<PAGE> 1
VANGUARD
CALIFORNIA
TAX-FREE FUND
ANNUAL REPORT 1993
[PHOTO -- SEE EDGAR APPENDIX]
<PAGE> 2
A BRAVE NEW WORLD FOR INVESTING
With the clarity of hindsight, we can now see that the past two decades
composed one of the great cycles in the history of the financial markets, as
reflected in the chart below.
* During the 1973-1982 decade, the nominal total returns (capital change
plus income) of stocks and bonds averaged only about +6% per year;
cash reserves averaged more than +8% annually. However, high inflation
rates, averaging 8.7% annually, devastated these nominal results. Real
returns (nominal returns less the inflation rate) for each of these three
major asset classes were actually negative.
* During the 1983-1992 decade, quite the opposite situation prevailed.
Nominal returns for stocks and bonds were close to their highest levels in
history and forged well into double-digit territory. To make a good
investment environment even better, inflation was tame (averaging 3.8%
annually), and real returns were solidly positive.
[A TALE OF TWO DECADES (GRAPH) -- SEE EDGAR APENDIX]
This sharp contrast provides us with perspective for the decade that will end
in the year 2002. Some investors will fear a recurrence of the returns of the
first decade, while others will hope for a recurrence of the second; most will
likely anticipate something in between. Whatever the case, there are two
essential elements involved in considering your investment program in the
light of today's circumstances.
First, the yield of each investment class at the start of a decade has
had an important relationship to its future return. Yields were low when 1973
began, high when 1983 began, and are again low today. In fact, current income
yields are remarkably close to the levels of 20 years ago, as shown in the
following table.
<TABLE>
<CAPTION>
INCOME YIELDS (January 1)
------------------------------------------------------------
1973 1983 1993 (11/30)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS 2.7% 4.9% 2.7%
BONDS 5.8 10.7 6.0
RESERVES 3.8 10.5 3.1
------------------------------------------------------------------------------------------------
</TABLE>
But there is a second important element to consider: inflation. It got
progressively worse during most of the first decade, but got progressively
better in the second.
<TABLE>
<CAPTION> ------------------------------------------------------------
1973 1981 1993 (11/30)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFLATION 3.4% 12.4% 2.7%
------------------------------------------------------------------------------------------------
</TABLE>
Today's low yield levels suggest that more modest nominal returns are in
prospect for the coming decade than in the 1980s; indeed, returns could
gravitate
(Please turn to back cover)
- -----------------------------------------------------------------------------
VANGUARD CALFORNIA TAX-FREE FUND OFFERS TWO PORTFOLIOS THAT SEEK TO PROVIDE A
HIGH LEVEL OF INCOME THAT IS EXEMPT FROM FEDERAL AS WELL AS CALIFORNIA STATE
PERSONAL INCOME TAXES. THE INSURED LONG-TERM PORTFOLIO INVESTS PRIMARILY IN
INSURED LONG-TERM MUNICIPAL BONDS. THE MONEY MARKET PORTFOLIO SEEKS TO
MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE ALONG WITH REASONABLE
CURRENT INCOME.
<PAGE> 3
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
The decline in interest rates continued--and indeed accelerated--during the
twelve months ended November 30, 1993, the eighth fiscal year of the Vanguard
State Tax-Free Funds. Lower yields pushed the prices of long-term tax-exempt
bonds higher, and the net asset values of our Insured Long-Term Portfolios
benefited accordingly. As rates fell, however, interest income was reduced,
with the most immediate impact felt in our Money Market Portfolios.
Reflecting the low-interest-rate environment that prevailed over the
past twelve months, our Money Market Portfolios provided returns that were
modest in an absolute sense, albeit comfortably above the returns of their
respective competitive benchmarks. The total returns (capital change plus
income) of our Insured Long-Term Portfolios were exemplary, surpassing even
the excellent results that we achieved in our prior fiscal year. It is
difficult to imagine a more beneficial two-year stretch for investors in
long-term bonds. In any event, here are the Portfolio highlights for the past
twelve months:
* THE STATE MONEY MARKET PORTFOLIOS--
provided total returns of about +2.4% . . . with declining money market
rates for yet another year, Portfolio yields ended the period at lower
levels than where they began, hovering in the area of 2.3% . . . net
asset values, of course, remained at $1.00 per share.
* THE STATE INSURED LONG-TERM PORTFOLIOS--
enjoyed another outstanding year "across the board," as each Portfolio
turned in a double-digit return ranging from +12% to +13% . . . current
yields are at their lowest levels in our Funds' (admittedly rather
short) history.
The detailed results for each of our State Tax-Free Portfolios,
including per share net asset values, dividends and capital gains
distributions for the fiscal year, as well as current yields are presented at
the end of this letter. The following table summarizes the returns for our
State Insured Long-Term Portfolios:
[PHOTOGRAPH OF JOHN C. BOGLE, CHAIRMAN -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Investment Returns
Twelve Months Ended
November 30, 1993 % of Total
Insured Long-Term ------------------------- Return From
Portfolio Income Capital Total Capital
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA +5.8% +5.7% +11.5% 49%
NEW YORK +6.0 +6.4 +12.4 52
PENNSYLVANIA +6.1 +5.8 +11.9 49
NEW JERSEY +5.9 +6.6 +12.5 52
OHIO +5.7 +6.3 +12.0 52
FLORIDA +5.5 +6.9 +12.4 56
--------------------------------------------------------------------------------
</TABLE>
In last year's Annual Report, I called special attention to the substantial
capital component (appreciation in net asset value per share) of the total
returns on our State Insured Long-Term Portfolios. My purpose in doing so at
that time was to advise investors that it seemed unreasonable to expect a
recurrence of these capital returns in fiscal 1993. As shown in the table, this
year the role of capital appreciation in our Portfolios' results turned out to
be even more dramatic, accounting on balance for some 50% of our total returns.
(continued)
1
<PAGE> 4
[MONTH-END YIELDS (CHART) 1990-1993 -- SEE EDGAR APPENDIX]
Although my cautionary words one year ago could hardly have been further
off the mark, I nonetheless would remind shareholders that capital returns of
the magnitude shown in the preceding table simply cannot be taken for granted.
Indeed, with long-term interest rates at their lowest levels in two decades, now
is a perfect opportunity to remind investors that, should rates reverse
direction and move higher, "capital reward" will inevitably translate to
"capital penalty" for each of our six Insured Long-Term Portfolios.
The excellent absolute returns for all of our Insured Long-Term
Portfolios in fiscal 1993 come on top of the double-digit returns earned in the
prior fiscal year. The chart at the top of the facing page illustrates the
results of the California Insured Long-Term Portfolio since its inception in
April 1986, compared with the results of the two most appropriate available
benchmarks: the unmanaged Lehman Municipal Bond Index and the average California
insured municipal fund. Our returns have been somewhat better than those of the
average competitor, albeit short of the unmanaged Index. I should also note that
the California Money Market Portfolio has enjoyed solid relative results since
its inception in June 1987, achieving a cumulative return of +32.6% versus
+30.0% for its average competitor (+4.4% versus +4.1% annually).
* THE FISCAL YEAR IN REVIEW
Our 1993 fiscal year was the sixth consecutive year of favorable markets--and
the third consecutive year of double-digit returns--for long-term bonds. Lower
yields drove up the prices of municipal, corporate, and U.S. Treasury bonds
alike. Treasury bonds registered the largest rate declines and garnered the
greatest price appreciation, gaining some +17% for the year. Over the same
period, yields on high-grade, long-term, tax-exempt bonds fell 0.70% (70 "basis
points"), from 6.2% to 5.5%, resulting in a price increase of +10%.
Compared to the sharp decline in long-term rates over the past twelve
months, the drop in short-term tax-exempt rates was fairly muted. From the 2.7%
level at the outset of the fiscal year, yields on high-grade (MIG 1) municipal
notes fell to 2.0% in January 1993, climbed to 2.6% at the end of July, and
closed the year at 2.4%.
The consensus holds that the rate decline is based on two fundamental
factors. First, the U.S. economy remains sluggish, unable to provide the typical
post-recession snapback that investors have come to expect. Second, and perhaps
more importantly, there is continuing evidence that inflation remains well
under control. The U.S. consumer price index (CPI) increased 2.7% over the past
twelve months, compared to 3.0% during the prior twelve-month period. As a
result, despite the sharp decline in interest rates, "real" yields (nominal
yields less the inflation rate) on long-term bonds remain at healthy levels.
The chart to the left provides a striking illustration of how
precipitous the decline in interest rates has been over the past four years,
with nearly
2
<PAGE> 5
[CUMULATIVE PERFORMANCE (GRAPH) -- SEE EDGAR APPENDIX]
all of the decline coming during the final three years. The yield on high-grade,
long-term municipal bonds fell from 7.0% on November 30, 1989, to 5.5% on
November 30, 1993. For short-term tax-exempt rates, the decline during the same
period was more pronounced, with the yield on high-grade notes falling on
balance from 5.9% to 2.4%. As a result of this disparity in rate declines, the
"spread" of the long rate over the short rate has widened from 110 basis points
at the beginning of the period to 310 basis points at the end. This widening
reflects a very "steep" yield curve, allowing fixed-income investors to earn a
substantial income premium by extending the maturity of their bond holdings.
It should go without saying that each step out in length of maturity brings with
it additional price volatility.
* THE ADVANTAGE OF TAX-EXEMPT INCOME
In each year's Annual Report, we present our customary table illustrating
the advantage of tax-exempt investments versus taxable investments, after
adjusting for the effect of Federal taxes at the maximum marginal rate on income
payments. Here are the results of the comparison at the end of fiscal 1993:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Illustration of Income on
Hypothetical $100,000 Investment
--------------------------------
Long-Term Short-Term
- -------------------------------------------------------------------------------
<S> <C> <C>
TAXABLE GROSS INCOME $6,300 $3,200
LESS TAXES (39.6%) (2,500) (1,300)
- -------------------------------------------------------------------------------
NET AFTER-TAX INCOME $3,800 $1,900
TAX-EXEMPT INCOME 5,500 2,400
- -------------------------------------------------------------------------------
TAX-EXEMPT ADVANTAGE $1,700 $ 500
- -------------------------------------------------------------------------------
</TABLE>
Table assumes current yields (as of November 30, 1993) of 6.3% for U.S. Treasury
bonds, 3.2% for Treasury bills, 5.5% for long-term municipals, and 2.4% for
short-term municipals. The illustration is not intended to represent future
results.
The advantage spelled out in the table--a 45% increase in after-tax income for
the long-term investor and a 26% increase for the short-term investor--strongly
suggests that investors who are taxed at the highest marginal rates should
consider
3
<PAGE> 6
tax-exempt alternatives for the fixed-income portion of their overall investment
portfolio. (I should add that both the interest earned on our State Tax-Free
Portfolios and the interest earned on U.S. Treasury obligations are exempt from
taxes at the state level.)
As I noted earlier, the decline in yields on U.S. Treasury bonds has
been significantly larger than that on tax-exempt bonds. This divergence is
paradoxical considering that it comes just as the maximum marginal federal tax
rate has been raised from 31% to 39.6%--the highest rate since 1986. This should
mean that the spread between taxable and tax-exempt rates would widen; instead,
it has narrowed for long-term investors and remained about the same for short-
term investors.
To be sure, even the highest quality insured state municipal bond
cannot quite match the creditworthiness of a U.S. Treasury bond, and long-term
municipal bonds are usually callable after 10 years, a disadvantage not shared
by Treasury securities. So, the yield comparison has a moderate structural bias
in favor of municipals. But the yield differential illustrated in the table is
hardly "moderate"--it is more like "day and night." Suffice it to say that the
ability of top-tax-bracket investors to earn substantially more after-tax income
with only a marginal sacrifice in quality is unlikely to persist indefinitely.
It is probably fair to say that relative values in tax-exempt bonds are as great
on a sustained basis as they have been for two decades.
* A PERSPECTIVE ON TODAY'S INTEREST RATE ENVIRONMENT
The aggregate assets of all municipal bond mutual funds now total some $350
billion, and the funds are now among the largest buyers and holders of tax-
exempt securities. While, like all mutual funds, our State Insured Tax-Free
Portfolios promise "liquidity on demand" to shareholders, it must be clear that
providing this liquidity depends to a degree on an orderly liquidation pattern
by investors. With the exception of the industry's experience during 1987's
sharp dip in long-term bond prices, resulting from the upward spikes in interest
rates in April and May of that year, the industry's handling of redemptions has
been flawless, and daily liquidity has been maintained without impacting the
marketplace. (Given the very short maturities of money market instruments,
liquidity is much less of a concern in our State Money Market Portfolios.)
And yet, with rates having come down so far and so fast, there is always
the risk of a sharp rebound. When that happens, investors who have purchased
municipal bond funds for the long term should not be concerned. However, there
appears to be an active body of short-term speculators who move their money from
long-term to short-term bonds at the proverbial drop of a hat. You should know
that at Vanguard we do our best to exclude these speculators from our funds, by
rigorously limiting the frequency of inter-fund exchanges and by refusing to
accept business from known "market timers."
If you are an investor who likes to speculate on interest rate changes,
I urge you to move your assets to one of our many competent competitors. If you
are an investor who will respond with fright to any kind of reversal of the past
five year's rise in bond prices, I urge you to shorten your maturity profile by,
for example, moving a portion of your assets from the more volatile Insured
Long-Term Portfolio for your state to our corresponding Money Market Portfolio
(available in all states but New York and Florida, in which case the Money
Market Portfolio of Vanguard Municipal Bond Fund might be selected). If you are
a long-term investor--content that your needs for capital stability (with
commensurate income volatility) in our Money Market Portfolios and for income
stability (with commensurate capital volatility) in our Insured Long-Term
Portfolios are being met--I urge you, once again, to "stay the course."
* IN SUMMARY
As I write this letter, the combined assets of the ten Vanguard State Tax-Free
Portfolios are approaching the $8 billion mark, up some 30% in just one
year. This staggering growth is a testament, we believe, to
4
<PAGE> 7
an ever-increasing understanding among investors that, all else being equal,
costs will "carry the day." With the yield on the average state tax-exempt bond
fund at 4.3%, and with 102 of 137 state tax-exempt money market funds now
yielding less than 2.0%, costs will be an even more critical determinant of the
top-performing funds.
This is precisely the kind of environment in which the Vanguard State Tax-
Free Portfolios should thrive. While the average competitive state tax-free
portfolio charges annual fees at the rate of 0.68% of average net assets, the
expense ratio for our Portfolios, at 0.21%, is just a fraction of this amount.
For a money market portfolio with a gross yield of 2.0%, the expenses of the
average competitor would consume nearly 35% of its interest income; Vanguard's
expenses would consume but 11%. It is hard to imagine that intelligent investors
could be attracted to a fund with such a built-in yield disadvantage.
In closing, we believe that, whatever the future course of interest rates,
our State Tax-Free Portfolios will provide returns that generally exceed those
of their respective competitors.
Sincerely,
/s/ JOHN C. BOGLE
- ------------------
John C. Bogle
Chairman of the Board
December 13, 1993
Note: Mutual fund data from Lipper Analytical Services, Inc.
A WORD ABOUT CAPITAL GAINS DISTRIBUTIONS
You may recall that, during the rising bond markets of each of the past three
years, some of our Insured Long-Term Portfolios realized modest capital gains.
And, it will probably not surprise you to know that each Portfolio realized
capital gains in 1993. These amounts must, under Federal tax regulations, be
distributed to shareholders of our Portfolios as taxable capital gains.
I want to emphasize that it is not our objective to realize capital gains;
rather, these gains are a by-product of a number of factors, including, most
importantly, sharply rising municipal bond prices, bonds that are called or
refunded, and limited portfolio strategy shifts to capitalize on the relative
valuations of different market sectors.
5
<PAGE> 8
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 SEPTEMBER 30, 1993) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
PORTFOLIO (INCEPTION DATE) 1 YEAR 5 YEARS SINCE INCEPTION
-------------------------- ------ ------- ---------------
<S> <C> <C> <C>
CALIFORNIA INSURED LONG-TERM (4/7/86) +14.53% +10.62% + 8.97%
CALIFORNIA MONEY MARKET (6/1/87) + 2.42 + 4.42 + 4.49
NEW YORK INSURED TAX-FREE (4/7/86) +14.83 +10.78 + 8.41
PENNSYLVANIA INSURED LONG-TERM (4/7/86) +14.32 +10.91 + 9.23
PENNSYLVANIA MONEY MARKET (6/13/88) + 2.41 + 4.53 + 4.58
NEW JERSEY INSURED LONG-TERM (2/3/88) +15.16 +10.78 +10.39
NEW JERSEY MONEY MARKET (2/3/88) + 2.37 + 4.50 + 4.56
OHIO INSURED LONG-TERM (6/18/90) +14.76 -- +12.12
OHIO MONEY MARKET (6/18/90) + 2.38 -- + 3.72
FLORIDA INSURED TAX-FREE (9/1/92) +15.18 -- +15.03
</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 THE MONEY
MARKET PORTFOLIO OF VANGUARD CALIFORNIA TAX-FREE FUND, 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.
<TABLE>
<CAPTION>
Total Net Asset Value
Net Assets Per Share
-------------------- Twelve Months
(millions) Average Average Nov. 30, Nov. 30, ---------------------------- Current
Portfolio Nov. 30, 1993 Maturity Quality* 1992 1993 Dividends Total Return Yield**
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA $1,006 73 DAYS MIG 1 $ 1.00 $ 1.00 $.024 + 2.4% 2.32%
PENNSYLVANIA 935 71 DAYS MIG 1 1.00 1.00 .024 + 2.4 2.25
NEW JERSEY 724 58 DAYS MIG 1 1.00 1.00 .023 + 2.3 2.23
OHIO 132 74 DAYS MIG 1 1.00 1.00 .023 + 2.4 2.36
-----------------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA $1,074 11.3 YEARS AAA $10.89 $11.30 $.803+ +11.5% 4.89%
NEW YORK 807 9.9 YEARS AAA 10.45 10.97 .739+ +12.4 4.73
PENNSYLVANIA 1,496 8.4 YEARS AAA 10.96 11.36 .855+ +11.9 4.83
NEW JERSEY 748 9.5 YEARS AAA 11.18 11.77 .772+ +12.5 4.76
OHIO 166 8.9 YEARS AAA 11.07 11.61 .753+ +12.0 4.77
FLORIDA 269 10.7 YEARS AAA 10.16 10.86 .537 +12.4 4.88
-----------------------------------------------------------------------------------------------------------------------------------
</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 $.199 for California, $.145 for New
York, $.224 for Pennsylvania, $.135 for New Jersey, and $.145 for Ohio.
The shares of each of the Vanguard "single state" Portfolios are available
for purchase solely by residents of the designated states.
6
<PAGE> 9
REPORT FROM THE INVESTMENT ADVISER
STATE INSURED
LONG-TERM PORTFOLIOS
* TIME FOR CHANGE?
Just one year ago, President Clinton was elected on a platform of change.
Since that time, the restrictive economic impact of higher taxes has
overshadowed the relatively quiet role played by Federal Reserve policy, and
long-term interest rates have declined precipitously. For the fiscal year
ended November 30, 1993, the yield on the 30-year U.S. Treasury Bond fell 1.2
percentage points (from 7.5% to 6.3%). During the same period, high-grade,
long-term municipal yields fell nearly three-quarters of a percentage point,
from 6.2% to 5.5%.
The net result was another year of good performance both for the State
Insured Long-Term Portfolios and the bond market as a whole. In light of the
many successive years of above-average returns by longer-maturity fixed-income
investments, one has to wonder how much longer the rally can last.
* MUNICIPAL BONDS ARE ATTRACTIVE VERSUS TAXABLE BONDS
While municipal bond prices have risen sharply, taxable bond prices have
rallied even more. High-grade tax-exempt bonds currently provide 86% of the
yield on the 30-year U.S. Treasury bond, up from 82% at the beginning of the
year. This "cheapening" has been due primarily to a huge increase in the pace
of municipal bond issuance. Indeed, 1993 municipal supply set an all-time
record of some $290 billion--fully 25% above the previous record set just last
year, and easily twice the volume of a typical year's issuance.
Municipalities of all types have flooded the marketplace to refinance
higher cost debt at today's lower yield levels. We believe this process has
run full course, and suggest that municipal bonds are extremely attractive
when compared to their taxable brethren. The case for municipal bonds is even
more compelling in light of recently increased marginal tax rates.
* INVESTMENT STRATEGY
Given the current environment, the State Insured Long-Term Bond Portfolios are
pursuing the following investment strategies:
* CALL PROTECTION. We continue to emphasize call protection in all of our
longer bond portfolios. This strategy has produced greater price
appreciation as yields have declined. Importantly, it also will insulate
future dividends from an abrupt decline due to bond calls.
* MUNICIPAL VERSUS TREASURY. We have positioned the Portfolios to take
advantage of the exceptionally cheap relationship of municipal bonds versus
Treasury bonds. This positioning has been accomplished by simultaneously
establishing long positions in municipal bond futures contracts and short
positions in Treasury bond futures contracts. Although this strategy has
slightly detracted from annual performance thus far, we believe it will
produce positive results in 1994.
* "LONG AND RIGHT." Over the past few years, the State Insured Long-Term
Portfolios have maintained a longer maturity structure and consequently a
higher sensitivity to changes in interest rates than our competitors. This
strategy has served us well and produced good longer-term results in a
substantial bull market for fixed-income securities. During the course of
the past year, we reduced somewhat our longer maturity structure to match
that of our competitors, thereby "locking in" gains earned to date.
In conclusion, the past twelve months has been an exciting period for bond
fund shareholders. Plummeting interest rates have translated into attractive
performance returns on long-term, tax-exempt fixed-income investments. To be
sure, this will be a tough standard to surpass.
(continued)
7
<PAGE> 10
STATE MONEY MARKET PORTFOLIOS
Over the past twelve months, moderate economic expansion and low inflation
enabled the Federal Reserve Board to hold key interest rates steady. The last
policy action taken by the Fed occurred in early September 1992, when it
lowered the Federal funds rate to 3%.
Despite the overall stability in short-term rates, yields on tax-exempt
money market funds continued to decline. Plagued by a combination of sporadic
supply and strong investor demand, yields on state-specific money funds
deteriorated 30 basis points, from 2.2% to 1.9%. Notwithstanding this yield
decline, assets grew at a robust 14% rate. Strong performance versus the
competition, due primarily to Vanguard's expense ratio advantage, enabled our
money market funds to capture a large percentage of these assets.
The volume of new issue supply differed greatly among the various
state-specific funds. Recessionary and fiscal stress, which has persisted in
California, forced many of its municipalities to finance their cash needs with
short-term debt. As a result, July and August brought a flood of supply in
California tax-exempt paper. At the opposite end of the spectrum was New
Jersey, where diminished supply was attributable primarily to relatively low
long-term interest rates. The many municipalities that previously issued
short-term notes took advantage of these low rates by issuing long-term bonds
instead.
Looking forward, net new issuance in the first quarter of fiscal year
1994 is expected to remain light. Poised for this anticipated drought in
supply, the Vanguard State Tax-Free Money Market Portfolios are currently
targeting a minimum average weighted maturity of 75 days. Beyond the first
quarter we will proceed with caution, as any signs of increased inflation may
prompt the Federal Reserve Board to raise short-term interest rates.
Sincerely,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela E. Wisehaupt
Vice President
David E. Hamlin
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Reid O. Smith
Assistant Vice President
Vanguard Fixed Income Group
December 7, 1993
8
<PAGE> 11
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS
November 30, 1993
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
--------------------------------------------------------------------------------
MUNICIPAL BONDS (99.5%)
--------------------------------------------------------------------------------
<S> <C> <C>
ISSUER INSURED (87.9%)
Alameda COP
(Santa Rita Jail Project)
5.375%, 6/1/09 (1) $ 5,000 $ 5,029
Anaheim Convention Center COP
0.0%, 8/1/04 (1) 3,120 1,785
0.0%, 8/1/05 (1) 1,250 673
0.0%, 8/1/06 (1) 3,125 1,577
5.5%, 8/1/14 (1) 4,000 3,936
Brea Public Finance Auth.
5.5%, 8/1/17 (1) 11,650 11,452
City of Anaheim Electric System COP
6.5%, 10/1/99 (2) (Prere.) 9,250 10,386
City of Anaheim Public Improvement
Corp. COP VRDO
2.2%, 2/1/94 (2) 200 200
California Education Facilities Auth.
5.5%, 6/1/19 (1) 5,000 4,912
California Health Facilities Auth.
(Adventist Health System)
6.75%, 3/1/11 (1) 5,000 5,516
(Catholic Healthcare West)
2.15%, 12/1/93 (1) 3,325 3,325
(Centinela Hosp.)
6.5%, 9/1/08 (1) 5,000 5,490
6.25%, 9/1/15 (1) 20,400 21,712
(Mercy Hosp.)
7.0%, 7/1/12 (1) 2,800 3,068
(San Diego Hosp.)
6.625%, 5/1/19 (1) 6,525 6,976
(Unihealth America)
7.625%, 10/1/15 (2) 1,500 1,745
California Housing Finance Agency
Multifamily Housing Rev.
8.625%, 8/1/15 (1) 375 398
California Public Works Board
(Univ. of California)
6.25%, 12/1/07 (2) 7,945 8,651
6.5%, 12/1/08 (2) 4,000 4,510
Clovis COP (Clovis Community Hosp.)
8.75%, 2/1/95 (2) (Prere.) 1,800 1,952
Contra Costa COP
5.5%, 6/1/12 (2) 6,850 6,803
5.6%, 6/1/19 (2) 9,395 9,363
6.7%, 2/1/21 (2) 4,630 5,025
Contra Costa Transportation
Rev. VRDO
2.0%, 12/1/93 (3) 200 200
Culver City Redevelopment
Finance Auth.
5.5%, 11/1/14 (2) 9,225 9,282
6.75%, 11/1/15 (2) 12,000 13,185
Eastern Municipal Water Dist.
6.75%, 7/1/12 (3) 8,000 9,282
Elsinore Valley Municipal
Water Dist. COP 5.9%, 7/1/05 (3) 1,730 1,860
5.9%, 7/1/06 (3) 1,685 1,804
6.0%, 7/1/12 (3) 2,210 2,367
Encina Power Auth.
6.875%, 8/1/11 (3) 3,650 4,020
Fresno Health Facilities Auth.
(Holy Cross St. Agnes Hosp.)
7.1%, 12/1/18 (3) 2,450 2,712
City of Fresno Sewer Rev.
6.25%, 9/1/10 (2) 6,395 7,048
Glendale Hosp. Rev.
(Adventist Health System)
6.0%, 3/1/14 (1) 3,000 3,118
Glendale Redevelopment Agency
7.1%, 12/1/98 (2) (Prere.) 5,000 5,739
Indian Wells Redevelopment Agency
5.5%, 12/1/22 (1) 2,000 1,960
City of Industry GO
5.875%, 7/1/08 (3) 2,695 2,823
5.875%, 7/1/09 (3) 2,850 2,968
5.875%, 7/1/10 (3) 3,015 3,131
Kern High School Dist.
6.25%, 8/1/11 (1) 1,065 1,175
6.4%, 8/1/14 (1) 1,490 1,666
6.4%, 8/1/15 (1) 1,645 1,844
6.4%, 8/1/16 (1) 1,815 2,040
Long Beach Financing Auth.
5.85%, 11/1/05 (2) 3,630 3,867
6.0%, 11/1/10 (2) 3,860 4,150
6.0%, 11/1/17 (2) 2,000 2,135
Los Angeles County Waste
Water System
5.7%, 6/1/09 (1) 3,050 3,115
6.25%, 6/1/12 (2) 4,730 5,030
6.0%, 12/1/12 (3) 16,765 17,469
5.7%, 6/1/23 (1) 2,000 2,012
MSR Public Power Agency
6.125%, 7/1/13 (2) 8,000 8,685
6.625%, 7/1/13 (6) 2,000 2,138
6.75%, 7/1/20 (1) 37,000 43,419
Modesto City School Dist. GO
5.4%, 8/1/05 (3) 1,615 1,669
5.5%, 8/1/06 (3) 2,285 2,348
5.6%, 8/1/07 (3) 2,405 2,475
Modesto High School Dist. GO
5.6%, 8/1/07 (3) 2,000 2,059
</TABLE>
9
<PAGE> 12
STATEMENTS OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
-------------------------------------------------------------------------------
<S> <C> <C>
Modesto Irrigation Dist.
Finance Auth.
6.5%, 10/1/11 (2) $ 8,125 $ 9,200
6.5%, 10/1/22 (2) 9,750 11,166
Moulton Nigel Water Dist.
5.25%, 9/1/13 (1) 7,000 6,749
Mountain View Capital
Improvement Finance Auth.
6.25%, 8/1/12 (1) 5,000 5,344
Northern California Power Agency
6.0%, 7/1/08 (1) 5,500 5,911
6.0%, 7/1/09 (1) 7,530 8,076
5.5%, 7/1/16 (1) 10,000 9,897
7.5%, 7/1/21 (2) (Prere.) 1,810 2,426
5.5%, 7/1/23 (1) 10,000 9,841
Oakland Redevelopment Agency
6.0%, 2/1/06 (2) 5,125 5,558
5.5%, 2/1/14 (2) 5,500 5,540
Orange County Local
Transportation Auth.
5.8%, 2/15/05 (3) 9,000 9,667
5.9%, 2/15/06 (3) 8,000 8,598
Orange County Sanitation Dist. COP
VRDO 1.7%, 12/1/93 (2) 1,500 1,500
6.0%, 8/1/16 (3) 14,800 16,365
Oro Loma Sanitation Dist.
5.2%, 10/1/16 (2) 4,800 4,530
Palmdale Single Family Mortgage
9.875%, 4/1/08 (3) 6 8
Pittsburg Redevelopment Agency
5.5%, 8/1/07 (3) 2,750 2,803
5.5%, 8/1/15 (3) 12,700 12,494
Placer County Water Rev. COP
7.75%, 7/1/18 (6) 3,500 3,997
Pomona Unified School Dist.
GO 5.6%, 8/1/14 (1) 1,585 1,616
GO 5.6%, 8/1/15 (1) 2,000 2,040
5.5%, 8/1/16 (3) 1,000 1,012
GO 5.6%, 8/1/16 (1) 1,000 1,021
GO 7.5%, 8/1/17 (1) 2,540 3,232
Port Hueneme Redevelopment Agency
5.5%, 5/1/14 (2) 2,000 2,012
Poway Redevelopment Agency
7.25%, 12/15/11 (3) 7,500 8,608
Rancho Water Dist.
6.25%, 8/1/12 (3) 2,000 2,141
COP 7.125%, 11/1/15 (2) 1,000 1,078
Redding Electric System Rev. COP
7.125%, 7/1/97 (1) (Prere.) 1,000 1,124
Redding Joint Power Finance Auth.
Waste Water Rev.
5.5%, 12/1/18 (3) 2,300 2,257
Redlands Water COP
7.0%, 11/1/96 (2) (Prere.) 5,500 6,114
Riverside County
Transportation Comm.
5.75%, 6/1/08 (2) 1,750 1,836
5.75%, 6/1/09 (2) 3,795 3,970
Riverside Sewer Rev.
5.0%, 8/1/11 (3) 4,520 4,310
5.0%, 8/1/12 (3) 4,745 4,512
Sacramento Finance Auth.
5.375%, 11/1/14 (2) 4,000 3,943
5.4%, 11/1/20 (2) 7,000 6,873
Sacramento Municipal Utility Dist.
6.25%, 8/15/07 (1) 5,000 5,422
5.75%, 11/15/07 (1) 3,500 3,630
6.25%, 8/15/10 (1) 32,550 35,832
5.25%, 11/15/12 (3) 10,000 9,685
5.75%, 8/15/13 (1) 18,295 18,468
6.5%, 9/1/13 (1) 8,895 10,062
Sacramento Redevelopment Agency
6.5%, 11/1/13 (1) 2,500 2,693
Sacramento County Public Facilities
(Main Detention Facility Project)
5.5%, 6/1/10 (1) 4,000 4,070
San Diego County Transportation
Comm. 5.25%, 4/1/06 (3) 9,000 9,155
San Diego Redevelopment Agency
5.8%, 9/1/03 (2) 2,210 2,370
6.0%, 9/1/18 (2) 6,500 6,648
San Francisco Airport Comm.
6.2%, 5/1/06 (2) 10,000 10,846
6.2%, 5/1/08 (2) 1,000 1,075
6.0%, 5/1/10 (1) 2,000 2,112
6.0%, 5/1/11 (1) 2,000 2,101
6.0%, 5/1/20 (1) 6,500 6,772
San Francisco Bay Area
Rapid Transit
6.75%, 7/1/10 (2) 6,370 7,365
6.75%, 7/1/11 (2) 7,455 8,653
San Francisco City & County
Airport Rev.
6.4%, 5/1/05 (1) 3,080 3,447
6.5%, 5/1/06 (1) 3,280 3,692
6.6%, 5/1/07 (1) 3,490 3,935
6.625%, 5/1/08 (1) 3,720 4,179
6.7%, 5/1/09 (1) 3,970 4,461
San Joaquin County Public Facility
Finance Corp. COP
5.0%, 11/15/09 (1) 1,000 968
5.0%, 11/15/10 (1) 1,110 1,069
5.5%, 11/15/13 (1) 3,895 3,947
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
-------------------------------------------------------------------------------
<S> <C> <C>
San Joaquin Human Services Project
COP 6.7%, 5/15/99 (6) (Prere.) $ 5,300 $ 5,997
San Joaquin Jail and Sheriff COP
6.75%, 11/15/99 (1) (Prere.) 6,200 7,087
San Jose Airport Rev.
5.875%, 3/1/07 (3) 7,085 7,417
5.75%, 3/1/16 (1) 4,350 4,380
San Jose Merged Area Redevelopment Rev.
7.5%, 8/1/09 (1) 3,390 3,736
San Jose Santa Clara Clean
Water Auth.
7.25%, 10/1/02 (1) 1,500 1,681
7.0%, 10/1/04 (1) 5,615 6,230
San Mateo County Finance Auth.
6.5%, 7/1/13 (1) 14,560 16,499
6.5%, 7/1/15 (1) 4,235 4,801
San Mateo Sewer
6.6%, 8/1/14 (1) 2,500 2,699
San Mateo Transportation
5.25%, 6/1/15 (1) 8,215 7,958
Santa Ana Community Redevelopment Auth.
7.375%, 12/1/96 (3) (Prere.) 1,695 1,907
7.4%, 12/1/96 (3) (Prere.) 270 304
Santa Clara Redevelopment Agency
7.0%, 7/1/10 (2) 7,000 8,276
Santa Fe Springs Redevelopment Agency
6.0%, 9/1/14 (1) 9,350 9,763
Santa Rosa Waste Water Rev.
6.25%, 9/1/12 (3) 7,075 7,524
6.0%, 7/2/15 (2) 7,000 7,494
6.0%, 9/1/15 (3) 5,580 5,975
5.25%, 9/1/16 (3) 3,000 2,911
South County Water Auth.
5.5%, 8/1/22 (3) 8,000 7,852
Southcoast Air Quality
Management Dist.
6.0%, 8/1/11 (2) 3,200 3,451
5.5%, 8/1/14 (1) 8,000 7,941
Southern California Public
Power Auth.
(Palo Verde)
7.0%, 7/1/07 (2) 2,900 3,193
6.6%, 7/1/08 (2) 4,280 4,531
7.0%, 7/1/10 (2) 2,500 2,774
(San Juan)
TOB VRDO 2.35%, 1/1/94 (1) 18,645 18,645
Southern California Rapid Transit Dist.
5.75%, 9/1/05 (2) 5,310 5,665
5.8%, 9/1/06 (2) 3,900 4,165
5.9%, 9/1/07 (2) 4,800 5,141
Sweetwater Water Rev.
7.0%, 4/1/10 (2) 5,000 5,605
Three Valley Municipal Water Dist. COP
7.3%, 11/1/96 (1) (Prere.) 4,200 4,742
5.25%, 11/1/10 (3) 4,220 4,146
Torrance COP
7.2%, 4/1/16 (2) 4,050 4,399
Transmission Agency of Northern
California
5.25%, 5/1/08 (1) 4,000 4,004
Tri City Hosp. Dist.
(Oceanside Hosp.)
7.0%, 2/1/05 (1) 915 1,001
7.0%, 2/1/12 (1) 5,950 6,511
Tulare County COP
5.7%, 11/15/03 (1) 1,000 1,066
5.8%, 11/15/04 (1) 1,000 1,072
5.875%, 11/15/05 (1) 1,000 1,079
Turlock Irrigation Dist. COP
6.75%, 1/1/12 (3) 2,190 2,283
6.75%, 1/1/13 (3) 3,215 3,473
Turlock Irrigation Dist.
Water & Electric
5.75%, 1/1/18 (1) 1,150 1,158
Ukiah Electric Rev.
6.0%, 6/1/08 (1) 4,565 4,905
6.25%, 6/1/18 (1) 6,000 6,610
Univ. of California
Board of Regents
6.0%, 9/1/12 (1) 3,530 3,718
6.0%, 9/1/13 (1) 3,320 3,479
Visalia Waste Water System
6.0%, 12/1/07 (1) 1,000 1,089
Walnut Finance Auth.
6.0%, 9/1/15 (1) 5,000 5,221
Walnut Valley School Dist.
6.2%, 8/1/09 (2) 1,270 1,389
6.0%, 8/1/12 (2) 1,790 1,917
6.0%, 8/1/13 (2) 1,980 2,125
6.0%, 8/1/14 (2) 2,205 2,371
6.0%, 8/1/15 (2) 2,470 2,644
6.0%, 8/1/16 (2) 2,690 2,885
West Basin Municipal Water
Dist. COP
6.85%, 8/1/00 (2) (Prere.) 6,000 6,927
West Sacramento Financing Auth.
5.25%, 8/1/08 (3) 2,160 2,169
Yorba Linda Redevelopment Agency
6.75%, 9/1/14 (1) 6,000 6,550
--------
GROUP TOTAL 943,840
--------
--------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
-------------------------------------------------------------------------------
<S> <C> <C>
PORTFOLIO INSURED (.1%)
Riverside Hosp. Dist.
(Kaiser Permanente Medical Center)
9.0%, 12/1/15 $ 300 $ 334
Sacramento Municipal Utility Dist.
8.0%, 11/15/10 205 206
---------
GROUP TOTAL 540
---------
--------------------------------------------------------------------------------
SECONDARY MARKET INSURED (3.7%)
California Housing Finance Agency
(Single Family Mortgage)
6.9%, 8/1/16 (6) 5,750 6,049
California Public Works Board
(Department of Corrections)
6.5%, 9/1/17 (2) 30,000 33,947
--------
GROUP TOTAL 39,996
--------
--------------------------------------------------------------------------------
NON-INSURED (7.8%)
California PCR Finance Auth. VRDO
(Southern California Edison)
2.0%, 12/1/93 700 700
California Health Facilities Finance
Auth. VRDO
(Adventist Health System &
W. Sutter Health)
2.15%, 12/1/93 1,700 1,700
California State RAN
3.5%, 6/28/94 7,500 7,545
California Water Department
7.0%, 12/1/11 2,585 3,094
7.0%, 12/1/12 4,520 5,415
Irvine City Assessment Dist. VRDO
1.7%, 12/1/93 600 600
Irvine Ranch Water Dist. VRDO
1.7%, 12/1/93 2,500 2,500
1.75%, 12/1/93 400 400
Kern County VRDO
2.2%, 12/1/93 2,000 2,000
Kern County Board of Education TRAN
3.25%, 7/21/94 5,000 5,023
Los Angeles County TRAN
CP 2.45%, 1/25/94 5,000 4,999
3.0%, 6/30/94 15,000 15,045
Los Angeles Department of
Water & Power
6.5%, 4/1/10 3,950 4,428
Los Angeles Waste Water
Systems CP
2.75%, 12/15/93 1,100 1,100
Metropolitan Water Dist. of
Southern California
5.75%, 7/1/09 $10,000 $10,516
Orange County (Irvine Co.)
VRDO 1.8%, 12/1/93 7,600 7,600
Orange County Sanitation
Dist. COP VRDO
1.7%, 12/1/93 600 600
Pasadena Electric Works Rev.
5.375%, 8/1/12 7,040 7,082
Sacramento County Administration
Center & Courthouse VRDO
2.15%, 12/1/93 2,300 2,300
County of San Mateo COP VRDO
2.1%, 12/1/93 1,525 1,525
--------
GROUP TOTAL 84,172
--------
- ---------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $993,740) 1,068,548
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.5%)
--------------------------------------------------------------------------------
Other Assets--Note B 23,704
Liabilities (17,824)
--------
5,880
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 95,063,271 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $1,074,428
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.30
===============================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 14.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT NOVEMBER 30, 1993,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
----------- -------
<S> <C> <C>
Paid in Capital $ 994,947 $10.47
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 3,347 .03
Unrealized Appreciation
of Investments 76,134 .80
--------------------------------------------------------------------------------
NET ASSETS $1,074,428 $11.30
--------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
---------------------------------------------------------------------------------
MUNICIPAL BONDS (98.3%)
---------------------------------------------------------------------------------
<S> <C> <C>
Alameda County Transportation Auth.
4.0%, 5/1/94 (3) $ 2,725 $ 2,741
Anaheim City Public Improvement
Corp. COP VRDO
2.2%, 2/1/94 (2) 14,900 14,900
California Health Facilities
Finance Auth. VRDO
(Adventist Health System &
W. Sutter Health)
2.15%, 12/1/93 17,400 17,400
(Catholic Health Care West)
2.15%, 12/1/93 (1) 16,460 16,460
(Daughters of Charity Health System)
2.35%, 12/1/93 36,300 36,300
(Pooled Program)
2.25%, 12/1/93 6,700 6,700
California PCR Finance Auth.
(Southern California Edison) VRDO
2.0%, 12/1/93 16,600 16,600
(Chevron)
2.4%, 5/15/94* 3,500 3,500
(Pacific Gas & Electric) CP
2.4%, 12/7/93 3,010 3,010
2.45%, 12/9/93 10,000 10,000
2.75%, 12/13/93 7,875 7,875
2.45%, 1/26/94 8,000 8,000
California State GO TOB
2.85%, 5/1/94 (3)* 26,500 26,500
California State RAN
3.5%, 6/28/94 20,600 20,669
California Dept. Water Resource
TOB VRDO 2.3%, 12/1/93 25,285 25,285
CP 2.55%, 2/15/94 14,751 14,751
Clovis Unified School Dist. TRAN
3.0%, 6/29/94 8,000 8,011
Contra Costa Transportation Rev.
VRDO 2.0%, 12/1/93 (3) 27,400 27,400
East Bay Municipal Utility Dist. CP
2.75%, 12/15/93 2,350 2,350
Fullerton City TRAN
3.0%, 7/29/94 5,000 5,005
Irvine City Assessment Dist. VRDO
1.7%, 12/1/93 3,400 3,400
Irvine Ranch Water Dist. VRDO
1.7%, 12/1/93 14,990 14,990
Kern County VRDO
2.2%, 12/1/93 20,700 20,700
Long Beach County TRAN
3.25%, 9/21/94 6,000 6,019
Long Beach City Memorial
Health Service
2.7%, 3/1/94* $16,000 $16,000
Los Angeles County Transportation
Sales Tax Rev.
CP 2.4%, 12/7/93 2,000 2,000
VRDO 2.2%, 1/1/94 (3) 800 800
Los Angeles County School Comm.
3.25%, 6/30/94 17,000 17,038
Los Angeles County TRAN
CP 2.5%, 12/10/93 6,000 6,000
CP 2.7%, 1/12/94 25,200 25,200
CP 2.65%, 1/13/94 9,300 9,300
CP 2.65%, 1/20/94 36,300 36,300
CP 2.45%, 1/26/94 12,700 12,700
3.0%, 6/30/94 40,300 40,316
Los Angeles County Unified
School Dist. TRAN
3.25%, 7/15/94 34,600 34,697
Los Angeles Department of Water &
Power CP
2.7%, 12/15/93 6,800 6,800
2.75%, 12/15/93 2,250 2,250
Northern California Power Agency
TOB VRDO 2.4%, 1/1/94 5,000 5,000
Oakland City TOB VRDO COP
2.4%, 2/1/94 10,000 10,000
Oakland Health Facility VRDO
(Children's Hosp.)
2.2%, 12/1/93 (3) 7,215 7,215
Orange County Sanitation Dist. VRDO
COP 1.7%, 12/1/93 1,400 1,400
1.7%, 12/1/93 (3) 3,200 3,200
COP 2.1%, 2/1/94 (2) 19,200 19,200
Orange County TRAN
3.0%, 6/30/94 3,500 3,503
Orange County VRDO (Irvine Co.)
1.8%, 12/1/93 12,100 12,100
Riverside County TRAN
CP 2.6%, 12/9/93 3,700 3,700
CP 2.5%, 12/10/93 36,000 36,000
CP 2.55%, 12/10/93 4,000 4,000
CP 2.7%, 1/12/94 8,600 8,600
3.0%, 6/30/94 10,000 10,004
Riverside County VRDO
2.2%, 12/1/93 72,640 72,640
Sacramento County Administration
Center & Courthouse VRDO
2.15%, 12/1/93 15,650 15,650
Saddleback Valley Unified School
Dist. TRAN
3.25%, 6/30/94 28,000 28,079
</TABLE>
13
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
-------------------------------------------------------------------------------
<S> <C> <C>
San Diego Area Local
Govt. COP TRAN
3.25%, 6/30/94 $26,000 $ 26,058
San Diego County Regional
Transportation VRDO
2.2%, 12/1/93 (3) 29,800 29,800
San Diego County TRAN
3.25%, 7/29/94 12,000 12,027
Santa Clara Dist. Valley Medical
VRDO (El Camino Hosp. Dist.)
2.15%, 12/1/93 28,700 28,700
Southern California Public Power
Auth. (Transmission Project)
VRDO 2.2%, 1/1/94 (2) 59,500 59,500
9.75%, 1/1/94 (Prere.) 3,300 3,418
10.0%, 1/1/94 (2) (Prere.) 10,060 10,422
10.0%, 1/1/94 (Prere.) 4,650 4,817
Stockton Unified School Dist. TRAN
3.25%, 12/22/93 7,500 7,503
Torrance Hosp. (Pooled Program)
VRDO 2.4%, 12/1/93 4,000 4,000
Ventura County Solid Waste VRDO
2.2%, 12/1/93 2,850 2,850
Ventura County TRAN
3.0%, 8/1/94 26,500 26,533
Yuba County TRAN
3.25%, 12/21/93 4,700 4,701
--------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $988,587) 988,587
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.7%)
--------------------------------------------------------------------------------
Other Assets--Note B 19,711
Liabilities (2,572)
---------
17,139
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 1,005,765,373 outstanding shares
of beneficial interest (unlimited
authorization--no par value) $1,005,726
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
--------------------------------------------------------------------------------
AT NOVEMBER 30, 1993,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
---------- --------
<S> <C> <C>
Paid in Capital $1,005,778 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net Realized Losses (52) --
Unrealized Appreciation
of Investments -- --
--------------------------------------------------------------------------------
NET ASSETS $1,005,726 $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
TOB--Tender Option Bond
TRAN--Tax Revenue Anticipation Note
VRDO--Variable Rate Demand Obligation
(Prere.)--Prerefunded
*Put Option Obligation
14
<PAGE> 17
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED MONEY
LONG-TERM MARKET
PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------
Year Ended Year Ended
November 30, November 30,
1993 1993
(000) (000)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . $55,730 2,544
-----------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . 55,730 22,544
-----------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . $ 91 $ 83
Management and Administrative . . . . . . . . . 1,475 1,234
Marketing and Distribution . . . . . . . . . . 262 1,828 295 1,612
------------ --------
Insurance Expense . . . . . . . . . . . . . . . . 2 --
Auditing Fees . . . . . . . . . . . . . . . . . . 8 8
Shareholders' Reports . . . . . . . . . . . . . . 42 35
Annual Meeting and Proxy Costs . . . . . . . . . 5 4
Trustees' Fees and Expenses. . . . . . . . . . 3 3
-----------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . 1,888 1,662
-----------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . 53,842 20,882
-----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note C
Investment Securities Sold . . . . . . . . . . . 15,112 14
Futures Contracts . . . . . . . . . . . . . . . . (10,286) --
-----------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . 4,826 14
-----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Notes C and D
Investment Securities . . . . . . . . . . . . . 45,634 --
Futures Contracts . . . . . . . . . . . . . . . 296 --
-----------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation) 45,930 --
-----------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $104,598 $20,896
===========================================================================================================
</TABLE>
15
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED MONEY
LONG-TERM PORTFOLIO MARKET PORTFOLIO
--------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended
NOV. 30, Nov. 30, NOV. 30, Nov. 30,
1993 1992 1993 1992
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 53,842 $ 42,974 $ 20,882 $ 22,603
Realized Net Gain (Loss)--Note C 4,826 14,119 14 (76)
Change in Unrealized Appreciation (Depreciation)
Notes C and D 45,930 15,719 -- --
--------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 104,598 72,812 20,896 22,527
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income (53,842) (42,974) (20,882) (22,603)
Realized Net Gain (15,193) (221) -- --
--------------------------------------------------------------------------------------------------------------
Total Distributions (69,035) (43,195) (20,882) (22,603)
--------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular 319,720 272,717 832,642 642,531
-- In Lieu of Cash Distributions 51,774 31,938 19,557 20,932
-- Exchange 129,416 113,375 258,659 191,590
Redeemed -- Regular (131,693) (102,899) (686,768) (594,895)
-- Exchange (158,317) (146,212) (212,367) (225,002)
--------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions 210,900 168,919 211,723 35,156
--------------------------------------------------------------------------------------------------------------
Total Increase 246,463 198,536 211,737 35,080
--------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 827,965 629,429 793,989 758,909
--------------------------------------------------------------------------------------------------------------
End of Year $ 1,074,428 $827,965 $1,005,726 $793,989
==============================================================================================================
(1) Distributions Per Share
Net Investment Income $ .604 $ .633 $ .024 $ .029
Realized Net Gain $ .199 $ .004 -- --
--------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued 40,203 36,087 1,091,301 834,121
Issued in Lieu of Cash Distributions 4,663 2,984 19,557 20,932
Redeemed (25,866) (23,365) (899,135) (819,897)
--------------------------------------------------------------------------------------------------------------
19,000 15,706 211,723 35,156
--------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
--------------------------------------------------------------------------------------------------------------
Year Ended November 30,
--------------------------------------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.89 $10.43 $10.22 $10.19 $9.71
------ ------ ------ ------ -----
INVESTMENT OPERATIONS
Net Investment Income .604 .633 .644 .660 .671
Net Realized and Unrealized Gain (Loss)
on Investments .609 .464 .210 .030 .480
------ ------ ------ ------ -----
TOTAL FROM INVESTMENT OPERATIONS 1.213 1.097 .854 .690 1.151
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.604) (.633) (.644) (.660) (.671)
Distributions from Realized Capital Gains (.199) (.004) -- -- --
------ ------ ------ ------ -----
TOTAL DISTRIBUTIONS (.803) (.637) (.644) (.660) (.671)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.30 $10.89 $10.43 $10.22 $10.19
==============================================================================================================
TOTAL RETURN +11.53% +10.81% +8.61% +7.06% +12.16%
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Year (Millions) $1,074 $828 $629 $385 $260
Ratio of Expenses to Average Net Assets .19% .24% .25%+ .26%+ .24%+
Ratio of Net Investment Income to Average Net Assets 5.38% 5.92% 6.24% 6.57% 6.67%
Portfolio Turnover Rate 27% 54% 19% 6% 3%
--------------------------------------------------------------------------------------------------------------
</TABLE>
+ Insurance expenses represent .01%, .01%, and .02%, respectively.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------------------------------
Year Ended November 30,
--------------------------------------------------
For a Share Outstanding Throughout Each Year 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
$1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income .024 .029 .043 .054 .060
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS .024 .029 .043 .054 .060
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.024) (.029) (.043) (.054) (.060)
Distributions from Realized Capital Gains -- -- -- -- --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (.024) (.029) (.043) (.054) (.060)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
==============================================================================================================
TOTAL RETURN +2.40% +2.97% +4.44% +5.59% +6.19%
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Year (Millions) $1,006 $794 $759 $723 $540
Ratio of Expenses to Average Net Assets .19% .24% .24% .25% .22%
Ratio of Net Investment Income to Average Net Assets 2.37% 2.92% 4.32% 5.43% 5.99%
Portfolio Turnover Rate N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
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 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. Insured Long-
Term Portfolio: 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 Portfolio may 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 Portfolio 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 $340,000 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 year ended November 30, 1993, the Insured Long-Term Portfolio
made purchases of $401,062,000 and sales of $250,760,000 of investment
securities other than temporary cash investments.
18
<PAGE> 21
At November 30, 1993, unrealized appreciation of investment securities of the
Insured Long-Term Portfolio for financial reporting and Federal income tax
purposes aggregated $74,808,000 of which $76,453,000 related to appreciated
securities and $1,645,000 related to depreciated securities.
* D. At November 30, 1993, the Insured Long-Term Portfolio had short positions
in Municipal Bond Index, U.S. Treasury Bond and U.S. Treasury Note futures
contracts expiring through March 1994, with an aggregate settlement value and
net unrealized appreciation of $147,211,000 and $1,326,000, respectively. The
market value of securities deposited as initial margin for open futures
contracts was $2,147,000.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
Vanguard California Tax-Free Fund
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Insured Long-Term Portfolio and the Money Market Portfolio (constituting the
Vanguard California Tax-Free Fund, hereafter referred to as the "Fund") at
November 30, 1993, the results of each of their operations, the changes in each
of their net assets and the financial highlights for each of the respective
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 27, 1993
19
<PAGE> 22
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment
companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc Rorer
Inc.; Director of Sun Company, Inc. and Immune Response Corporation; Trustee of
the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation,
Baker Fentress & Co., and The Southern New England Telephone Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Director of Rohm & Haas Company; Director of
Cummins Engine Company; Trustee of Vanderbilt University and the Culver
Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
20
<PAGE> 23
(continued from inside front cover)
toward those of the 1970s. However, the current level of inflation suggests
that future real returns may prove to be satisfactory. Looking forward, the main
risks to the investor are two: (1) that yields on financial assets will rise
sharply, reducing the prices of stocks and bonds alike; and (2) that inflation,
presently at moderate levels, will accelerate.
SOME COURSES OF ACTION
What, if any, present action should be taken by investors to deal with these
two major risks? Should your allocation of assets among stock funds, bond funds,
and money market funds be adjusted? Here are some reasonable courses of action
to consider:
* For long-term investors who have built a substantial balanced portfolio
of stock, bond, and money market funds, stay the course. Even if
withdrawing from the stock market proves to be justified, the next
decision--when to return--will one day be required. "Being right twice" is
no mean challenge.
* For long-term investors gradually accumulating assets for, say, retirement,
stay your present course. Continue to invest regularly. By doing so, you
buy more shares of a mutual fund when its price falls, and fewer shares
when its price rises, virtually assuring a reasonable average cost.
* For risk-averse investors who are highly confident that stock prices are "too
high," make only marginal--not "all or nothing"-- changes in your
portfolio balance. Given the perils of predicting the future, any changes
should be limited to, say, 15 percentage points. That is, if your normal
portfolio allocation is 60% in stock funds, it might be reduced to 45%; if
85%, to 70%.
* For investors who simply must have more income, never lose sight of the added
principal risk involved in shifting from money market funds to bond funds.
Long-term bond funds provide a generous and durable income stream, but
their prices are highly volatile. Short-term and intermediate-term bond
funds offer a "middle way" of increasing income with more modest risk to
principal.
* For investors who are tempted to find an "easy way" to higher returns, never
forget that risk and reward go hand in hand. Precipitously replacing
certificates of deposit with broad-based common stock funds verges on the
irrational. Funds investing in other securities markets--emerging nations,
international stocks and bonds, and small U.S. companies--carry their own
special risks. Generally, limit such alternative investments to, say, 20%
of your total portfolio.
For all investors, be prepared for sharp interim swings in stock and bond
prices. The central tenet of investing is "prices fluctuate," and sensible long-
term investors simply must take such fluctuations in their stride. Successful
investing is as much a function of your own discipline and equanimity as it is
of the returns available in the securities markets.
THREE ESSENTIAL PRINCIPLES
As we confront the brave new world of investing that may well lie ahead in the
coming decade--and it is important to think in decade-length terms--we would
underscore three caveats:
1. Have "rational expectations" for future returns. At prices prevailing today,
it seems highly unlikely that the returns enjoyed by investors in the past
decade will be repeated in the coming decade.
2. Maintain a balanced portfolio consisting of stock, bond, and money market
funds. Each asset class has its own risk and reward characteristics. By
allocating your resources among the three asset classes according to your
own requirements, you can build a portfolio providing appropriate elements of
capital appreciation, capital conservation, and current income.
3. In balancing risk against reward, be sure to consider cost. Many mutual
funds carry hefty sales charges or high expense ratios, or both. Other
factors held equal, expenses reduce returns, dollar for dollar. Put another
way, high-cost funds must select investments with higher prospective gross
returns--which entail higher risks--to match the net returns earned by
low-cost funds.
This brief Annual Report essay can provide only an elementary look at the
challenges investors face today. History can give us perspective, but it cannot
give us performance. Famed British economist Lord Keynes had it right when he
said, "the inevitable never happens. It is the unexpected always."
<PAGE> 24
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
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Long-Term Portfolios
(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 Small Capitalization Stock Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
[VANGUARD LOGO]
Vanguard Financial Center * Valley Forge, Pennsylvania 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.
Q750-11/93
<PAGE> 25
EDGAR Appendix
This appendix describes components of the printed version of this
report that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features the flags of
The United States of America and Vanguard flying from a halyard.
A bar chart called "A Tale of Two Decades" appears on the inside front
cover. This chart illustrates Average Annual Total Return, in nominal and real
terms, of Stocks, Bonds and Reserves (U.S. Treasury bills) for the two decades
since 1973.
A running head featuring the Vanguard flag logo appears at the top of
pages one through 24.
A photograph of John C. Bogle appears at the upper-right of page one.
A line chart of Month-End Yields shows the Vanguard California compared
to the Lehman Municpal bond index. For the Fiscal Years 1990-1993
Line charts illustrating cumulative performance of the Vanguard
California fund shows comparison against the average Ca Municpal fund and
to the Lehman municpal bond index for the fiscal years 1986-1993.
