A N N U A L R E P O R T
Tax-Exempt
California
Money Market
Fund
September 30, 2000
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.
<PAGE>
Dear Shareholder:
We appreciate your decision to invest in the Tax-Exempt California Money Market
Fund. To provide you with an update of holdings and financial highlights, on the
following pages you will find the Fund's annual report for the year ended
September 30, 2000.
Briefly, for the past year, the Fund's portfolio registered solid performance
and achieved its objective of providing maximum current income that is exempt
from Federal and State of California income taxes while maintaining stability of
principal.
Economic Review and Outlook
During the past three months expectations of both a growth slowdown and an end
to the path of tightening monetary conditions became more entrenched. Economic
data, with few exceptions, supported these perceptions of a soft landing and the
forward yield curve suggested a possible ease in the first quarter of 2001.
Nevertheless, the wild card of inflation remained difficult to dismiss. Core CPI
as measured on a year over year basis is in an uptrend, and energy and some
agricultural prices have risen. Tax-exempts continued to trade near normal
spreads versus taxables forming a very flat yield curve.
We favored lengthening, given attractive market opportunities. The flatness of
the yield curve was limiting a concern. Moreover, opportunities for extension
were sparse; however, we modestly extended average life utilizing commercial
paper. Our high focus in variable rate obligations was retained.
It appears the unfolding economic scenario will be marked by both softer growth
and developing inflationary pressures. We believe any slowdown should be modest.
Consumers are highly confident, as gauged by firm housing data and strengthening
personal consumption expenditures, and remain encouraged by tight labor markets.
On the other hand, the Fed is very sensitive to inflation, particularly any
incipient wage pressures, because any growth slowdown may damage labor
productivity, a critical driver of this successful economic run. Under these
conditions, we believe the Fed is on hold for the balance of the year.
Accordingly, we will remain cautious but lengthen as opportunities arise.
However, average maturity will be maintained shorter than the reported average
for peer funds.
Fund Results
As of September 30, 2000
--------------------------------------------------------------------------------
7-Day
Current Equivalent
Yield Taxable Yield
--------------------------------------------------------------------------------
3.26% 5.71%
--------------------------------------------------------------------------------
Thank you again for your investment in the Tax-Exempt California Money Market
Fund. We look forward to serving your investment needs for years to come.
/s/Frank Rachwalski
Frank Rachwalski
Vice President and Lead Portfolio Manager
October 1, 2000
Frank Rachwalski is a Managing Director of Scudder Kemper Investments, Inc. and
is Vice President and Lead Portfolio Manager of all Scudder Kemper Money Funds.
Mr. Rachwalski holds B.B.A. and M.B.A. degrees from Loyola University.
Notes
The Fund's net yield is the annualized sum of the daily dividend rates for the
period. Yields are historical, may fluctuate, and do not guarantee future
performance.
The equivalent taxable yield allows you to compare with the
performance of taxable money market funds. It is based on 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.
Like all money market 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 your investment at $1.00 per share,
it is possible to lose money.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period stated above. The manager's views are subject to
change at any time, based on market and other conditions.
1
<PAGE>
Portfolio of Investments at September 30, 2000
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Variable Rate Demand Securities -- 62.1%*
------------------------------------------------------------------------------------------------------------------------
State of California
------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Children's Hospital, 4.40% $ 3,800,000 $ 3,800,000
------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority,
Scripps Memorial Hospital, 4.25% 20,700,000 20,700,000
------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Pollution Control Revenue
Pacific Gas & Electric Project, 4.65%-4.70% 2,300,000 2,300,000
------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Pollution Control Revenue, Occidental
Geothermal, Inc. Project, 4.10% 1,400,000 1,400,000
------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Pollution Control Revenue, Southern California
Edison, 5.05% 17,850,000 17,850,000
------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Solid Waste Disposal Revenue,
Browning Ferris Industries, 4.60% 5,000,000 5,000,000
------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority,
Solid Waste Disposal Revenue,
Western Waste Inc., 4.60% 3,000,000 3,000,000
------------------------------------------------------------------------------------------------------------------------
California, Southern California Public Power
Authority, Palo Verde Project, 4.25% 6,770,000 6,770,000
------------------------------------------------------------------------------------------------------------------------
California, Stanislaus Solid Waste Facilities,
Ogden Martin Systems Project, 2.50% 7,980,000 7,980,000
------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development
Corporation Revenue, Levecke, 3.20% 3,505,000 3,505,000
------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development
Authority, Multifamily Housing Revenue,
One Park Place, 4.45% 16,000,000 16,000,000
------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development
Authority, Plaza Club Apartments, 4.38% 5,000,000 5,000,000
------------------------------------------------------------------------------------------------------------------------
California Public Capital Improvements
Pooled Project, 3.95% 1,500,000 1,500,000
------------------------------------------------------------------------------------------------------------------------
Anaheim Housing Authority, 4.40% 7,000,000 7,000,000
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Principal
Amount Value
------------------------------------------------------------------------------------------------------------------------
Berkeley, YMCA of Berkeley, 4.30% $ 10,425,000 $ 10,425,000
------------------------------------------------------------------------------------------------------------------------
Hayward Multifamily Housing
Revenue, 4.50% 2,000,000 2,000,000
------------------------------------------------------------------------------------------------------------------------
Irvine Assessment District
Improvement Bonds, 4.75% 2,659,000 2,659,000
------------------------------------------------------------------------------------------------------------------------
Irvine Ranch Water District, 4.75% 2,900,000 2,900,000
------------------------------------------------------------------------------------------------------------------------
Los Angeles County,
Community Development Commission,
Willowbrook Project, 4.25% 4,900,000 4,900,000
------------------------------------------------------------------------------------------------------------------------
Los Angeles Department of Water and Power
Electric Plant Revenue, 4.20%-4.45% 20,000,000 20,000,000
------------------------------------------------------------------------------------------------------------------------
Los Angeles County, Multifamily Housing
Revenue, 4.50% 10,000,000 10,000,000
------------------------------------------------------------------------------------------------------------------------
Los Angeles County,
Transportation Commission and Sales Tax,
Revenue, 4.52% 3,600,000 3,600,000
------------------------------------------------------------------------------------------------------------------------
Metropolitan Water Districts
Southern California Waterworks, 4.25%-4.40% 15,000,000 15,000,000
------------------------------------------------------------------------------------------------------------------------
Oakland California JT Powers Finance Authority,
Lease Revenue, 4.20%-4.35% 34,200,000 34,200,000
------------------------------------------------------------------------------------------------------------------------
Orange County,
Sanitation Districts, 4.75%-5.00% 18,035,000 18,035,000
------------------------------------------------------------------------------------------------------------------------
Orange County,
California Apartment Development, 4.30% 10,000,000 10,000,000
------------------------------------------------------------------------------------------------------------------------
Orange County, Apartment Development Revenue,
Capistrano Pointe A, 4.30% 13,000,000 13,000,000
------------------------------------------------------------------------------------------------------------------------
Orange County, Apartment Development Revenue,
Trabuco Highlands, 4.30% 13,300,000 13,300,000
------------------------------------------------------------------------------------------------------------------------
Riverside County,
Public Facilities Project, 4.80% 7,000,000 7,000,000
------------------------------------------------------------------------------------------------------------------------
Sacramento County, Administrative Center &
Courthouse Project, 2.50% 6,600,000 6,600,000
------------------------------------------------------------------------------------------------------------------------
Sacramento County, Multifamily Housing
Revenue, 4.45% 8,000,000 8,000,000
------------------------------------------------------------------------------------------------------------------------
San Bernardino County, Medical Center
Financing Project, 4.35% 11,900,000 11,900,000
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Principal
Amount Value
------------------------------------------------------------------------------------------------------------------------
San Bernardino, Multifamily Housing Revenue
4.38% $ 7,000,000 $ 7,000,000
------------------------------------------------------------------------------------------------------------------------
San Jose, Multifamily Housing Revenue,
4.37%-4.95% 18,100,000 18,100,000
------------------------------------------------------------------------------------------------------------------------
Santa Clara County, Hospital Facilities Authority
Revenue, 4.90% 3,100,000 3,100,000
------------------------------------------------------------------------------------------------------------------------
Simi Valley, Multifamily Housing Revenue,
2.55% 20,500,000 20,500,000
------------------------------------------------------------------------------------------------------------------------
Vallejo Industrial Development Authority,
4.60% 4,400,000 4,400,000
------------------------------------------------------------------------------------------------------------------------
Triunfo California County,
Sanitation District Revenue, 2.60% 2,190,000 2,190,000
------------------------------------------------------------------------------------------------------------------------
Puerto Rico, Industrial Tourist
Mendez University 2.60% 1,000,000 1,000,000
------------------------------------------------------------------------------------------------------------------------
Puerto Rico, Highway
and Transportation Authority, 4.50% 4,500,000 4,500,000
------------------------------------------------------------------------------------------------------------------------
Total Variable Rate Demand Securities (Cost $356,114,000) 356,114,000
------------------------------------------------------------------------------------------------------------------------
Other Securities -- 37.9%
------------------------------------------------------------------------------------------------------------------------
California Metropolitan Water Authority,
3.95%-4.00%, 12/14/2000 17,200,000 17,200,000
------------------------------------------------------------------------------------------------------------------------
Pollution Control Revenue Southern California
Edison, 3.90%, 10/17/2000 5,600,000 5,600,000
---------------------------------------------------------------------------------------------------------------------
California State General Obligation Bond,
3.90%-4.05%, 10/10/2000-10/17/2000 50,750,000 50,750,000
------------------------------------------------------------------------------------------------------------------------
California, University of California Regents,
3.60%-4.05%, 10/2/2000-11/9/2000 25,000,000 25,000,000
------------------------------------------------------------------------------------------------------------------------
California Department of Water
3.65%, 10/2/2000 2,250,000 2,250,000
------------------------------------------------------------------------------------------------------------------------
Guam Power Authority, 4.00%, 10/12/2000 3,000,000 3,000,000
------------------------------------------------------------------------------------------------------------------------
Los Angeles County, Capital Asset Lease
Revenue, 3.60%-4.00%, 10/2/2000-11/9/2000 18,400,000 18,400,000
------------------------------------------------------------------------------------------------------------------------
Los Angeles Department of Water and Power
3.55%, 10/10/2000 9,000,000 9,000,000
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Principal
Amount Value
------------------------------------------------------------------------------------------------------------------------
Puerto Rico County, Government Development
Bank, 3.85%-4.00%, 11/14/2000-2/20/2001 $ 10,000,000 $ 10,000,000
------------------------------------------------------------------------------------------------------------------------
Sacramento County, Municipal Utility District,
3.65%-3.95%, 10/10/2000 14,037,000 14,037,000
------------------------------------------------------------------------------------------------------------------------
San Diego Water Authority, 4.00%, 10/11/2000 6,800,000 6,800,000
------------------------------------------------------------------------------------------------------------------------
San Francisco County, Airport,
3.70%-4.00%, 10/12/2000-11/15/2000 22,980,000 22,980,000
------------------------------------------------------------------------------------------------------------------------
San Francisco County, Bay Area Rapid Transit,
3.90%-4.00%, 10/11/2000-10/12/2000 8,000,000 8,000,000
------------------------------------------------------------------------------------------------------------------------
San Francisco County, Public Utilities,
3.95%, 10/11/2000-10/12/2000 13,000,000 13,000,000
------------------------------------------------------------------------------------------------------------------------
Ventura County, Financing Authority Lease,
3.85%-3.90%, 10/6/2000-11/10/2000 11,600,000 11,600,000
------------------------------------------------------------------------------------------------------------------------
Total Other Securities (Cost $217,617,000) 217,617,000
------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100% (Cost $573,731,000) (a) $ 573,731,000
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest rates represent annualized yield to date of maturity, except
for the variable rate securities described below.
(a) Cost for federal income tax purposes was $573,731,000.
* Variable rate demand securities are securities whose yields vary with a
designated market index or market rate such as the coupon equivalent of
the Treasury bill rate. These securities are shown at their current
rate as of September 30, 2000, and are payable within five business
days.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Financial Statements
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of September 30, 2000
---------------------------------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value $ 573,731,000
---------------------------------------------------------------------------------------------------------------------
Cash 6,879,574
---------------------------------------------------------------------------------------------------------------------
Receivable for investments sold 620,000
---------------------------------------------------------------------------------------------------------------------
Interest receivable 1,989,736
---------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 7,729,989
--------------
---------------------------------------------------------------------------------------------------------------------
Total assets 590,950,299
---------------------------------------------------------------------------------------------------------------------
Liabilities
---------------------------------------------------------------------------------------------------------------------
Dividends payable 106,920
---------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 12,698,821
---------------------------------------------------------------------------------------------------------------------
Accrued management fee 114,293
---------------------------------------------------------------------------------------------------------------------
Other accrued expenses and payables 602,578
--------------
---------------------------------------------------------------------------------------------------------------------
Total liabilities 13,522,612
---------------------------------------------------------------------------------------------------------------------
Net assets, at value $ 577,427,687
---------------------------------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------------------------------
Shares outstanding 577,427,687
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share (Net asset value/outstanding shares of $ 1.00
beneficial interest, $.01 par value, unlimited number of shares authorized)
---------------------------------------------------------------------------------------------------------------------
Statement of Operations
Year ended September 30, 2000
---------------------------------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------------------------------
Income:
---------------------------------------------------------------------------------------------------------------------
Interest $ 20,984,900
--------------
---------------------------------------------------------------------------------------------------------------------
Total Income 20,984,900
--------------
---------------------------------------------------------------------------------------------------------------------
Expenses:
---------------------------------------------------------------------------------------------------------------------
Management fee 1,318,196
---------------------------------------------------------------------------------------------------------------------
Services to shareholders 821,492
---------------------------------------------------------------------------------------------------------------------
Custodian fees 25,310
---------------------------------------------------------------------------------------------------------------------
Distribution services fees 1,977,382
---------------------------------------------------------------------------------------------------------------------
Auditing 37,568
---------------------------------------------------------------------------------------------------------------------
Legal 5,856
---------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 20,130
---------------------------------------------------------------------------------------------------------------------
Reports to shareholders 23,000
---------------------------------------------------------------------------------------------------------------------
Registration fees 79,636
---------------------------------------------------------------------------------------------------------------------
Other 43,107
--------------
---------------------------------------------------------------------------------------------------------------------
Total expenses, before expense reductions 4,351,677
---------------------------------------------------------------------------------------------------------------------
Expense reductions (10,783)
--------------
---------------------------------------------------------------------------------------------------------------------
Total expenses, after expense reductions 4,340,894
---------------------------------------------------------------------------------------------------------------------
Net investment income 16,644,006
---------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments 2,376
---------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,376
---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 16,646,382
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Years Ended September 30,
2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
---------------------------------------------------------------------------------------------------------------------
Operations:
---------------------------------------------------------------------------------------------------------------------
Net investment income $ 16,644,006 $ 6,007,976
---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 2,376 --
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 16,646,382 6,007,976
-----------------------------
---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (16,646,382) (6,007,976)
-----------------------------
---------------------------------------------------------------------------------------------------------------------
Fund share transactions at net asset value of $1.00 per share:
---------------------------------------------------------------------------------------------------------------------
Proceeds from shares sold 3,864,526,245 2,001,802,434
---------------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 16,544,227 6,030,649
---------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (3,706,074,298)(1,770,338,570)
-----------------------------
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions and total increase
(decrease) in net assets 174,996,174 237,494,513
---------------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 402,431,513 164,937,000
---------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 577,427,687 $ 402,431,513
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements and market price data.
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00
---------------------------------------------------------------------------------------------------------------------
Net investment income .03 .02 .03 .03 .03
---------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (.03) (.02) (.03) (.03) (.03)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 1.00 1.00 1.00 1.00 1.00
---------------------------------------------------------------------------------------------------------------------
Total Return (%) 2.76 2.15 2.71 2.91 2.93
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 577 402 165 117 119
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .72 .75 .74 .78 .72
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .72 .75 .74 .78 .72
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 2.75 2.14 2.66 2.78 2.88
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Tax Information
Of the dividends paid from net investment income for the taxable year ended
September 30, 2000, 100% are designated as exempt interest dividends for federal
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. If you have specific questions
about your account, please call 1-800-621-1048.
8
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Tax-Exempt California Money Market Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified
management investment company organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the use of
management estimates. The policies described below are followed consistently by
the Fund in the preparation of its financial statements.
Security Valuation. The Fund values all portfolio securities utilizing the
amortized cost method permitted in accordance with Rule 2a-7 under the 1940 Act
and pursuant to which the Fund must adhere to certain conditions. Under this
method, which does not take into account unrealized gains or losses on
securities, an instrument is initially valued at its cost and thereafter assumes
a constant accretion/amortization to maturity of any discount/premium.
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 tax exempt income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
tax provision was required.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a daily dividend and is distributed to shareholders monthly. Net
investment income includes all realized gains (losses) on portfolio securities.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis. All discounts and premiums are accreted/amortized for
both tax and financial reporting purposes.
2. 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, 2000, the Fund incurred a
management fee of $1,318,196. This was equivalent to an annualized rate of .22%
of the Fund's average daily net assets.
Distribution Agreement. Pursuant to a distribution services agreement, Kemper
Distributors, Inc. ("KDI") serves as distributor, administrator and principal
underwriter to the Fund. For distribution services, the Fund pays KDI an annual
fee of .33% of average daily net assets of the Fund. KDI has related
administration services 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, 2000, the Fund incurred a distribution services fee of $1,977,382,
of which $276,113 is unpaid at September 30, 2000.
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
9
<PAGE>
of $673,350 for the year ended September 30, 2000, of which $151,072 is unpaid
at September 30, 2000.
Officers and Trustees. Certain officers or trustees of the Fund are also
officers or trustees of Scudder Kemper. During the year ended September 30,
2000, the Fund made no payments to its officers and incurred trustees' fees of
$20,130 to independent trustees.
3. Expense Off-Set Arrangements
The Fund has entered into an arrangement with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the year ended September 30,
2000, the Fund's custodian and transfer agent fees were reduced by $5,939 and
$4,844, respectively.
4. Line of Credit
The Fund and several Kemper funds (the "Participants") share in a $750 million
revolving credit facility with Chase Manhattan Bank for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Participants are charged an
annual commitment fee which is allocated, pro rata based on net assets, among
each of the Participants. Interest is calculated based on the market rates at
the time of the borrowing. The Fund may borrow up to a maximum of 33 percent of
its net assets under the agreement.
10
<PAGE>
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, 2000, and the related statements of operations for the year then
ended, 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 1996. 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 auditing standards generally accepted
in the United States. 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, 2000 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, 2000, 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 1996, in conformity with accounting principles
generally accepted in the United States.
/s/Ernst & Young LLP
Chicago, Illinois
November 3, 2000
11
