<PAGE> 1
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
The six months ended May 31, the first half of the 1994 fiscal year for the
eleven Portfolios of the Vanguard State Tax-Free Fund, witnessed something that
we have not seen much of since 1987: rising interest rates. As a result, the
prices of long-term municipal bonds declined during the period, while the
income from money market instruments received a nice boost.
This environment, of course, negatively impacted the net asset values of
each of our Insured Long-Term Portfolios, as reflected in the table on page 2.
(The net asset values of our Money Market Portfolios, as you would expect,
remained constant, at $1.00 per share.) While fluctuating asset values are part
and parcel of bond investing, our Long-Term Portfolios exceeded the total
returns (capital change plus income) achieved by competitive state tax-free
bond funds. What is more, all of our Portfolios remain virtually peerless in
the mutual fund field with respect to their investment quality, as shown in the
third column of the table on page 2. In summary form, here are the Portfolio
highlights over the past twelve months:
* THE STATE MONEY MARKET PORTFOLIOS--provided total returns ranging
from +2.2% to +2.3% . . . current yields are in the area of 2.6%,
about the same as they were twelve months ago but nicely above their
level at the outset of the fiscal half year . . . net asset values
remained at $1.00 per share.
* THE STATE INSURED LONG-TERM PORTFOLIOS--reflecting the rebound in
interest rates, turned in modest total returns ranging from +1.9% to
+3.3% . . . current income yields are running about 5.4%, some 40
basis points (0.40%) higher than they were twelve months ago.
The detailed results for each of our State Tax-Free
Portfolios--including per share net asset values, dividends, and capital gains
distributions, as well as current yields--are presented on the following page.
To provide some perspective on how our Insured Long-Term Portfolios fared in
the face of rising interest rates, the table that follows summarizes the income
returns and the capital returns for each Portfolio:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Investment Returns
Twelve Months Ended
May 31, 1994
Insured Long-Term ----------------------------------------------
Portfolio* Income Capital Total
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA +5.4% -3.5% +1.9%
NEW YORK +5.4 -3.2 +2.2
PENNSYLVANIA +5.6 -2.3 +3.3
NEW JERSEY +5.3 -3.4 +1.9
OHIO +5.2 -2.8 +2.4
FLORIDA +5.1 -2.2 +2.9
- - --------------------------------------------------------------------------------------------------------
</TABLE>
*On March 4, 1994, the California Insured Intermediate-Term Portfolio was
introduced. Since its inception, the Portfolio has achieved an income return of
+1.0%, a capital return of +0.4%, and a total return of +1.4%.
* FIXED-INCOME MARKET REVIEW
The basic benchmark for the bond market is the long-term U.S. Treasury bond.
During the past six months, its yield rose from 6.3% at the start of the period
to 7.4% at its conclusion. This yield change engendered a decline of about -13%
in the Treasury bond's price. I am happy to report that the tax-exempt bond
market fared a good bit better, with the yield on long-term high-grade
municipal bonds rising from 5.5% to 6.1%, resulting in a price decline of some
- - -8%. However painful this decline may be for investors in long-term bonds, it
is worth noting that interest rates had been dropping steadily for some seven
years, and the retracement during the past six months has merely returned rates
to the level prevailing at the end of 1992.
A primary cause of the interest rate rise was investor fears about a
resurgence of inflation. So far, at least, there is little evidence of it. The
U.S. Consumer Price Index has risen just 2.3% over the past twelve months,
although more sensitive indicators--such as commodity prices--have been rising
at a much higher rate. In an effort to quell these inflationary fears, the
Federal reserve acted to "tighten" the money supply and slow economic growth
and potential future inflation, raising the Federal funds rate (at which banks
borrow from one
1
<PAGE> 2
another) four times--in February, March, April, and again in May--from 3.00% to
4.25%.
These increases in short-term rates are often seen by market
participants as a restraint on potential inflation, and thus cause long-term
rates to fall. This time around, quite the reverse has been true. In any event,
proving that "it is an ill wind (indeed) that blows no good," the rate increase
has added to the income received by investors in our Money Market Portfolios.
And, because of the "lag" from the date interest rates rise until they are
fully manifested in money market fund yields, further dividend increases in our
Money Market Portfolios likely lie in prospect.
* IN SUMMARY
In my Chairman's letter to you one year ago, I noted that "it is hard to
imagine that the steady trend toward ever-lower interest rates can go much
further." I went on to caution that if rates did reverse their decline in
response to a strengthening economy, the capital rewards enjoyed by our
longer-term Portfolios would turn to capital penalties. While I do not presume
any forecasting ability whatsoever, these observations have proved prescient.
Nonetheless, provided that you own the Vanguard Portfolio (or combination of
Portfolios) that meets your long-term risk-reward objectives, I would urge you
to "stay the course" and avoid the temptation to make precipitate changes in
your fund holdings.
In closing, I am pleased to note the intro-duction of a new Portfolio to
our State Tax-Free Fund stable, the California Insured Intermediate-Term
Portfolio. The Portfolio is off to a fine start, earning a total return of
+1.4% since its inception on March 4, 1994. What is more, in just three months
our assets have reached the $60 million mark. I look forward to reporting on
our results for the full 1994 fiscal year six months hence.
Sincerely,
/S/ JOHN C. BOGLE
- - ---------------------
John C. Bogle
Chairman of the Board June 17, 1994
<TABLE>
<CAPTION>
Net Asset Value
Total Per Share Dividends Total Return
Net Assets ----------------- ----------------- --------------------------
(millions) Average Average Nov. 30, May 31, Six Twelve Six Twelve Current
Portfolio May 31, 1994 Maturity Quality* 1993 1994 Months Months Months Months Yield**
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA $1,126 35 DAYS MIG 1 $ 1.00 $ 1.00 $.011 $.023 +1.1% +2.3% 2.55%
PENNSYLVANIA 1,041 37 DAYS MIG 1 1.00 1.00 .011 .023 +1.1 +2.3 2.60
NEW JERSEY 803 41 DAYS MIG 1 1.00 1.00 .011 .022 +1.1 +2.2 2.46
OHIO 139 47 DAYS MIG 1 1.00 1.00 .011 .023 +1.2 +2.3 2.57
- - ---------------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA $ 929 12.9 YEARS Aaa $11.30 $10.66 $ .451+ $.753+ -1.8% +1.9% 5.58%
CALIFORNIA INTERMEDIATE-
TERM 57 75.3 YEARS Aaa -- 10.04 .101++ -- +1.4++ -- 4.82
NEW YORK 760 11.8 YEARS Aaa 10.97 10.49 .306+ .602+ -1.6 +2.2 5.41
PENNSYLVANIA 1,430 11.7 YEARS Aaa 11.36 10.85 .388+ .703+ -1.1 +3.3 5.47
NEW JERSEY 700 11.5 YEARS Aaa 11.77 11.18 .374+ .690+ -1.9 +1.9 5.41
OHIO 162 29.7 YEARS Aaa 11.61 11.08 .327+ .630+ -1.8 +2.4 5.48
FLORIDA 292 12.1 YEARS Aaa 10.86 10.38 .339+ .611+ -1.3 +2.9 5.39
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* MIG 1 and Aaa are Moody's highest ratings for, respectively, short-term and
long-term municipal bonds.
** Money Market Portfolios' yields are 7-day annualized yields; others are
30-day SEC yields.
+ Include capital gains distributions of $.152 for California, $.012 for New
York, $.079 for Pennsylvania, $.063 for New Jersey, $.032 for Ohio, and
$.070 for Florida.
++ Since inception, March 4, 1994.
The shares of each of the Vanguard "single state" Portfolios are available
for purchase solely by residents of the designated states.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS NOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN ACCORDANCE
WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS
(PERIODS ENDED MARCH 31, 1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
INCEPTION SINCE
PORTFOLIO DATE 1 YEAR 5 YEARS INCEPTION
- - ------------------------------------ --------- ------ ------- ---------
<S> <C> <C> <C> <C>
CALIFORNIA INSURED LONG-TERM 4/7/86 +1.77% +8.56% +7.70%
CALIFORNIA INSURED INTERMEDIATE-TERM 3/4/94 -- -- -0.64
CALIFORNIA MONEY MARKET 6/1/87 +2.34 +4.05 +4.34
NEW YORK INSURED TAX-FREE 4/7/86 +2.37 +8.97 +7.23
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +3.14 +9.22 +8.11
PENNSYLVANIA MONEY MARKET 6/13/88 +2.31 +4.15 +4.39
NEW JERSEY INSURED LONG-TERM 2/3/88 +2.44 +8.87 +8.65
NEW JERSEY MONEY MARKET 2/3/88 +2.24 +4.12 +4.37
OHIO INSURED LONG-TERM 6/18/90 +2.70 -- +9.12
OHIO MONEY MARKET 6/18/90 +2.31 -- +3.54
FLORIDA INSURED TAX-FREE 9/1/92 +2.56 -- +7.01
</TABLE>
THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE NOTE THAT AN INVESTMENT IN A MONEY MARKET FUND, SUCH AS A MONEY MARKET
PORTFOLIO OF THE VANGUARD STATE TAX-FREE FUNDS, IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
3
<PAGE> 4
REPORT FROM THE INVESTMENT ADVISER
STATE INSURED
LONG-TERM PORTFOLIOS
Over the past six months, the pace of domestic economic activity accelerated
sharply. Strong improvements in the rate of growth in Gross Domestic Product
(GDP), and a host of related statistics such as home sales, automobile sales,
and consumer confidence, provided ample evidence of renewed vigor. Bond markets
seldom react well to strong economic signals and this period was no exception.
The yield on the 30-year Treasury bond rose 1.1 percentage points (from 6.3% to
7.4%). During the same period, municipal bonds performed slightly better, with
the yield on long-term high-grades rising 0.6% (from 5.5% to 6.1%), producing
an 8.3% loss of value.
As one would expect, the sharp rise in interest rates negatively
impacted the share price of the State Insured Long-Term Portfolios. To be sure,
a decline of this nature can be disconcerting to even the most resolute
long-term investor. However, following more than a decade of exceptional
returns of longer-term fixed-income assets, the poor six-month period
represents only a partial "give back" of previous prosperity. Looking beyond
the short-term share price volatility, a shareholder of the State Insured
Long-Term Portfolios can expect to receive an attractive, consistent, and
durable stream of tax-exempt dividend income.
* SUCCESSFUL STRATEGIES . . .
For the recent period, two of several core strategies stand out for enhancing
the relative returns of the State Insured Long-Term Portfolios. First, a
reduction in average maturity over the past year improved relative market
performance and moderated some of the "sting" of a bear market. Some of this
was accomplished by focusing on municipals maturing in 15 to 20 years, rather
than the slightly higher yielding but more volatile 30-year maturities. This
modest reduction in average maturity effectively "locked-in" a portion of the
gains in share price achieved in the previous bull market.
Second, the prudent maintenance of reserve positions of about 10% of
fund assets added to our relative stability. What is more, these reserves
provided a liquidity cushion to meet shareholder redemptions. In good times,
reserves (which normally yield less than longer-term assets) forego a small
amount of yield potential. In difficult market conditions, such as prevailed
during the past six months, the additional reserves allow the portfolio to meet
redemption requests without the inopportune (and sometimes "distressed") sale
of securities.
* LOOKING FORWARD . . .
The issuance of new municipal bonds has fallen dramatically. Issuance for the
first six months in fiscal 1994 was 26% below the pace of a year earlier. Early
indications show forward supply even lower compared to the "mad dash" of 1993.
Municipalities appear to have completed the process of refinancing older,
higher coupon debt of the 1980's and early 1990's. At the same time, a record
number of previously mentioned high coupon bonds are approaching their call
dates, and a huge amount of principal will be returned to owners of individual
bonds. All things being equal, this should continue to provide more attractive
returns for municipal bonds than their taxable brethren.
In conclusion, it would be reassuring to believe that the recent
increase in interest rates is sufficient to "rein in" the rapidly expanding
U.S. economy and dampen any inflationary expectations. Yet, that observation
might be premature. If history serves as any guide, the process may take longer
than the recent six months of "pain." If so, there could be more share price
unpleasantness ahead before the markets resume their positive return pattern of
the past decade. However, attempting to "time" the turnaround--getting out at
the highs and then getting back in at the lows--tends to be equally futile for
the institutional and individual investor alike. The best advice we know is to
endure the swings and allow the powerful tax exempt compounding of interest to
continue.
4
<PAGE> 5
STATE MONEY MARKET PORTFOLIOS
The past six months ushered in a change in the Federal Reserve Board's
previously accommodative monetary policy. Since February 4, 1994, market
participants watched anxiously as the Federal Reserve Board, in four separate
instances, pushed the Federal funds rate up 125 basis points (1.25%) to 4.25%
and tightened the discount rate 50 basis points (0.50%) to 3.50%. This series
of moves by the Fed has signaled the end of stimulative policy (maintained
throughout 1993) and the initiation of a policy of "neutrality."
The effect of the tightening on the short-term municipal market was
surprisingly mild. While yields on "first tier" taxable money market funds rose
approximately 70 basis points over the six-month period, yields on
state-specific and general purpose tax-free money funds rose a mere 35 basis
points. The primary contributor to the unresponsive municipal market was the
scarcity of new issue supply. Supply of short-term municipal securities is
quite cyclical, and depends on an issuer's fiscal year, which generally runs
from July 1 to June 30. As a result, supply typically remains light in the
months leading up to June and dramatically increases in the summer months, as
issuers prepare to fund their upcoming budgetary needs in the new fiscal year.
This lack of supply experienced during a period of rising rates in the broader
taxable markets enabled short-term municipal yields to maintain relative
stability. As technical supply factors temporarily have been depressing yields
on short-term municipal securities, we have been targeting a low average
weighted maturity for the tax-exempt money funds of 45 to 60 days. Our
Portfolios should be commensurately more responsive when new issue supply
surges and interest rates rise. We expect the shift from scarcity to abundance
will occur within weeks.
While the market focused on an accelerating economy and the rise in
interest rates, the Securities and Exchange Commission quietly launched its own
initiative to ensure the net asset value safety of tax-exempt money funds,
consistent with those already applicable to taxable money funds. In fact, the
SEC has proposed regulations that coincide with (or in some cases are less
restrictive than) our conservative approach to managing money market funds.
Thus, they will have little impact on the Vanguard Money Market Portfolios. We
believe that the Commission's proposals, if adopted, will be a positive force
in elevating industrywide portfolio standards.
In conclusion, the upcoming months could potentially bring about
significant regulatory and economic changes in our market. While keeping a
watchful eye on the actions of the Federal Reserve Board and maintaining our
conservative investment approach, we look forward to capitalizing on any
opportunities that may result.
Sincerely,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela E. Wisehaupt
Vice President
David E. Hamlin
Assistant Vice President
Reid O. Smith
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Vanguard Fixed Income Group
June 13, 1994
5
<PAGE> 6
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
May 31, 1994
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (99.4%)
- - -------------------------------------------------------------------------------------------------------------------------
ISSUER INSURED (87.5%)
Alameda COP(Santa Rita Jail Project)5.375%, 6/1/09 (1) $11,300 $10,758
Anaheim Convention Center COP
0.00%, 8/1/04 (1) 3,120 1,736
0.00%, 8/1/05 (1) 1,250 648
0.00%, 8/1/06 (1) 3,125 1,506
5.50%, 8/1/14 (1) 4,000 3,641
City of Barstow Redevelopment Agency
6.25%, 9/1/22 (1) 2,225 2,210
Brea Public Finance Auth.
5.50%, 8/1/17 (1) 11,650 10,534
California Education Facilities Auth.
5.50%, 6/1/19 (1) 5,000 4,500
California Health Facilities Auth.
(Adventist Health System)
6.75%, 3/1/11 (1) 5,000 5,224
(Centinela Hosp.)
6.50%, 9/1/08 (1) 5,000 5,238
6.25%, 9/1/15 (1) 20,400 20,428
(San Diego Hosp.)
6.625%, 5/1/19 (1) 6,525 6,631
(Unihealth America)
7.625%, 10/1/15 (2) 1,500 1,673
California Housing Finance Agency
Multifamily Housing Rev.
8.625%, 8/1/15 (1) 305 311
California Public Works Board
(Univ. of California)
6.25%, 12/1/07 (2) 6,945 7,199
6.50%, 12/1/08 (2) 4,000 4,260
Chino Basin Finance Auth.
Municipal Water Dist.
6.50%, 8/1/10 (2) 3,095 3,257
6.00%, 8/1/16 (2) 5,500 5,374
Contra Costa COP5.50%, 6/1/12 (2) 6,850 6,348
5.60%, 6/1/19 (2) 9,395 8,628
6.70%, 2/1/21 (2) 4,630 4,729
Contra Costa Transportation Auth.
Sales Tax Rev. VRDO
2.70%, 6/1/94 (3) 1,400 1,400
Culver City Finance Auth.
5.50%, 11/1/14 (2) 9,225 8,512
Culver City Redevelopment
Finance Auth.
6.75%, 11/1/15 (2) 1,000 1,028
Eastern Municipal Water Dist.
6.75%, 7/1/12 (3) 8,000 8,675
Elsinore Valley Municipal Water Dist. COP
5.90%, 7/1/06 (3) 1,685 1,720
6.00%, 7/1/12 (3) 2,210 2,195
Encina Power Auth.
6.875%, 8/1/11 (3) 3,650 3,797
City of Fresno Sewer Rev.
6.25%, 9/1/10 (2) 6,395 6,572
Garden Grove Public Finance Auth.
5.50%, 12/15/23 (3) 2,900 2,591
Glendale Hosp. Rev.
(Adventist Health System)
6.00%, 3/1/14 (1) 3,000 2,935
Glendale Redevelopment Agency
7.10%, 12/1/98 (2) (Prere.) 5,000 5,553
Indian Wells Redevelopment Agency
5.50%, 12/1/22 (1) 2,000 1,789
City of Industry GO
5.875%, 7/1/10 (3) 3,015 2,979
Kern High School Dist. GO
6.25%, 8/1/11 (1) 1,065 1,091
6.40%, 8/1/14 (1) 1,490 1,555
6.40%, 8/1/15 (1) 1,645 1,719
6.40%, 8/1/16 (1) 1,815 1,894
LaQuinta Redevelopment Agency
7.30%, 9/1/10 (1) 1,000 1,125
Long Beach Financing Auth.
5.85%, 11/1/05 (2) 2,630 2,691
6.00%, 11/1/10 (2) 3,860 3,876
6.00%, 11/1/17 (2) 2,000 1,958
Los Angeles COP
(Children's Hosp.)
6.00%, 6/1/10 (1) 1,000 1,000
6.00%, 6/1/11 (1) 2,365 2,357
Los Angeles County Waste
Water System
5.70%, 6/1/09 (1) 3,050 2,996
6.25%, 6/1/12 (2) 4,730 4,774
6.00%, 12/1/12 (3) 16,765 16,617
5.70%, 6/1/23 (1) 2,000 1,851
MSR Public Power Agency
6.125%, 7/1/13 (2) 8,000 7,999
6.625%, 7/1/13 (6) 2,000 2,044
6.75%, 7/1/20 (1) 37,000 40,066
Modesto City School Dist. GO
5.40%, 8/1/05 (3) 1,000 992
Modesto Irrigation Dist.
Finance Auth.
6.50%, 10/1/11 (2) 8,125 8,504
6.50%, 10/1/22 (2) 9,750 10,258
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mountain View Capital
Improvement Finance Auth.
6.25%, 8/1/12 (1) $ 5,000 $ 5,041
Northern California Power Agency
6.00%, 7/1/08 (1) 5,500 5,583
6.00%, 7/1/09 (1) 7,530 7,623
5.50%, 7/1/16 (1) 10,000 9,085
7.50%, 7/1/21 (2) (Prere.) 1,810 2,146
5.50%, 7/1/23 (1) 5,000 4,475
Oakland Redevelopment Agency
6.00%, 2/1/06 (2) 3,000 3,094
5.50%, 2/1/14 (2) 5,500 5,065
Orange County Local
Transportation Auth.
5.80%, 2/15/05 (3) 9,000 9,157
5.90%, 2/15/06 (3) 8,000 8,148
Orange County Sanitation Dist.
VRDO 2.80%, 6/1/94 (3) 1,100 1,100
COP 6.00%, 8/1/01 (3) (Prere.) 2,300 2,455
Oro Loma Sanitation Dist.
5.20%, 10/1/16 (2) 4,800 4,192
Palmdale Single Family Mortgage
9.875%, 4/1/08 (3) 6 8
Pittsburg Redevelopment Agency
5.50%, 8/1/07 (3) 2,750 2,702
5.50%, 8/1/15 (3) 12,700 11,617
Placer County Water Rev. COP
7.75%, 7/1/18 (6) 3,500 3,869
Pomona Unified School Dist.
GO 5.60%, 8/1/14 (1) 1,585 1,485
GO 5.60%, 8/1/15 (1) 2,000 1,862
5.50%, 8/1/16 (3) 1,000 915
GO 5.60%, 8/1/16 (1) 1,000 928
GO 7.50%, 8/1/17 (1) 2,540 2,985
Port Hueneme Redevelopment Agency
5.50%, 5/1/14 (2) 2,000 1,845
Poway Redevelopment Agency
7.25%, 12/15/11 (3) 7,500 8,024
Rancho Water Dist.
6.25%, 8/1/12 (3) 2,000 2,019
COP 7.125%, 11/1/15 (2) 800 847
Redding Joint Power Finance Auth.
Waste Water Rev.
5.50%, 12/1/18 (3) 2,300 2,074
Redlands Water COP
7.00%, 11/1/96 (2) (Prere.) 5,500 5,926
Riverside County Transportation Comm.
5.75%, 6/1/08 (2) 1,750 1,742
5.75%, 6/1/09 (2) 4,795 4,747
Riverside Sewer Rev.5.00%, 8/1/11 (3) 4,520 4,008
5.00%, 8/1/12 (3) 4,745 4,186
Sacramento County Public Facilities
(Main Detention Facility Project)
5.50%, 6/1/10 (1) 4,000 3,800
Sacramento Finance Auth.
5.375%, 11/1/14 (2) 4,000 3,638
5.40%, 11/1/20 (2) 7,000 6,260
Sacramento Municipal Utility Dist.
6.25%, 8/15/07 (1) 4,000 4,121
6.25%, 8/15/10 (1) 32,550 33,382
5.75%, 8/15/13 (1) 18,295 17,435
6.50%, 9/1/13 (1) 8,895 9,419
6.16%, 8/15/18 (1) 8,000 7,989
Sacramento Redevelopment Agency
6.50%, 11/1/13 (1) 2,500 2,555
San Diego County Transportation Comm.
5.25%, 4/1/06 (3) 9,000 8,752
San Diego Redevelopment Agency
6.00%, 9/1/18 (2) 6,500 6,321
San Francisco Airport Comm.
6.20%, 5/1/06 (2) 10,000 10,451
6.20%, 5/1/08 (2) 1,000 1,037
6.00%, 5/1/10 (1) 2,000 2,009
6.00%, 5/1/11 (1) 2,000 2,000
6.00%, 5/1/20 (1) 6,500 6,317
San Francisco Bay Area Rapid Transit
6.75%, 7/1/10 (2) 6,370 6,865
6.75%, 7/1/11 (2) 7,455 8,005
San Francisco City & County
Airport Rev.
6.40%, 5/1/05 (1) 3,080 3,292
6.50%, 5/1/06 (1) 3,280 3,494
6.60%, 5/1/07 (1) 2,490 2,651
6.625%, 5/1/08 (1) 3,720 3,972
6.70%, 5/1/09 (1) 3,970 4,246
San Joaquin County COP
(Human Services Project)
6.70%, 5/15/99 (6) (Prere.) 2,800 3,070
San Joaquin County Public Facility
Finance Corp. COP
5.00%, 11/15/09 (1) 1,000 913
5.00%, 11/15/10 (1) 1,110 996
5.50%, 11/15/13 (1) 3,895 3,620
San Jose Airport Rev.
5.875%, 3/1/07 (3) 7,085 7,189
5.75%, 3/1/16 (1) 4,350 4,127
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
San Jose Merged Area
Redevelopment Rev.
6.00%, 8/1/11 (1) $ 8,845 $ 8,844
6.00%, 8/1/15 (1) 3,000 2,950
San Jose Santa Clara CleanWater Auth.
7.00%, 10/1/04 (1) 5,615 6,107
San Mateo County Finance Auth.
6.50%, 7/1/13 (1) 14,560 15,414
6.50%, 7/1/15 (1) 4,235 4,460
San Mateo Sewer
6.60%, 8/1/14 (1) 2,500 2,540
San Mateo Transportation
5.25%, 6/1/15 (1) 8,215 7,297
Santa Ana Community
Redevelopment Auth.
7.375%, 12/1/96 (3) (Prere.) 1,695 1,844
7.40%, 12/1/96 (3) (Prere.) 270 294
Santa Clara Redevelopment Agency
7.00%, 7/1/10 (2) 7,000 7,723
Santa Fe Springs Redevelopment
Agency
6.00%, 9/1/14 (1) 5,350 5,245
Santa Rosa Waste Water Rev.
6.25%, 9/1/12 (3) 7,075 7,154
6.00%, 7/2/15 (2) 7,000 6,860
6.00%, 9/1/15 (3) 5,580 5,468
5.25%, 9/1/16 (3) 3,000 2,655
South Coast Air Quality
Management Dist.
6.00%, 8/1/11 (2) 3,200 3,186
5.50%, 8/1/14 (1) 8,000 7,334
South County Water Auth.
5.50%, 8/1/22 (3) 8,000 7,160
South Orange County Public Finance Auth.
7.00%, 9/1/10 (1) 3,300 3,654
7.00%, 9/1/11 (1) 3,000 3,316
Southern California Public
Power Auth.(Palo Verde)
7.00%, 7/1/07 (2) 1,600 1,683
6.60%, 7/1/08 (2) 4,280 4,398
7.00%, 7/1/10 (2) 2,500 2,629
(San Juan)
TOB VRDO 2.85%, 7/1/94 (1) 18,645 18,645
Southern California Rapid Transit Dist.
5.75%, 9/1/05 (2) 5,000 5,112
5.80%, 9/1/06 (2) 3,900 3,958
5.90%, 9/1/07 (2) 4,800 4,875
Sweetwater Water Rev.
7.00%, 4/1/99 (2) (Prere.) 3,050 3,358
7.00%, 4/1/10 (2) 1,950 2,076
Three Valley Municipal
Water Dist. COP
7.30%, 11/1/96 (1) (Prere.) 3,200 3,498
5.25%, 11/1/10 (3) 4,220 3,884
Torrance COP
7.20%, 4/1/16 (2) 4,050 4,284
Transmission Agency of Northern
California
5.25%, 5/1/08 (1) 4,000 3,792
Tri City Hosp. Dist.
(Oceanside Hosp.)
7.00%, 2/1/12 (1) 5,950 6,341
Tulare County COP
5.80%, 11/15/04 (1) 1,000 1,025
5.875%, 11/15/05 (1) 1,000 1,026
Turlock Irrigation Dist. COP
6.75%, 1/1/12 (3) 2,130 2,200
6.75%, 1/1/13 (3) 3,155 3,218
Turlock Irrigation Dist.
Water & Electric
5.75%, 1/1/18 (1) 1,150 1,081
Ukiah Electric Rev.
6.00%, 6/1/08 (1) 4,565 4,660
6.25%, 6/1/18 (1) 6,000 6,105
Univ. of California
Board of Regents
6.00%, 9/1/08 (1) 2,515 2,547
6.00%, 9/1/12 (1) 3,530 3,503
6.00%, 9/1/13 (1) 3,320 3,271
Walnut Finance Auth.
6.00%, 9/1/15 (1) 5,000 4,900
Walnut Valley School Dist.
6.20%, 8/1/09 (2) 1,270 1,310
6.00%, 8/1/12 (2) 1,790 1,782
6.00%, 8/1/13 (2) 1,980 1,960
6.00%, 8/1/14 (2) 2,205 2,172
6.00%, 8/1/15 (2) 2,470 2,429
6.00%, 8/1/16 (2) 2,690 2,644
West Sacramento Financing Auth.
5.25%, 8/1/08 (3) 2,160 2,050
---------
GROUP TOTAL 812,746
---------
- - -------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INSURED (.1%)
Riverside Hosp. Dist.
(Kaiser Permanente Medical Center)
9.00%, 12/1/15 300 324
Sacramento Municipal Utility Dist.
8.00%, 11/15/10 205 205
---------
GROUP TOTAL 529
---------
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SECONDARY MARKET INSURED (4.0%)
California Housing Finance Agency
(Single Family Mortgage)
6.90%, 8/1/16 (6) $ 5,750 $ 5,845
California Public Works Board
(Department of Corrections)
6.50%, 9/1/17 (2) 30,000 31,438
---------
GROUP TOTAL 37,283
---------
- - -------------------------------------------------------------------------------------------------------------------------
NON-INSURED (7.8%)
California Health Facilities
Auth. VRDO
2.55%, 6/1/94 1,625 1,625
California PCR VRDO
(Southern California Edison)
3.40%, 6/1/94 1,700 1,700
California State RAN
3.50%, 6/28/94 4,000 4,000
California State RAW
3.50%, 7/26/94 8,700 8,703
California Water Department
7.00%, 12/1/11 2,585 2,896
7.00%, 12/1/12 4,520 5,081
Irvine City Assessment Dist. VRDO
2.80%, 6/1/94 1,300 1,300
Irvine Ranch Water Dist. VRDO
2.85%, 6/1/94 3,400 3,400
2.80%, 6/1/94 1,500 1,500
Kern County High School Dist.
TRAN
3.25%, 7/21/94 5,000 5,000
Los Angeles County TRAN
3.00%, 6/30/94 4,200 4,198
Los Angeles Department of
Water & Power
6.50%, 4/1/10 3,950 4,309
Orange County VRDO (Irvine Co.)
2.90%, 6/1/94 1,100 1,100
Orange County Sanitation Dist. COP VRDO
2.80%, 6/1/94 700 700
Orange County Water Dist. COP VRDO
2.80%, 6/1/94 200 200
Pasadena Electric Works Rev.
5.375%, 8/1/12 7,040 6,483
Riverside VRDO
2.95%, 6/1/94 20,500 20,500
---------
GROUP TOTAL 72,695
---------
- - -------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $916,282) 923,253
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
<S> <C>
- - -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.6%)
- - -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 27,831
Liabilities (22,065)
---------
5,766
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------------------------------
Applicable to 87,120,703 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $929,019
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.66
=========================================================================================================================
</TABLE>
+ See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 13.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $910,624 $10.45
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 7,128 .08
Unrealized Appreciation of Investments--Note D 11,267 .13
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $929,019 $10.66
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
INSURED INTERMEDIATE-TERM Amount Value
PORTFOLIO (000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (104.7%)
- - -------------------------------------------------------------------------------------------------------------------------
ISSUER INSURED (97.6%)
California Housing Finance Agency VRDO
2.55%, 6/1/94 (1) $ 500 $ 500
California Public Works Board
(Univ. of California Regents)
6.25%, 12/1/07 (2) 1,000 1,037
Central Coast Water Auth.
5.65%, 10/1/01 (2) 695 714
6.05%, 10/1/04 (2) 1,800 1,881
Clovis COP
(Clovis Community Hosp.)
8.75%, 2/1/95 (2) (Prere.) 1,800 1,897
Contra Costa Transportation Auth. VRDO
2.70%, 6/1/94 (3) 1,500 1,500
City of Corona Redevelopment Project
7.50%, 9/1/04 (3) 970 1,123
7.50%, 9/1/05 (3) 1,040 1,205
Culver City Redevelopment Finance Auth.
6.75%, 11/1/99 (2) (Prere.) 2,500 2,751
Elsinore Valley Municipal Water Dist.
COP 5.90%, 7/1/05 (3) 1,730 1,777
6.00%, 7/1/07 (3) 1,650 1,691
LaQuinta Redevelopment Agency
8.00%, 9/1/03 (1) 1,325 1,573
Long Beach Financing Auth.
5.85%, 11/1/05 (2) 1,000 1,023
Los Angeles County
Transportation Comm.
Sales Tax Rev. VRDO
2.70%, 7/1/94 (3) 600 600
MSR Public Power Agency
(San Juan Project)
5.85%, 7/1/06 (2) 2,000 2,044
Modesto City School Dist.
5.40%, 8/1/05 (3) 615 610
Oakland Redevelopment Agency
(Central Dist. Project)
6.00%, 2/1/06 (2) 2,125 2,191
Orange County Sanitation Dist. COP
6.00%, 8/1/01 (3) (Prere.) 1,500 1,601
6.40%, 8/1/07 (3) 1,415 1,482
Rancho Water Dist. COP
7.125%, 11/1/95 (2) (Prere.) 200 212
Redding Electric System Rev. COP
7.125%, 7/1/97 (1) (Prere.) 1,000 1,088
Sacramento Municipal Utility Dist.
6.25%, 8/15/07 (1) 1,000 1,030
Sacramento Redevelopment Agency
(Merged Downtown Project)
6.50%, 11/1/05 (1) 1,000 1,082
San Diego County Regional
Transportation Comm. VRDO
2.75%, 6/1/94 (3) 530 530
San Diego Redevelopment Agency
(Centre City Project)
5.80%, 9/1/03 (2) 2,210 2,278
San Francisco City and County Airport Rev.
6.60%, 5/1/07 (1) 1,000 1,065
City of San Francisco Sewer Rev.
5.70%, 10/1/04 (2) 185 190
San Joaquin County COP
(Human Services Project)
6.70%, 5/15/99 (6) (Prere.) 2,500 2,741
San Jose Merged Area Redevelopment Project
7.50%, 8/1/96 (1) (Prere.) 1,000 1,082
San Jose Santa Clara Clean Water Finance Auth.
7.25%, 10/1/02 (1) 1,500 1,635
South Orange County Public Finance Auth.
7.00%, 9/1/05 (1) 2,615 2,914
Southern California Public Power Auth.
(Palo Verde)
7.00%, 7/1/07 (2) 1,300 1,367
(Transmission Project) VRDO
2.70%, 7/1/94 (2) 570 570
Southern California Rapid Transit Dist.
5.75%, 9/1/05 (2) 310 317
Three Valley Municipal Water Dist. COP
7.30%, 11/1/96 (1) (Prere.) 1,000 1,093
Tri-City Hosp. Dist. (Oceanside Care)
7.00%, 2/1/05 (1) 915 975
Tulare County COP
5.70%, 11/15/03 (1) 1,000 1,019
Univ. of California
Board of Regents
10.00%, 9/1/02 (1) 2,950 3,843
Visalia Waste Water System Rev.
6.00%, 12/1/07 (1) 1,000 1,024
West Basin Water Dist.
6.80%, 8/1/00 (2) (Prere.) 2,000 2,212
-------
GROUP TOTAL 55,467
-------
- - -------------------------------------------------------------------------------------------------------------------------
NON-INSURED (7.1%)
California Health Facilities Auth. VRDO
(Daughters of Charity Health System-West)
2.90%, 6/1/94 200 200
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kern County VRDO
2.65%, 6/1/94 $ 300 $ 300
Orange County VRDO
2.90%, 6/1/94 200 200
Orange County Sanitation
Dist. COP VRDO
2.80%, 6/1/94 200 200
Riverside VRDO
2.95%, 6/1/94 2,150 2,150
Santa Clara VRDO
(El Camino Hosp.
Dist.-Valley Medical)
2.90%, 6/1/94 1,000 1,000
-------
GROUP TOTAL 4,050
-------
- - -------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $59,149) 59,517
- - -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-4.7%)
- - -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 1,906
Payable for Securities Purchased (4,483)
Other Liabilities (71)
-------
(2,648)
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------------------------------
Applicable to 5,665,104 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $56,869
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.04
=========================================================================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 13.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
------- ------
<S> <C> <C>
Paid in Capital $56,450 $9.97
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 23 --
Unrealized Appreciation of Investments--Note D 396 .07
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $56,869 $10.04
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (99.7%)
- - -------------------------------------------------------------------------------------------------------------------------
Alameda County TRAN
3.25%, 7/29/94 $ 9,000 $ 9,013
Anaheim City Public Improvement
Corp. COP VRDO
2.70%, 6/1/94 (2) 33,900 33,900
California Dept. Water
Resource TOB VRDO
(Central Valley Project)
2.70%, 6/2/94 25,285 25,285
California Health Facilities
Finance Auth. VRDO
2.80%, 6/1/94 6,700 6,700
(Adventist Health System
& West Sutter Health)
2.65%, 6/2/94 24,100 24,100
(Catholic Health Care West)
2.55%, 6/1/94 (1) 39,175 39,175
(Daughters of Charity)
2.85%, 6/1/94 41,100 41,100
(Kaiser Permanente)
2.65%, 6/1/94 11,100 11,100
California PCR Finance Auth.
(Pacific Gas & Electric) CP
3.20%, 7/6/94 22,000 22,000
2.80%, 7/11/94 7,500 7,500
3.20%, 7/18/94 5,500 5,500
3.05%, 9/22/94 15,500 15,500
(Southern California Edison)
VRDO 3.40%, 6/1/94 4,100 4,100
California State GO TOB
3.35%, 11/1/94* 9,000 9,000
California State RAN
3.50%, 6/28/94 37,200 37,223
California State RAW
3.50%, 7/26/94 22,200 22,224
3.75%, 12/21/94 35,000 35,098
California Statewide
Communities Development Auth.
3.25%, 6/30/94 8,000 8,004
Clovis Unified School Dist. TRAN
3.00%, 6/29/94 8,000 8,002
Contra Costa County TRAN
3.25%, 7/29/94 8,500 8,499
Contra Costa Transportation Auth. VRDO
2.70%, 6/1/94 (3) 16,000 16,000
Foothill/Eastern Transport Correction Agency VRDO
2.50%, 6/2/94 5,000 5,000
City of Fullerton TRAN
3.00%, 7/29/94 5,000 5,001
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
City of Irvine Assessment Dist.
CP 3.20%, 7/14/94 $ 6,953 $ 6,953
VRDO 2.80%, 6/1/94 2,100 2,100
Irvine Ranch Water Dist. VRDO
2.85%, 6/1/94 2,300 2,300
Kern County Board of Education TRAN
3.25%, 6/30/94 2,500 2,501
Kern County TRAN
3.25%, 7/5/94 8,000 8,003
Kern County VRDO
2.65%, 6/1/94 31,700 31,700
Long Beach County TRAN
3.25%, 9/21/94 6,000 6,007
Los Angeles County
Metropolitan Transit Auth.
TOB VRDO 2.95%, 6/2/94 2,920 2,920
CP 3.05%, 7/21/94 35,921 35,921
Los Angeles County School Comm.
College Dist.
3.25%, 6/30/94 17,000 17,005
Los Angeles County TRAN
CP 2.60%, 6/2/94 41,300 41,300
3.00%, 6/30/94 31,555 31,557
Los Angeles County
Transportation Comm.
CP 3.00%, 8/11/94 15,000 15,000
VRDO 2.70%, 6/1/94 (3) 7,900 7,900
Los Angeles County Unified
School Dist. TRAN3.25%, 7/15/94 50,500 50,520
Los Angeles Dept. of Water
& Power TOB
2.50%, 6/15/94* 15,500 15,500
City of Oakland Health
Facilities VRDO
(Children's Hosp.)
2.80%, 6/1/94 7,215 7,215
Orange County Sanitation
Dist. COP VRDO
2.55%, 6/2/94 (2) 39,200 39,200
Orange County School Dist. TRAN
3.25%, 7/29/94 6,700 6,703
Orange County TRAN
3.00%, 6/30/94 5,500 5,502
Orange County Water Dist.
COP VRDO
2.80%, 6/1/94 3,400 3,400
Riverside County TRAN
VRDO 2.35%, 6/7/94 12,835 12,835
CP 2.95%, 6/8/94 13,700 13,700
3.00%, 6/30/94 22,500 22,501
Sacramento County VRDO
(Administration Center
& Courthouse)
2.65%, 6/2/94 26,150 26,150
Sacramento Municipal Utility
Dist. TOB VRDO
3.143%, 6/2/94 (1) 12,185 12,185
Saddleback Valley Unified
School Dist. TRAN
3.25%, 6/30/94 28,000 28,011
San Diego County Regional
Transportation Comm. VRDO
2.75%, 6/1/94 (3) 31,800 31,800
San Diego County TRAN
3.25%, 7/29/94 51,000 51,056
San Diego Local Govt. TRAN
COP 3.25%, 6/30/94 26,000 26,008
San Mateo County COP VRDO
2.60%, 6/7/94 1,525 1,525
San Mateo County TRAN
3.00%, 6/30/94 20,300 20,304
Santa Clara (El Camino
Hosp.-Valley Medical) VRDO
2.30%, 6/7/94 22,300 22,300
Santa Clara County TRAN
3.25%, 7/29/94 25,000 25,012
Southern California Metropolitan
Water Dist. TOB VRDO
2.839%, 6/2/94 7,980 7,980
2.85%, 6/7/94 5,630 5,630
2.45%, 8/4/94* 8,380 8,380
Southern California Public
Power Auth.
(Transmission Project)
VRDO 2.70%, 6/1/94 (3) 31,230 31,230
11.25%, 1/1/95 (Prere.) 3,445 3,701
Torrance Hosp. Rev. VRDO
(Little Co. of Mary-
Torrance Memorial Medical Center)
2.95%, 6/2/94 4,000 4,000
Ventura County Solid Waste
Sanitary Dist. VRDO
2.75%, 6/1/94 2,800 2,800
Ventura County TRAN
3.00%, 8/1/94 26,500 26,508
- - -------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $1,121,847) 1,121,847
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Market
Value
(000)+
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (.3%)
- - -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 23,788
Liabilities (20,021)
3,767
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - -------------------------------------------------------------------------------------------------------------------------
Applicable to 1,125,674,890 outstanding shares
of beneficial interest (unlimited
authorization--no par value) $1,125,614
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
=========================================================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
---------- -----
<S> <C> <C>
Paid in Capital $1,125,688 $1.00
Undistributed Net Investment Income -- --
Accumulated Net
Realized Losses (74) --
Unrealized Appreciation
of Investments -- --
- - -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,125,614 $1.00
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(5) CGI (Capital Guaranty Insurance)
(6) BIGI (Bond Investors Guaranty Insurance)
(7) Connie Lee Inc.
(8) FHA (Federal Housing Authority)
COP--Certificate of Participation
CP--Commercial Paper
GO--General Obligation
PCR--Pollution Control Revenue
RAN--Revenue Anticipation Note
RAW--Revenue Anticipation Warrant
TOB--Tender Option Bond
TRAN--Tax Revenue Anticipation Note
VRDO--Variable Rate Demand Obligation
(Prere.)--Prerefunded
*Put Option Obligation.
13
<PAGE> 14
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED
INSURED INTERMEDIATE- MONEY
LONG-TERM TERM MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
Six Months Ended March 4 to Six Months Ended
May 31, 1994 May 31, 1994 May 31, 1994
(000) (000) (000)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . $ 28,714 $360 $13,232
- - -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . 28,714 360 13,232
- - -------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . $ 57 -- $ 54
Management and Administrative . . . . 813 $13 843
Marketing and Distribution . . . . . . 121 991 -- 13 142 1,039
----- --- -------
Insurance Expense . . . . . . . . . . . 1 -- --
Auditing Fees . . . . . . . . . . . . . 4 1 4
Shareholders' Reports . . . . . . . . . 19 1 15
Annual Meeting and Proxy Costs . . . . . 3 -- 2
Trustees' Fees and Expenses . . . . . . 3 -- 3
- - -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . 1,021 15 1,063
- - -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 27,693 345 12,169
- - -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . 9,761 -- (22)
Futures Contracts . . . . . . . . . . . 8,406 23 --
- - -------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . 18,167 23 (22)
- - -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . (67,837) 368 --
Futures Contracts . . . . . . . . . . . 2,970 28 --
- - -------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . (64,867) 396 --
- - -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from
Operations . . . . . . . . . . $(19,007) $764 $12,147
===================================================================================================================
</TABLE>
14
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED
INSURED INTERMEDIATE- MONEY
LONG-TERM TERM MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS MARCH 4 SIX MONTHS
ENDED Year Ended to ENDED Year Ended
MAY 31, Nov. 30, MAY 31, MAY 31, Nov. 30,
1994 1993 1994 1994 1993
(000) (000) (000) (000) (000)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . $ 27,693 $ 53,842 $ 345 $ 12,169 $ 20,882
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . 18,167 4,826 23 (22) 14
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . . . . . . (64,867) 45,930 396 -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . (19,007) 104,598 764 12,147 20,896
- - ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . (27,693) (53,842) (345) (12,169) (20,882)
Realized Net Gain . . . . . . . . . . . . . . . . . . . (14,386) (15,193) -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . (42,079) (69,035) (345) (12,169) (20,882)
- - ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . 76,373 319,720 8,712 466,341 832,642
-- In Lieu of Cash Distributions . . . . . 31,157 51,774 262 11,418 19,557
-- Exchange . . . . . . . . . . . . . . . . 57,480 129,416 53,431 205,426 258,659
Redeemed -- Regular . . . . . . . . . . . . . . . . . (97,839) (131,693) (1,256) (442,234) (686,768)
-- Exchange . . . . . . . . . . . . . . . . (151,494) (158,317) (4,699) (121,041) (212,367)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . . . . (84,323) 210,900 56,450 119,910 211,723
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . (145,409) 246,463 56,869 119,888 211,737
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . 1,074,428 827,965 -- 1,005,726 793,989
- - ---------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . $ 929,019 $1,074,428 $ 56,869 $1,125,614 $1,005,726
=================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . $.299 $.604 $.101 $.011 $.024
Realized Net Gain . . . . . . . . . . . . . . . . $.152 $.199 -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . 12,137 40,203 6,239 671,767 1,091,301
Issued in Lieu of Cash Distributions . . . . . . . 2,804 4,663 26 11,418 19,557
Redeemed . . . . . . . . . . . . . . . . . . . . . (22,899) (25,866) (600) (563,275) (899,135)
- - ---------------------------------------------------------------------------------------------------------------------------------
(7,958) 19,000 5,665 119,910 211,723
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended November 30,
--------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1994 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . $11.30 $10.89 $10.43 $10.22 $10.19 $9.71
------ ------ -------- ------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .299 .604 .633 .644 .660 .671
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . (.488) .609 .464 .210 .030 .480
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . (.189) 1.213 1.097 .854 .690 1.151
- - -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . (.299) (.604) (.633) (.644) (.660) (.671)
Distributions from Realized Capital Gains . . . . (.152) (.199) (.004) -- -- --
------ ------ -------- ------ ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.451) (.803) (.637) (.644) (.660) (.671)
- - -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . $10.66 $11.30 $10.89 $10.43 $10.22 $10.19
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . -1.77% +11.53% +10.81% +8.61% +7.06% +12.16%
- - -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . $929 $1,074 $828 $629 $385 $260
Ratio of Expenses to Average Net Assets . . . . . . .20%* .19% .24% .25%+ .26%+ .24%+
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . 5.43%* 5.38% 5.92% 6.24% 6.57% 6.67%
Portfolio Turnover Rate . . . . . . . . . . . . . . 14%* 27% 54% 19% 6% 3%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
+Insurance expenses represent .01%, .01%, and .02%.
*Annualized.
<TABLE>
<CAPTION>
INSURED INTERMEDIATE-TERM PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
MARCH 4 TO
For a Share Outstanding Throughout Each Period MAY 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.00
------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . . . . . . . . . . . . . .040
------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .141
- - -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.101)
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.101)
- - -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.04
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.42%
- - -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . 4.55%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
16
<PAGE> 17
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended November 30,
--------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1994 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .011 .024 .029 .043 .054 .060
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . .011 .024 .029 .043 .054 .060
- - -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.011) (.024) (.029) (.043) (.054) (.060)
Distributions from Realized Capital Gains . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.011) (.024) (.029) (.043) (.054) (.060)
- - -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +1.14% +2.40% +2.97% +4.44% +5.59% +6.19%
- - -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,126 $1,006 $794 $759 $723 $540
Ratio of Expenses to Average Net Assets . . . . . .20%* .19% .24% .24% .25% .22%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 2.29%* 2.37% 2.92% 4.32% 5.43% 5.99%
Portfolio Turnover Rate . . . . . . . . . . . . . N/A N/A N/A N/A N/A N/A
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
Vanguard California Tax-Free Fund is registered under the Investment Company
Act of 1940 as an open-end investment company and consists of the Insured
Long-Term, Insured Intermediate-Term and Money Market Portfolios. Each
Portfolio invests in debt instruments of municipal issuers whose ability to
meet their obligations may be affected by economic and political developments
in the State of California.
* A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Money Market Portfolio: investment securities are
stated at amortized cost which approximates market value. Other
Portfolios: municipal bonds are valued utilizing primarily the latest
bid prices or, if bid prices are not available, on the basis of
valuations based on a matrix system (which considers such factors as
security prices, yields, maturities and ratings), both as furnished by
an independent pricing service.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue
to qualify as a regulated investment company and distribute all of its
income. Accordingly, no provision for Federal income taxes is required
in the financial statements.
3. FUTURES: The Insured Long-Term and Insured Intermediate-Term
Portfolios utilize futures contracts to a limited extent. The primary
risks associated with the use of futures contracts are imperfect
correlation between the change in market value of the bonds held by
the Portfolios and the prices of futures contracts, and the
possibility of an illiquid market. Futures contracts are valued based
upon their quoted daily settlement prices. Fluctuations in the value
of futures contracts are recorded as unrealized appreciation
(depreciation) until terminated at which time realized gains (losses)
are recognized.
Unrealized appreciation (depreciation) related to open futures
contracts is required to be treated as realized gain (loss) for
Federal income tax purposes.
4. DISTRIBUTIONS: Distributions from net investment income are declared
on a daily basis payable on the first business day of the following
month. Annual distributions from realized gains, if any, are recorded
on the ex-dividend date. Capital gain distributions are determined on
a tax basis and may differ from realized capital gains for financial
reporting purposes due to differences in the timing of realization of
gains.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized
gains and losses on the sale of investment securities are those of
specific securities sold. Premiums and original issue discounts are
amortized and accreted, respectively, to interest income over the
lives of the respective securities.
* B. The Vanguard Group, Inc. furnishes at cost investment advisory,
corporate management, administrative, marketing, and distribution services. The
costs of such services are allocated to the Fund under methods approved by the
Board of Trustees. The Fund has contributed capital aggregating $337,000 to
Vanguard (included in Other Assets), representing 1.7% of Vanguard's
capitalization. The Fund's officers and trustees are also officers and
directors of Vanguard.
* C. During the period ended May 31, 1994, purchases and sales of
investment securities other than temporary cash investments were:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
(000)
-----------------------------
Portfolio Purchases Sales
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INSURED LONG-TERM $67,752 $155,082
INSURED INTERMEDIATE-TERM 49,544 --
- - -----------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
* D. At May 31, 1994, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
(000)
----------------------------------------------------
Appreciated Depreciated Net Unrealized
Portfolio Securities Securities Appreciation
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURED LONG-TERM $23,315 $(16,344) $6,971
INSURED INTERMEDIATE-TERM 498 (130) 368
- - -------------------------------------------------------------------------------------------------------
</TABLE>
At May 31, 1994, the aggregate settlement value and unrealized appreciation of
long positions in Municipal Bond Index futures contracts expiring in June 1994,
and short positions in U.S. Treasury Bond futures contracts expiring through
September, 1994, were:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
(000)
Aggregate Unrealized
---------------------------------
Portfolio Settlement Value Appreciation
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INSURED LONG-TERM
LONG POSITIONS $ 30,174 $ 579
SHORT POSITIONS 128,012 3,717
INSURED INTERMEDIATE-TERM
SHORT POSITIONS 3,515 28
- - ------------------------------------------------------------------------------------------------------
</TABLE>
The market values of securities deposited as initial margin for open futures
contracts by the Insured Long-Term and Insured Intermediate-Term Portfolios
were $3,037,000 and $107,000, respectively.
19
<PAGE> 20
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q752-05/94
VANGUARD
CALIFORNIA
TAX-FREE FUND
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
MAY 31, 1994
<PAGE> 21
EDGAR APPENDIX
The back cover of the printed version of this report features the
flags of the United States of America and Vanguard flying from a halyard.
