana
School District
3.10% 1,400
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Santa Clara County
Hospital Facilities Authority
3.40% 2,200
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Santa Cruz
Industrial Development Authority
4.10% 1,210
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San Marcos
Multifamily Housing Revenue
3.80% 6,900
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Simi Valley
Multifamily Housing Revenue
3.60% 4,000
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Vallejo
Industrial Development Authority
4.25% 2,900
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Ventura County
Triunfo Sanitation District
3.30% 2,190
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Woodland
Multifamily Mortgage Revenue
3.00% 4,720
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Puerto Rico
Highway and Transportation Authority
3.10% 1,800
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<CAPTION>
Value
<S> <C>
TOTAL VARIABLE RATE DEMAND
SECURITIES -- 85.6%
(average maturity: 6 days) $141,190
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OTHER SECURITIES
State of California
Department of Water
2.90%-3.35%, 10/22/98-11/10/98 4,068
Metropolitan Water Authority
2.95%-3.50%, 10/14/98-11/12/98 6,000
Pollution Control Financing Authority
3.20%, 11/13/98 1,500
Public Capital Improvements Financing Authority
3.45%, 12/15/98 1,500
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Los Angeles County
Capital Asset Lease Corp.
3.20%-3.40%, 10/13/98-11/13/98 5,000
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Guam
Power Authority
3.35%, 11/12/98 3,000
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TOTAL OTHER SECURITIES--12.8%
(average maturity: 35 days) 21,068
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TOTAL INVESTMENTS--98.4%
(average maturity: 10 days) 162,258
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CASH AND OTHER ASSETS,
LESS LIABILITIES--1.6% 2,679
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NET ASSETS--100% $164,937
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</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, 1998.
See accompanying Notes to Financial Statements.
<PAGE> 4
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Tax-Exempt California Money Market Fund
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REPORT OF INDEPENDENT AUDITORS
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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, 1998, 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 1994.
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, 1998 by correspondence with the custodian. 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, 1998, 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 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 17, 1998
<PAGE> 5
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Tax-Exempt California Money Market Fund
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STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(in thousands)
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<TABLE>
<S> <C>
ASSETS
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Investments, at amortized cost $162,258
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Cash 2,463
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Interest receivable 527
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Total assets 165,248
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LIABILITIES AND NET ASSETS
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Payable for:
Fund shares redeemed 175
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Dividends 26
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Management fee 28
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Distribution services fee 42
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Custodian and transfer agent fees
and related expenses 4
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Trustees' fees 36
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Total liabilities 311
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Net assets applicable to
shares outstanding $164,937
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THE PRICING OF SHARES
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Shares outstanding 164,937
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Net asset value and
redemption price per share $1.00
- ----------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
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STATEMENT OF OPERATIONS
Year ended September 30, 1998
(in thousands)
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<TABLE>
<S> <C>
INTEREST INCOME $4,792
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EXPENSES:
Management fee 306
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Distribution services fee 465
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Custodian and transfer agent
fees and related expenses 198
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Professional fees 26
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Reports to shareholders 20
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Trustees' fees and other 32
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Total expenses 1,047
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Net investment income $3,745
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</TABLE>
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STATEMENT OF CHANGES IN NET ASSETS
Years ended September 30, 1998 and 1997
(in thousands)
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<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,745 1,601
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Dividends to shareholders from
net investment income (3,745) (1,601)
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CAPITAL SHARE TRANSACTIONS (DOLLAR
AMOUNTS AND NUMBER OF SHARES
ARE THE SAME):
Shares sold 807,819 282,125
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Shares issued in reinvestment
of dividends 3,616 1,583
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811,435 283,708
Shares redeemed (763,930) (285,160)
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Net increase (decrease) from capital
share transactions and total increase
(decrease) in net assets 47,505 (1,452)
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NET ASSETS:
Beginning of year 117,432 118,884
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End of year $ 164,937 117,432
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</TABLE>
<PAGE> 6
6
Tax-Exempt California Money Market Fund
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NOTES TO FINANCIAL STATEMENTS
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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., 3:00 p.m. and 8:00 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's policy is to comply with the requirements of the Internal Revenue
Code, as amended, which are applicable to regulated investment companies, and to
distribute all of its income to its shareholders. Accordingly, the Fund paid no
federal income taxes and no federal income tax provision was required.
3. TRANSACTIONS WITH AFFILIATES
MANAGEMENT AGREEMENT
The Fund has a management agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment management fee of 1/12 of the
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, 1998, the Fund incurred a management fee of
$306,000.
ZURICH/B.A.T MERGER
On September 7, 1998, Zurich Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with B.A.T Industries p.l.c. (B.A.T)
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
of the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Trustees of the Fund will seek shareholder approval of the new investment
management
<PAGE> 7
7
Tax-Exempt California Money Market Fund
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agreement through a proxy solicitation that is currently scheduled to conclude
in mid-December.
DISTRIBUTION AGREEMENT
The Fund 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, 1998, the Fund incurred a distribution services fee of $465,000,
of which KDI, pursuant to the related service agreements, remitted $462,000 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 fees of $125,000 for the year
ended September 30, 1998.
OFFICERS AND TRUSTEES
Certain officers or trustees of the Fund are also officers or directors of
Scudder Kemper. During the year ended September 30, 1998, the Fund made no
payments to its officers and incurred trustees' fees of $18,000 to independent
trustees.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------------
1998 1997 1996 1995 1994
<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 .03 .03 .03 .03 .02
- -----------------------------------------------------------------------------------------------------------------
Less dividends declared .03 .03 .03 .03 .02
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Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
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TOTAL RETURN 2.71% 2.91 2.93 3.23 1.97
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RATIOS TO AVERAGE NET ASSETS
Expenses .74% .78 .72 .75 .71
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Net investment income 2.66% 2.78 2.88 3.16 1.94
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SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $164,937 117,432 118,884 105,292 101,148
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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Tax-Exempt California Money Market Fund
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TAX INFORMATION
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Of the dividends paid from the Fund for the year ended September 30, 1998, 100%
are designated as exempt interest dividends for federal income tax purposes.
However, a portion of the dividends may be includable in the alternative minimum
tax calculation.
All of the dividends constitute tax-exempt interest which is not taxable for
State of California income tax purposes.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns.
<PAGE> 9
Tax-Exempt
California
Money Market
Fund
Annual
Report
September 30, 1998
PRINCIPAL UNDERWRITER:
KEMPER DISTRIBUTORS, INC.
222 S. Riverside Plaza, Chicago, IL 60606
This report is not to be distributed unless preceded
or accompanied by a Tax-Exempt California Money
Market Fund prospectus.
TEC-2 1059030 10/98 [LOGO] printed on recycled paper