<PAGE> 1
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
During the six months ended May 31, 1995--the first half of the fiscal year for
Vanguard State Tax-Free Portfolios--a fairly substantial decline in long-term
interest rates resulted in higher prices for long-term tax-exempt bonds. These
price increases pushed the six-month total returns (capital change plus income)
of all our Insured Longer-Term Portfolios well into double-digit territory.
While long rates declined during the past six months, shorter-term interest
rates actually increased marginally. In this environment, the yields of our
Money Market Portfolios increased nicely and remained comfortably ahead of the
yields offered by comparable funds.
THE STATE INSURED LONG-TERM PORTFOLIOS
In the wake of repeated interest rate increases by the Federal Reserve during
1994, long-term municipal bond yields peaked in November 1994 at 7.1%. As these
rate hikes seemed to slow the economy's growth, concerns about future inflation
were allayed, and rates began to decline. By the end of May, municipal bond
yields had fallen to 5.8%, a decline of 130 basis points.
In this environment, longer-term municipal bond funds enjoyed
outstanding returns. Indeed, each of Vanguard's Insured Long-Term Portfolios
provided six-month total returns (capital change plus income) in the area of
+14%. This sharp price rally overwhelmed the negative returns of the prior six
months, bringing our total returns for the twelve months strongly into positive
territory. Although fluctuating net asset values are part and parcel of bond
fund investing, the recent swings in market value demonstrate the benefit of
remaining committed to a long-term investment strategy.
The table opposite shows the Longer-Term Portfolios' twelve-month
returns, reflecting a full year's income. To provide some perspective on how
fluctuating interest rates have impacted our Insured Longer-Term Portfolios
over this period, the table breaks down our Portfolios' total returns into
their income and capital components. I would emphasize that the table conceals
the fact that the full period was composed of two vastly different six-month
sub-periods, one in which returns were sharply negative, the other strongly
positive.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Investment Returns
Twelve Months Ended
May 31,1995
----------------------------------
Insured Longer-Term Portfolio Income Capital Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA INTERMEDIATE-TERM +5.2% +2.2% +7.4%
CALIFORNIA LONG-TERM +6.1 +3.8 +9.9
NEW YORK LONG-TERM +6.0 +3.0 +9.0
PENNSYLVANIA LONG-TERM +6.2 +2.1 +8.3
NEW JERSEY LONG-TERM +6.0 +3.5 +9.5
OHIO LONG-TERM +5.9 +3.2 +9.1
FLORIDA LONG-TERM +5.8 +3.6 +9.4
- ------------------------------------------------------------------------------
</TABLE>
The current tax-exempt yields on our Insured Longer-Term Portfolios are
presently in the area of 5.2%, compared with 6.3% six months ago. The yield for
each Portfolio is presented in the table on page 3 of this report, which also
includes per share net asset values, dividends, and total returns over the past
six and twelve months.
THE STATE MONEY MARKET PORTFOLIOS
As noted earlier, the Federal Reserve Board has remained relatively
tight-fisted in its monetary policy during the past six months, bringing some
stability to money market yields. This stability is a stark contrast to fiscal
1994, when the Board raised the Fed funds rate (at which banks borrow from one
another) on fully six separate occasions. It would appear that the Fed's tough
policy is bearing fruit: inflation so far remains quite subdued, and business
activity has slowed to a more normal growth rate.
While rates have been stable in recent months, the table below shows
the impact of the dramatic surge in short-term rates on our annualized yields
over the past year and one-half. You will note that, during this period, the
yields on our Money Market Portfolios have risen by more than 60%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Seven-Day Annualized Yield
-----------------------------------------------
Money Market May 31, Nov. 30, May 31, Nov. 30,
Portfolio 1995 1994 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA 3.8% 3.4% 2.6% 2.3%
PENNSYLVANIA 3.8 3.5 2.6 2.3
NEW JERSEY 3.7 3.3 2.5 2.2
OHIO 3.9 3.5 2.6 2.4
- --------------------------------------------------------------------------------
</TABLE>
(continued)
1
<PAGE> 2
Regardless of future interest rate movements, the yield advantage of our
Vanguard State Money Market Portfolios is virtually certain to remain
attractive relative to other comparable money market funds. The principal
reason for this advantage, as you know, is that our operating expenses are so
much lower than industry norms. Our Portfolios, for example, operate at an
annual expense ratio of about 0.2%, compared with 0.6% for our average
competitor. This advantage of 0.4% carries directly to the bottom line: the
yield you receive. Thus, in a market in which gross yields are, say, 4.0%, our
Portfolios should provide a net yield of 3.8%, compared with 3.4% for other
comparable money market portfolios.
I want to underscore that our higher yields do not arise from the
ownership of lower quality money market instruments. The quality of our
Portfolios is, we believe, as high as any tax-exempt money market fund in the
field. Funds which stinted on quality last year ran the risk that their net
asset values might fall below the $1.00 value that investors have come to take
for granted. Our focus on quality--along with, we acknowledge, some good
luck--spared us the consequences of this risk, and we owned no direct
obligations of Orange County, California, the most troubled credit of the
period. Each of our Money Market Portfolios' net asset values remained at $1.00
per share, which as you know, is our objective, but is not guaranteed.
IN SUMMARY
The recent swings in total returns we have witnessed help to demonstrate that
"staying the course"--even in the face of turbulent markets--will more often
than not lead to a successful long-term investment program. In contrast,
attempting to jump into and out of mutual funds in hopes of timing the
movements of the market is almost certain to result in failure.
Whether rates remain volatile or not, the benefits of investing in
Vanguard State Tax-Free Portfolios endure: high quality, low cost, and
professional management. Along with these advantages, the Portfolios distribute
income that is 100% exempt from both Federal and state income taxes. Together,
these factors should ensure our ability to provide shareholders with efficient
and effective Portfolios in the years to come.
I look forward to reporting to you on our results for the full year in
our 1995 Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- ------------------------
John C. Bogle
Chairman of the Board
June 9, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
A FEW WORDS ABOUT POSSIBLE CHANGES IN THE TAX LAW
The uncertainties related to a variety of new tax proposals seem to have
unnerved some participants in the tax-exempt bond market. Of the options which
have been considered, perhaps the most significant to municipal bond investors
is the "flat tax." Indeed, under one proposed version, municipal bond yields
would have no advantage over taxable yields. Because of this uncertainty, the
rise in municipal bond prices has been significantly less than the rise in U.S.
Treasury bond prices over the past few months.
As a result, the current yield on high-quality long-term municipal
bonds is 94% of the yield on taxable U.S. Treasuries giving municipal bonds
their largest after-tax yield advantage in recent years. What this means is
that an investor in the highest marginal tax bracket (40%) would earn an
after-tax yield of about 3.8% on a U.S. Treasury bond (60% of 6.4%). A
high-grade municipal bond, on the other hand, would provide a tax-exempt yield
of 6.0%--fully 58% higher. Thus, it would appear that tax uncertainty has
created unusual yield opportunity.
In any event, the flat tax option is no longer high on the legislative
agenda, and neither of the tax bills adopted by the Senate or the House of
Representatives would disturb the existing tax-exempt status of municipal bond
interest. Until the details of any tax law changes become clearer, we would
caution municipal bond investors to give careful consideration before making
any shifts in their holdings of municipal bonds. In the meantime, we will keep
you abreast of our views on the possible effects of any proposed legislation
that could materially impact the tax status of your holdings in Vanguard
municipal bond funds.
<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, 1995 Maturity Quality* 1994 1995 Months Months Months Months Yield**
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . . $1,114 24 DAYS MIG 1 $ 1.00 $ 1.00 $.019 $.033 + 1.9% +3.3% 3.80%
PENNSYLVANIA . . 1,148 26 DAYS MIG 1 1.00 1.00 .018 .033 + 1.9 +3.3 3.80
NEW JERSEY . . . 818 51 DAYS MIG 1 1.00 1.00 .018 .032 + 1.8 +3.2 3.71
OHIO . . . . . . . 166 60 DAYS MIG 1 1.00 1.00 .019 .033 + 1.9 +3.4 3.92
- ----------------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA
INTERMEDIATE-TERM $ 171 6.6 YEARS Aaa $ 9.64 $10.26 $.253 $.499 + 9.2% +7.4% 4.86%
CALIFORNIA . . . . 936 12.7 YEARS Aaa 9.92 11.06 .301 .606 +14.7 +9.9 5.29
NEW YORK . . . . . 799 11.1 YEARS Aaa 9.70 10.80 .293 .587 +14.5 +9.0 5.18
PENNSYLVANIA . . . 1,482 12.8 YEARS Aaa 10.07 11.08 .308 .625 +13.2 +8.3 5.28
NEW JERSEY . . . . 742 10.5 YEARS Aaa 10.40 11.57 .316 .628 +14.4 +9.5 5.12
OHIO . . . . . . . 175 9.5 YEARS Aaa 10.28 11.43 .307 .611 +14.3 +9.1 5.22
FLORIDA . . . . . 362 13.1 YEARS Aaa 9.61 10.75 .281 .562 +14.9 +9.4 5.27
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* MIG 1 and Aaa are Moody's highest ratings for short-term and long-term
municipal bonds, respectively.
** Money Market Portfolios' yields are 7-day annualized yields; others are
30-day SEC yields.
Note: The shares of each of the Vanguard "single-state" Portfolios are
available for purchase solely by residents of the designated states.
3
<PAGE> 4
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, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
--------------------------------
INCEPTION TOTAL INCOME CAPITAL
DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
--------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA INSURED INTERMEDIATE-TERM 3/4/94 +6.72% -- +5.61% +4.96% +0.65%
CALIFORNIA INSURED LONG-TERM 4/7/86 +8.14 +8.33% +7.75 +6.55 +1.20
CALIFORNIA MONEY MARKET 6/1/87 +3.09 +3.47 +4.18 +4.18 0.00
NEW YORK INSURED TAX-FREE 4/7/86 +7.84 +8.72 +7.30 +6.54 +0.76
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +7.54 +8.73 +8.04 +6.75 +1.29
PENNSYLVANIA MONEY MARKET 6/13/88 +3.04 +3.52 +4.19 +4.19 0.00
NEW JERSEY INSURED LONG-TERM 2/3/88 +8.06 +8.69 +8.57 +6.55 +2.02
NEW JERSEY MONEY MARKET 2/3/88 +2.96 +3.48 +4.17 +4.17 0.00
OHIO INSURED LONG-TERM 6/18/90 +7.57 -- +8.80 +6.08 +2.72
OHIO MONEY MARKET 6/18/90 +3.08 -- +3.44 +3.44 0.00
FLORIDA INSURED TAX-FREE 9/1/92 +8.74 -- +7.68 +5.44 +2.24
</TABLE>
ALL OF 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
PORTFOLIOS OF 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.
4
<PAGE> 5
REPORT FROM THE INVESTMENT ADVISER
Two significant events occurred during the first six months of the fiscal year.
The first was the stunning market rally that drove long-term municipal yields
approximately -1.1 percentage points lower. The second was the turmoil
surrounding the bankruptcy of Orange County, California.
MONEY MARKETS
The aggressive tightening of monetary policy by the Federal Reserve Board in
1994 slowed down dramatically in the first half of fiscal year 1995. The only
intervention occurred on February 1, 1995, when the Federal Reserve Board
increased the discount and Federal funds rates 0.5%. Participants in the
short-term municipal market reacted favorably to this relative stability in
interest rates and 1-year notes rallied roughly +1%. While yields on 1-year
notes declined, yields on shorter-term variable rate instruments moved in the
opposite direction, resulting in what is known as a flattening of the
short-term municipal yield curve. The average weighted maturity of the
California Tax-Free Money Market Portfolio was positioned at the lower end of
the maturity spectrum, and consequently, benefited from this flattening. During
the fiscal half, the average monthly yield on all non-institutional state
specific money funds rose +0.78%.
In the upcoming months, increased supply of short-term municipal
issuance should present an opportunity for the Money Market Portfolio to extend
its average maturity, but not at the expense of sacrificing quality.
BOND MARKETS
For the first half of the fiscal year, investors pushed long-term interest
rates lower as economic indices pointed increasingly to slower domestic
economic growth. Investors viewed the slowing as beneficially affecting
inflation. Long-term interest rates declined for virtually the entire six
months. For example, the benchmark 30-year U.S. Treasury bond began the fiscal
year yielding 8.0%, and by the end of May, the yield had fallen -1.4% to 6.6%.
Long-term tax-exempt bond yields followed suit, however, not in quite the same
magnitude as the taxable market. The Bond Buyer 20 Municipal Bond Index yield
declined -1.1% (from 6.9% to 5.8%) over the same period.
The California Insured Intermediate- and Long-Term Portfolios
performed well over the six-month period. The Portfolios benefited from an
extension in their average weighted maturity that began in the fourth quarter
of the last fiscal year. Additionally, the Portfolios' structure, with
superior protection from early calls, aided in maintaining the price
responsiveness of the Portfolios during the market rally.
Looking ahead there are three main strategies that we expect to pursue
regarding the management of the money invested in the California Insured
Intermediate- and Long-Term Portfolios. The first is a continued focus on
improvements in call protection to enhance the durability of dividends; second
is investing to minimize taxable capital gains distributions when it does not
interfere with superior total return potential; and third is a focus on higher
coupon bonds that would position the Portfolios more defensively should
interest rates reverse direction and move higher.
ORANGE COUNTY
THE BANKRUPTCY. During the afternoon of December 1, 1994, reports began to
appear in the media that Orange County, California, had experienced massive
losses from its investment pool in the range of $1.5 billion. Several days
later, a news conference convened by county officials confirmed the losses. On
December 6, acting to prevent creditors from forcing the county to become
insolvent, the officials filed for bankruptcy protection under Chapter 9 of the
Federal Bankruptcy Code. This was the first municipal bankruptcy filing by a
major government since the Great Depression. If plans for a financial rescue of
the county are not completed before the end of June 1995, a series of defaults
could occur which would rival the $2.5 billion default by the Washington Public
Power Supply System in 1984. Importantly, Vanguard has no direct exposure to
losses stemming from Orange County.
How this debacle happened is still being discussed and investigated.
Orange County Treasurer Robert L. Citron managed about $7.5 billion of
5
<PAGE> 6
County and other governments' money, and used reverse repurchase agreements to
leverage the portfolio to roughly three times the value of the underlying
investments. He then invested about a quarter of the pool in exotic derivative
securities. As rates rose rapidly during 1994, the portfolio suffered massive
unrealized market value losses. None of this was disclosed to investors.
Citron has pleaded guilty to a number of violations of California law, and
numerous Federal and state legislative and regulatory investigations are
continuing.
POST BANKRUPTCY EVENTS. Under the direction of the bankruptcy court,
the County hired Salomon Brothers to liquidate the pool. The value of the pool
dropped from $7.6 billion to $5.9 billion, a loss of $1.7 billion, or 22%.
Those affected by the losses include the pool participants, County residents,
and investors.
Regarding County residents, pool losses and investment income
shortfalls require a reduction in locally funded programs by 40%, resulting in
a loss of nearly 3,000 County employees (out of 15,000). Residents are to vote
on June 27 on a proposal to increase the County sales tax by one-half cent.
As for investors, some defaults (mainly "technical" in nature) have
already resulted from the County's bankruptcy. However, the most serious
problems lie in repayments of five note issues maturing between June 30 and
August 15, 1995, totaling $975 million. Some debt restructuring is likely to
occur. However, the County is unlikely to fully pay all interest and principal
when due. As a last resort, the County may attempt to repudiate some of its
debt. The State of California may also intervene. The outcome for investors
holding Orange County Notes cannot be predicted at present.
The Vanguard California Tax-Free Money Market Portfolio had no
exposure to any unenhanced Orange County Notes. Nevertheless, the aftershock
of the bankruptcy extended well beyond the boundaries of California, and
consequently, all municipal money market funds experienced its effects. The
immediate reaction in the short-term municipal market resulted in a rise in
yields of 0.75 percentage points on all general market notes. Orange County Tax
and Revenue Anticipation Notes, and any related credits, faced a much more
severe crisis since there was virtually no bid for these securities. Since
then, liquidity for general market notes has returned, and yields have rallied
through their December levels. However, illiquidity persists for Orange County
investors as bondholders negotiate payment on the notes that are due in July.
The Orange County bankruptcy underscores the benefit of the additional
layer of credit protection provided by the AAA-rated insurance policies
attached to the bonds that are owned by the California Insured Intermediate-
and Long-Term Portfolios. As the bankruptcy story unfolded, most uninsured
Orange County investment pool related bonds were quite illiquid. In contrast,
while insured Orange County related bonds underperformed other insured bonds by
three points, the market was liquid. By late December, much of that
underperfomance had disappeared, and at the end of the fiscal half, insured
Orange County related bonds were trading at prices just slightly lower than
other insured bonds.
CONCLUSION
The Orange County bankruptcy has reinforced our commitment to rigorous credit
evaluation of the municipal securities in which we invest. This conservative
approach to assessing credit quality combined with Vanguard's low expenses
provides a high-quality investment that is exempt from both Federal and
California State income taxes.
Respectfully,
Ian A. MacKinnon Jerome J. Jacobs
Senior Vice President Vice President
Pamela W. Tynan David E. Hamlin
Vice President Assistant Vice President
Reid O. Smith Danine A. Mueller
Assistant Vice President Portfolio Manager
Vanguard Fixed Income Group
June 14, 1995
6
<PAGE> 7
FINANCIAL STATEMENTS
(unaudited)
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (99.3%)
- ----------------------------------------------------------------------------------
ISSUER INSURED (84.9%)
Anaheim Convention Center COP
0.00%, 8/1/04 (1) $ 3,120 $ 1,916
0.00%, 8/1/05 (1) 1,250 724
0.00%, 8/1/06 (1) 3,125 1,698
5.50%, 8/1/14 (1) 4,000 3,903
Anaheim Public Improvement Corp.
COP VRDO 3.50%, 6/7/95 (2) 2,800 2,800
City of Barstow
Redevelopment Agency
6.25%, 9/1/22 (1) 2,225 2,312
California GO
6.00%, 8/1/19 (3) 7,400 7,514
6.00%, 8/1/24 (1) 22,600 22,947
7.00%, 11/1/13 (3) 2,000 2,266
California Health Facilities Auth.
(Adventist Health System)
6.75%, 3/1/11 (1) 5,000 5,410
(Catholic Health Care West)
VRDO 3.45%, 6/7/95 (1) 6,000 6,000
5.75%, 7/1/15 (2) 4,080 4,056
(Centinela Hosp.)
6.25%, 9/1/15 (1) 22,400 23,192
(San Diego Hosp.)
6.625%, 5/1/19 (1) 6,525 6,880
(Unihealth America)
7.625%, 10/1/15 (2) 50 55
California Housing Finance Agency
Multifamily Housing Rev.
8.625%, 8/1/15 (1) 200 212
California Public Works Board
(Univ. of California)
6.25%, 12/1/07 (2) 6,945 7,470
6.50%, 12/1/08 (2) 4,000 4,438
Chino Basin Finance Auth.
Municipal Water Dist.
6.00%, 8/1/16 (2) 5,500 5,589
Contra Costa COP
5.50%, 6/1/12 (2) 6,850 6,757
5.60%, 6/1/19 (2) 9,395 9,225
6.70%, 2/1/21 (2) 4,630 4,920
Contra Costa Transportation Auth.
Sales Tax Rev. VRDO
3.60%, 6/7/95 (3) 8,500 8,500
Contra Costa Water Dist. Rev.
5.00%, 10/1/24 (1) 24,000 21,523
Culver City Redevelopment
Finance Auth.
6.75%, 11/1/99 (2) (Prere.) 955 1,027
East Bay Municipal Utility
Dist. Waste Water Treatment
System Rev.
6.375%, 6/1/12 (2) 2,000 2,094
6.50%, 6/1/20 (2) 2,000 2,135
Eastern Municipal Water Dist.
6.75%, 7/1/12 (3) 8,000 9,098
Elsinore Valley Municipal
Water Dist. COP
5.90%, 7/1/06 (3) 1,685 1,789
6.00%, 7/1/12 (3) 2,210 2,319
Encina Power Auth. Waste
Water Rev.
6.875%, 8/1/11 (3) 3,650 3,957
Glendale Hosp. Rev.
(Adventist Health System)
6.00%, 3/1/14 (1) 3,000 3,040
Indian Wells Redevelopment Agency
5.50%, 12/1/22 (1) 2,000 1,939
Kern High School Dist. GO
6.25%, 8/1/11 (1) 1,065 1,147
6.40%, 8/1/14 (1) 1,490 1,636
6.40%, 8/1/15 (1) 1,645 1,811
6.40%, 8/1/16 (1) 1,815 2,003
LaQuinta Redevelopment Agency
7.30%, 9/1/10 (1) 1,145 1,353
Long Beach Financing Auth. Rev.
6.00%, 11/1/10 (2) 3,860 4,059
6.00%, 11/1/17 (2) 2,000 2,112
Los Angeles County Metropolitan
Transit Auth. VRDO
3.30%, 6/7/95 (3) 4,000 4,000
Los Angeles Development Auth.
Rev. COP
(Children's Hosp.)
6.00%, 6/1/10 (1) 1,000 1,052
6.00%, 6/1/11 (1) 2,365 2,479
MSR Public Power Agency
(San Juan Project)
6.125%, 7/1/13 (2) 8,000 8,568
6.625%, 7/1/13 (6) 2,000 2,091
6.75%, 7/1/20 (1) 37,000 42,530
Modesto Irrigation Dist.
Finance Auth. Rev.
(Woodland Project)
6.50%, 10/1/11 (2) 8,125 8,955
6.50%, 10/1/22 (2) 9,750 10,933
Mountain View Capital
Improvement Finance Auth. Rev.
6.25%, 8/1/12 (1) 5,000 5,184
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
Northern California Power Agency
(Hydro Electric Project)
5.50%, 7/1/16 (1) $ 10,000 $ 9,804
5.50%, 7/1/23 (1) 5,000 4,847
6.00%, 7/1/09 (1) 7,530 7,933
7.50%, 7/1/21 (2) (Prere.) 1,810 2,267
Oakland Redevelopment Agency
(Central Dist. Project)
5.50%, 2/1/14 (2) 5,500 5,449
Orange County Local
Transportation Auth.
5.80%, 2/15/05 (3) 6,000 6,276
5.90%, 2/15/06 (3) 8,000 8,394
Orange County Sanitation Dist.
VRDO 4.50%, 6/2/95 (2) 500 500
Oro Loma Sanitation Dist.
5.20%, 10/1/16 (2) 4,800 4,494
Pittsburg Redevelopment Agency
5.50%, 8/1/07 (3) 2,750 2,785
5.50%, 8/1/15 (3) 12,700 12,456
Placer County Water Rev. COP
7.75%, 7/1/18 (6) 3,500 3,905
Pomona Unified School Dist.
5.50%, 8/1/16 (3) 1,000 988 GO
5.60%, 8/1/14 (1) 1,585 1,587 GO
5.60%, 8/1/15 (1) 2,000 1,997 GO
5.60%, 8/1/16 (1) 1,000 994 GO
7.50%, 8/1/17 (1) 2,540 3,139
Poway Redevelopment Agency
7.25%, 12/15/11 (3) 7,500 8,350
Rancho Water Dist.
6.25%, 8/1/12 (3) 2,000 2,075
COP 7.125%, 11/1/15 (2) 800 824
Rancho Water Dist. Finance
Auth. Rev.
5.875%, 11/1/10 (3)* 3,585 3,633
5.90%, 11/1/15 (3)* 4,000 3,970
Redding Joint Power Finance Auth.
Waste Water Rev.
5.50%, 12/1/18 (3) 5,400 5,275
Redlands Water COP
7.00%, 11/1/96 (2) (Prere.) 5,500 5,833
Riverside County
Transportation Comm.
5.75%, 6/1/09 (2) 3,800 3,881
Riverside Sewer Rev.
5.00%, 8/1/11 (3) 4,520 4,261
5.00%, 8/1/12 (3) 4,745 4,453
Sacramento County Public Facilities
(Main Detention Facility Project)
5.50%, 6/1/10 (1) 4,000 4,033
Sacramento Finance Auth. Rev.
5.375%, 11/1/14 (2) 4,000 3,908
Sacramento Municipal Utility
Dist. Rev.
6.00%, 1/1/24 (1) 2,250 2,283
6.25%, 8/15/10 (1) 33,800 36,386
6.30%, 8/15/18 (1) 14,000 14,492
Sacramento Redevelopment Agency
6.50%, 11/1/13 (1) 4,500 4,771
San Diego County Regional
Transportation Comm.
VRDO 4.25%, 6/7/95 (3) 800 800
5.00%, 4/1/98 (3) 2,500 2,542
5.20%, 4/1/06 (3) 3,625 3,634
6.25%, 4/1/02 (3) 2,500 2,709
San Francisco Airport Comm.
6.00%, 5/1/10 (1) 2,000 2,079
6.00%, 5/1/11 (1) 2,100 2,178
6.00%, 5/1/20 (1) 6,500 6,601
6.20%, 5/1/06 (2) 5,000 5,313
6.20%, 5/1/08 (2) 1,000 1,053
San Francisco Bay Area Rapid Transit
6.75%, 7/1/10 (2) 6,370 7,214
6.75%, 7/1/11 (2) 7,455 8,398
San Francisco City & County
Airport Rev.
6.30%, 5/1/11 (2) 5,000 5,234
6.50%, 5/1/06 (1) 3,280 3,624
6.60%, 5/1/07 (1) 2,490 2,738
6.625%, 5/1/08 (1) 3,720 4,087
6.70%, 5/1/09 (1) 3,970 4,364
San Joaquin County Public Facility
Finance Corp. COP
5.00%, 11/15/09 (1) 1,000 939
5.00%, 11/15/10 (1) 1,110 1,028
San Jose Airport Rev.
5.75%, 3/1/16 (1) 11,350 11,349
San Jose Merged Area
Redevelopment Rev.
6.00%, 8/1/11 (1) 8,845 9,275
San Mateo County Finance Auth.
6.50%, 7/1/13 (1) 14,560 16,267
San Mateo Sewer
6.60%, 8/1/14 (1) 2,500 2,607
San Mateo Transportation
5.25%, 6/1/15 (1) 8,215 7,862
Santa Ana Community
Redevelopment Auth.
7.375%, 12/1/96 (3) (Prere.) 1,695 1,811
7.40%, 12/1/96 (3) (Prere.) 270 289
Santa Ana Finance Auth.
6.25%, 7/1/16 (1) 5,345 5,813
6.25%, 7/1/17 (1) 2,000 2,180
Santa Clara Redevelopment Agency
7.00%, 7/1/10 (2) 7,000 8,106
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
Santa Clara Valley Water
Dist. COP
6.00%, 2/1/24 (3) $ 20,000 $ 20,297
Santa Fe Springs
Redevelopment Agency
6.00%, 9/1/14 (1) 5,350 5,441
Santa Margarita/Dana
Point Improvement Dist.
5.75%, 8/1/20 (1) 28,500 28,347
Santa Rosa Waste Water Rev.
6.00%, 7/2/15 (2) 7,000 7,369
6.00%, 9/1/15 (3) 5,580 5,876
6.25%, 9/1/12 (3) 7,075 7,366
South Coast Air Quality
Management Dist. Rev.
5.50%, 8/1/14 (1) 8,000 7,860
6.00%, 8/1/11 (2) 3,200 3,373
South County Waste Water Auth.
5.50%, 8/1/22 (3) 8,625 8,364
South Orange County Public Finance Auth.
7.00%, 9/1/10 (1) 3,300 3,799
7.00%, 9/1/11 (1) 3,000 3,458
Southern California Public
Power Auth.
(Palo Verde)
6.60%, 7/1/08 (2) 4,280 4,445
7.00%, 7/1/07 (2) 1,600 1,722
7.00%, 7/1/10 (2) 2,500 2,687
(Transmission Proj.)
VRDO 3.25%, 6/7/95 (2) 13,800 13,800
Sweetwater Water Rev.
7.00%, 4/1/99 (2) (Prere.) 3,050 3,380
Three Valley Municipal
Water Dist. COP
5.25%, 11/1/10 (3) 4,220 4,058
7.30%, 11/1/96 (1) (Prere.) 3,200 3,437
Torrance COP
7.20%, 4/1/16 (2) 4,050 4,214
Tri City Hosp. Dist.
(Oceanside Hosp.)
7.00%, 2/1/12 (1) 5,950 6,281
Tulare County COP
5.80%, 11/15/04 (1) 1,000 1,060
5.875%, 11/15/05 (1) 1,000 1,063
Turlock Irrigation Dist. COP
6.75%, 1/1/12 (3) 2,075 2,141
6.75%, 1/1/13 (3) 3,085 3,232
Ukiah Electric Rev.
6.00%, 6/1/08 (1) 4,565 4,840
6.25%, 6/1/18 (1) 6,000 6,517
Univ. of California
Board of Regents
6.00%, 9/1/08 (1) 2,515 2,609
6.375%, 9/1/19 (1) 3,500 3,660
Walnut Public Finance Auth.
6.00%, 9/1/15 (1) 5,000 5,070
Walnut Valley Unified School Dist.
6.00%, 8/1/12 (2) 1,790 1,890
6.00%, 8/1/13 (2) 1,980 2,093
6.00%, 8/1/14 (2) 2,205 2,334
6.00%, 8/1/15 (2) 2,470 2,604
6.00%, 8/1/16 (2) 2,690 2,839
6.20%, 8/1/09 (2) 1,270 1,369
West Sacramento Financing Auth. Rev.
(Water System Improvement Project)
5.25%, 8/1/08 (3) 2,160 2,125
---------
GROUP TOTAL 794,975
---------
- ----------------------------------------------------------------------------------
PORTFOLIO INSURED (.1%)
Riverside Hosp. Dist.
(Kaiser Permanente Medical Center)
9.00%, 12/1/15 300 312
Sacramento Municipal Utility Dist.
8.00%, 11/15/10 205 206
---------
GROUP TOTAL 518
---------
- ----------------------------------------------------------------------------------
SECONDARY MARKET INSURED (5.2%)
California GO
6.25%, 9/1/12 (3) 9,000 9,703
California Housing Finance Agency
(Single Family Mortgage)
6.90%, 8/1/16 (6) 5,750 5,910
California Public Works Board
(Department of Corrections)
6.50%, 9/1/17 (2) 30,000 33,530
---------
GROUP TOTAL 49,143
---------
- ----------------------------------------------------------------------------------
NON-INSURED (9.1%)
California Educational Facilities
Auth. VRDO
(California Institute of Technology)
3.50%, 6/8/95 4,400 4,400
California Health Facilities
Auth. VRDO
(Adventist Health System West
and Sutter Health)
3.70%, 6/8/95 (LOC) 1,000 1,000
(Kaiser Permanente)
3.40%, 6/7/95 10,200 10,200
3.40%, 12/21/95 200 200
California State RAN
5.00%, 6/28/95 4,500 4,501
Irvine Ranch Water Dist. VRDO
4.25%, 6/2/95 (LOC) 800 800
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
Kern County VRDO
3.45%, 6/7/95 (LOC) $ 4,300 $ 4,300
Los Angeles Dept. of
Water & Power
6.50%, 4/1/10 3,950 4,341
Pasadena Electric Works Rev.
5.375%, 8/1/12 7,040 6,783
Riverside VRDO
3.60%, 6/6/95 (LOC) 1,200 1,200
Sacramento County VRDO
(Administration Center
& Courthouse)
3.65%, 6/8/95 (LOC) 900 900
Sacramento County TRAN
4.50%, 9/29/95 10,000 10,019
Santa Clara County Finance
Auth. Lease Rev.
VRDO 3.50%, 6/7/95 19,900 19,900
6.75%, 11/15/20 11,500 12,677
Santa Clara VRDO
(El Camino Hosp.-Valley Medical)
3.50%, 6/6/95 (LOC) 3,700 3,700
---------
GROUP TOTAL 84,921
---------
- ----------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $876,374) 929,557
- ----------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.7%)
- ----------------------------------------------------------------------------------
Other Assets--Note B 26,446
Liabilities (20,198)
---------
6,248
- ----------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------
Applicable to 84,577,253 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $935,805
- ----------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.06
==================================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 14.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
AT MAY 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $886,270 $10.48
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (1,080) (.01)
Unrealized Appreciation
of Investments--Note D 50,615 .59
- ----------------------------------------------------------------------------------
NET ASSETS $935,805 $11.06
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INSURED Amount Value
INTERMEDIATE-TERM PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (107.8%)
- ----------------------------------------------------------------------------------
ISSUER INSURED (98.9%)
Anaheim Electric System COP
6.80%, 10/1/98 (2) $ 1,000 $ 1,060
Anaheim Public Improvement Corp.
COP VRDO 3.50%, 6/7/95 (2) 2,000 2,000
California Health Facilities Auth.
(Catholic Health Care West)
VRDO 3.45%, 6/7/95 (1) 1,700 1,700
7.00%, 7/1/05 (2) 3,410 3,918
7.00%, 7/2/06 (2) 3,395 3,911
(Centinela Hosp.)
6.50%, 9/1/08 (1) 5,000 5,416
California GO
5.75%, 8/1/08 (3) 2,500 2,566
California Public Works Board
(Dept. of Corrections)
6.40%, 11/1/10 (1) 5,000 5,400
6.60%, 12/1/09 (2) 3,500 3,819
(Univ. of California Regents)
6.25%, 12/1/07 (2) 1,000 1,076
Central Coast Water Auth.
6.05%, 10/1/04 (2) 1,800 1,939
6.25%, 10/1/06 (2) 2,000 2,153
Chino Basin Finance Auth.
Municipal Water Dist.
6.50%, 8/1/10 (2) 3,095 3,410
City of Corona Redevelopment Project
7.50%, 9/1/04 (3) 970 1,144
7.50%, 9/1/05 (3) 1,040 1,231
Culver City Redevelopment
Finance Auth.
6.75%, 11/1/99 (2) (Prere.) 2,500 2,776
East Bay Municipal Utility Dist. Waste
Water Treatment System Rev.
6.375%, 6/1/12 (2) 2,000 2,094
Elsinore Valley Municipal Water Dist.
6.00%, 7/1/07 (3) 1,650 1,755
LaQuinta Redevelopment Agency
8.00%, 9/1/03 (1) 1,325 1,596
Long Beach Financing Auth.
5.85%, 11/1/05 (2) 3,630 3,836
Los Angeles City Waste Water
6.50%, 6/1/07 (1) 1,695 1,854
8.70%, 11/1/02 (3) 2,535 3,135
Los Angeles County Metropolitan
Transportation Auth. VRDO
3.30%, 6/7/95 (3) 3,600 3,600
MSR Public Power Agency Rev.
(San Juan Project)
5.85%, 7/1/06 (2) 1,500 1,577
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
Oakland Redevelopment Agency
(Central Dist. Project)
6.00%, 2/1/06 (2) $ 5,125 $ 5,479
Orange County Sanitation Dist.
VRDO 4.50%, 6/2/95 (2) 1,600 1,600
COP 6.00%, 8/1/01 (3) (Prere.) 1,500 1,638
COP 6.40%, 8/1/07 (3) 1,415 1,502
Orange County
Transportation Auth.
9.50%, 2/15/03 (3) 2,015 2,580
Rancho Water Dist. COP
6.25%, 8/1/12 (3) 1,950 2,023
6.50%, 11/1/95 (3)* 1,700 1,710
6.50%, 11/1/96 (3)* 1,105 1,134
6.50%, 11/1/01 (3)* 1,590 1,730
7.125%, 11/1/95 (2) (Prere.) 200 207
Redding Electric System Rev. COP
7.125%, 7/1/97 (1) (Prere.) 1,000 1,075
Sacramento Municipal Utility Dist.
6.25%, 8/15/07 (1) 8,000 8,502
6.25%, 8/15/10 (1) 1,280 1,378
Sacramento Redevelopment Agency
(Merged Downtown Project)
6.50%, 11/1/13 (1) 2,000 2,120
6.75%, 11/1/05 (1) 1,000 1,102
San Diego County Regional
Transportation Comm.
VRDO 3.50%, 6/7/95 (3) 430 430
VRDO 4.25%, 6/7/95 (3) 1,900 1,900
5.00%, 4/1/98 (3) 2,500 2,542
6.25%, 4/1/02 (3) 2,500 2,709
San Francisco Airport Comm. Rev.
6.20%, 5/1/07 (2) 1,615 1,714
6.50%, 5/1/13 (2) 2,160 2,306
San Francisco City and County
Airport Rev.
6.40%, 5/1/05 (1) 2,800 3,072
6.60%, 5/1/07 (1) 1,000 1,100
San Joaquin County COP
(Human Services Project)
6.70%, 5/15/99 (6) (Prere.) 5,300 5,828
San Jose Merged Area
Redevelopment Project
6.00%, 8/1/08 (1) 1,000 1,061
7.50%, 8/1/96 (1) (Prere.) 1,000 1,059
San Jose Santa Clara Clean
Water Finance Auth.
7.00%, 10/1/04 (1) 5,615 6,004
7.25%, 10/1/02 (1) 1,500 1,612
South Orange County Public
Finance Auth.
6.25%, 8/15/99 (3) 2,000 2,122
7.00%, 9/1/05 (1) 3,440 3,912
7.00%, 9/1/07 (1) 1,000 1,154
9.50%, 8/15/04 (1) 4,395 5,771
Southern California Public
Power Auth. (Palo Verde)
7.00%, 7/1/07 (2) 1,300 1,399
(Transportation Project)
VRDO 3.25%, 6/7/95 (2) 4,400 4,400
Southern California Rapid
Transit Dist.
6.00%, 9/1/08 (2) 2,650 2,747
Sweetwater Water Rev.
7.00%, 4/1/10 (2) 1,950 2,112
Three Valley Municipal Water Dist.
COP 7.30%, 11/1/96 (1) (Prere.) 1,000 1,074
Tri-City Hosp. Dist.
(Oceanside Care)
7.00%, 2/1/05 (1) 915 966
Tulare County COP
5.70%, 11/15/03 (1) 1,000 1,056
Univ. of California
Board of Regents
10.00%, 9/1/02 (1) 2,950 3,858
12.00%, 9/1/03 (2) 2,000 2,938
Univ. of California Rev.
(Multi Purpose Project)
10.00%, 9/1/02 (2) 1,000 1,308
10.00%, 9/1/03 (2) 2,000 2,671
Visalia Waste Water System Rev.
6.00%, 12/1/07 (1) 1,000 1,068
West Basin Water Dist.
6.80%, 8/1/00 (2) (Prere.) 2,000 2,242
---------
GROUP TOTAL 168,881
---------
- ----------------------------------------------------------------------------------
NON-INSURED (8.9%)
California Health Facilities Auth. VRDO
(Adventist Health System West
and Sutter Health)
3.70%, 6/8/95 (LOC) 300 300
(Kaiser Permanente Medical Center)
3.40%, 6/7/95 900 900
California PCR Finance Auth. VRDO
(Southern California Edison Co.)
4.70%, 6/2/95 1,900 1,900
Irvine City Assessment Dist. VRDO
4.25%, 6/2/95 (LOC) 595 595
Irvine Ranch Water Dist. VRDO
4.25%, 6/2/95 (LOC) 800 800
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
Kern County Public Facilities Project
VRDO 3.45%, 6/7/95 (LOC) $ 1,150 $ 1,150
Metropolitan Water Dist. of
Southern California
8.00%, 7/1/08 2,000 2,500
Orange County Dist. VRDO
(Irvine Coast Assessment)
4.50%, 6/2/95 (LOC) 181 181
Orange County Sanitation Dist.
VRDO 4.50%, 6/2/95 (LOC) 1,870 1,870
Riverside County Public Facilities
Project VRDO
3.60%, 6/6/95 (LOC) 500 500
Santa Clara County Finance Auth.
Rev. VRDO
3.50%, 6/7/95 1,100 1,100
Santa Clara VRDO
(El Camino Hosp.
Dist.-Valley Medical)
3.50%, 6/6/95 (LOC) 3,400 3,400
----------
GROUP TOTAL 15,196
----------
- ----------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $178,899) 184,077
- ----------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-7.8%)
- ----------------------------------------------------------------------------------
Other Assets--Note B 2,839
Accounts Payable for Securities Purchased (15,457)
Other Liabilities (663)
----------
(13,281)
- ----------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------
Applicable to 16,653,040 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $170,796
- ----------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.26
==================================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 14.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
AT MAY 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $166,191 $9.98
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (287) (.02)
Unrealized Appreciation
of Investments--Note D 4,892 .30
- ----------------------------------------------------------------------------------
NET ASSETS $170,796 $10.26
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (98.5%)
- ----------------------------------------------------------------------------------
Anaheim Public Improvement
Corp. COP VRDO
3.50%, 6/7/95 (2) (LOC) $ 24,600 $ 24,600
California Dept. Water Resource
CP 4.10%, 7/18/95 6,000 6,000
(Central Valley Project)
VRDO 3.50%-3.85%, 6/7/95 (LOC) 27,700 27,700
California Education Facilities
Auth. Rev. VRDO
(California Institute of Technology)
3.50%, 6/8/95 5,600 5,600
California Health Facilities
Finance Auth. VRDO
(St. Francis Medical Center)
4.10%, 6/1/95 (1) 49,800 49,800
(Adventist Health System West
& Sutter Health)
3.70%-3.80%, 6/8/95 (LOC) 27,300 27,300
(Catholic Health Care West)
3.45%, 6/7/95 (1) 37,000 37,000
(Kaiser Permanente)
3.40%, 6/7/95 23,700 23,700
(Pooled Program)
3.55%, 6/7/95 (LOC) 6,500 6,500
California PCR Finance Auth.
(Pacific Gas & Electric)
CP 3.90%-4.20%,
6/20/95-9/11/95 (LOC) 105,530 105,530
(Southern California Edison)
VRDO 4.70%, 6/2/95 500 500
California State GO
5.00%, 8/1/95 (2) 10,000 10,013
California State RAN
5.00%, 6/28/95 77,500 77,529
Contra Costa Transportation
Auth. Sales Tax Rev. VRDO
3.60%, 6/7/95 (3) 9,900 9,900
East Bay Municipal Utility Dist. CP
4.05%-4.15%, 6/8/95-9/11/95 16,650 16,650
Foothill/Eastern Transport
Correction Agency VRDO
3.90%, 6/8/95 (LOC) 5,000 5,000
Irvine Assessment Dist.
(Irvine County)
4.35%, 6/9/95 (LOC) 39,754 39,754
Irvine Ranch Water Dist. VRDO
4.25%, 6/2/95 (LOC) 20,700 20,700
Kern County Public Facilities Proj.
VRDO 3.45%, 6/7/95 (LOC) 30,250 30,250
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------------
<S> <C> <C>
Los Angeles County
Metropolitan Transit Auth.
VRDO 3.30%, 6/7/95 (3) $ 5,000 $ 5,000
CP 4.00%-4.05%,
6/20/95-8/21/95 (LOC) 60,500 60,500
Los Angeles County TRAN
4.50%, 6/30/95 47,090 47,108
Los Angeles County Unified
School Dist. TRAN
4.50%, 7/10/95 23,000 23,022
Los Angeles Dept. of Water
& Power CP
4.00%, 6/14/95 6,250 6,250
Millbrae Elementary School
Dist. TRAN
4.50%, 7/10/95 1,900 1,901
MSR Public Power Agency
(San Juan Project)
9.25%, 7/1/95 (Prere.) 7,660 7,844
City of Oakland Health
Facilities VRDO
(Children's Hosp.)
3.40%, 6/7/95 (LOC) 10,915 10,915
Orange County VRDO
(Irvine Coast Assessment)
4.50%, 6/2/95 (LOC) 19,336 19,336
Orange County Sanitation
Dist. VRDO
4.50%, 6/2/95 (2) 1,200 1,200
4.50%, 6/2/95 (3) 27,900 27,900
4.50%, 6/2/95 (LOC) 35,650 35,650
Orange County Water Dist. VRDO
4.25%, 6/2/95 (LOC) 26,300 26,300
Paramount Unified School
Dist. TRAN
4.25%, 6/30/95 (LOC) 11,600 11,606
Riverside County Public
Facilities Project VRDO
3.60%, 6/6/95 (LOC) 49,900 49,900
Riverside County TRAN
4.25%, 6/30/95 29,000 29,007
Sacramento County VRDO
(Administration Center
& Courthouse)
3.65%, 6/8/95 (LOC) 27,550 27,550
Sacramento County
Municipal Utility
Dist. TOB VRDO
4.056%, 6/7/95 (1) 12,185 12,185
San Bernadino Transportation
Auth. VRDO
3.70%, 6/8/95 (LOC) 24,500 24,500
San Diego County Regional
Transportation Comm. VRDO
3.50%, 6/7/95 (3) 39,970 39,970
San Francisco Unified School
Dist. TRAN
4.75%, 8/24/95 5,000 5,006
San Joaquin County TRAN
4.75%, 10/18/95 10,000 10,022
San Mateo County COP VRDO
3.35%, 6/6/95 (LOC) 1,275 1,275
San Mateo Union High School
Dist. TRAN
4.50%, 7/10/95 2,750 2,752
Santa Clara (El Camino
Hosp.-Valley Medical) VRDO
3.50%, 6/6/95 (LOC) 29,600 29,600
Sonoma County TRAN
4.75%, 10/10/95 10,000 10,021
Southern California Metropolitan
Water Dist.
CP 4.05%-4.20%,
6/8/95-7/7/95 11,750 11,750
TOB VRDO 4.00%, 6/1/95 5,630 5,630
Southern California Public
Power Auth.
(Palo Verde Project)
9.25%, 7/1/95 (2) (Prere.) 9,405 9,678
(Transmission Project)
VRDO 3.25%, 6/7/95 (2) 15,900 15,900
Torrance Hosp. Rev. VRDO
(Little Co. of Mary Hosp.-
Torrance Memorial Medical Center)
4.10%, 6/8/95 (LOC) 4,000 4,000
- ----------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $1,097,304) 1,097,304
- ----------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.5%)
- ----------------------------------------------------------------------------------
Other Assets--Note B 22,039
Liabilities (5,186)
---------
16,853
- ----------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------
Applicable to 1,114,135,454 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $1,114,157
- ----------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
==================================================================================
</TABLE>
+See Note A to Financial Statements.
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
AT MAY 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ---------
<S> <C> <C>
Paid in Capital $1,114,285 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (128) --
Unrealized Appreciation
of Investments -- --
- ----------------------------------------------------------------------------------
NET ASSETS $1,114,157 $1.00
- ----------------------------------------------------------------------------------
</TABLE>
COP=Certificate of Participation
CP=Commercial Paper
GO=General Obligation
PCR=Pollution Control Revenue
RAN=Revenue Anticipation Note
RAW=Revenue Anticipation Warrant
TAN=Tax Anticipation Note
TOB=Tender Option Bond
TRAN=Tax Revenue Anticipation Note
VRDO=Variable Rate Demand Obligation
(Prere.)=Prerefunded
*Security purchased on a when-issued or delayed delivery basis for
which the Fund has not taken delivery as of May 31, 1995.
Scheduled principal and interest payments are guaranteed by:
(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)
The insurance does not guarantee the market value of the
municipal bonds.
(LOC)=Scheduled principal and interest payments are guaranteed by
bank letter of credit.
14
<PAGE> 15
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED
INTERMEDIATE-
INSURED LONG-TERM TERM MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
May 31, 1995 May 31, 1995 May 31, 1995
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . $ 26,206 $ 3,634 $21,530
- ---------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . 26,206 3,634 21,530
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . $ 56 $ 7 $ 71
Management and Administrative . . . . . 772 124 903
Marketing and Distribution . . . . . . 94 922 12 143 156 1,130
----- ----- -----
Insurance Expense . . . . . . . . . . . . 1 -- --
Auditing Fees . . . . . . . . . . . . . . 4 3 4
Shareholders' Reports . . . . . . . . . . 18 2 18
Annual Meeting and Proxy Costs . . . . . . 3 -- 3
Trustees' Fees and Expenses . . . . . . . 1 -- 2
- ---------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . 949 148 1,157
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 25,257 3,486 20,373
- ---------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . 236 (145) 41
Futures Contracts . . . . . . . . . . . . (1,360) 53 --
- ---------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . (1,124) (92) 41
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . 98,452 8,700 --
Futures Contracts . . . . . . . . . . . . (1,765) (286) --
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . 96,687 8,414 --
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . $120,820 $11,808 $20,414
===============================================================================================================
</TABLE>
15
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED INSURED
LONG-TERM PORTFOLIO INTERMEDIATE-TERM PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED March 4 to
MAY 31, November 30, MAY 31, November 30,
1995 1994 1995 1994
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 25,257 $ 53,859 $ 3,486 $ 2,450
Realized Net Gain (Loss) . . . . . . . . . . (1,124) 11,083 (92) (195)
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . 96,687 (122,206) 8,414 (3,522)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . 120,820 (57,264) 11,808 (1,267)
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (25,257) (53,859) (3,486) (2,450)
Realized Net Gain . . . . . . . . . . . . . . -- (14,386) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . (25,257) (68,245) (3,486) (2,450)
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . 59,341 130,423 36,458 39,289
-- In Lieu of Cash Distributions 16,937 48,886 2,555 1,878
-- Exchange . . . . . . . . . . . 61,172 92,591 50,899 96,497
Redeemed -- Regular . . . . . . . . . . . (55,498) (153,499) (6,912) (11,946)
-- Exchange . . . . . . . . . . . (75,800) (233,230) (20,800) (21,727)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . 6,152 (114,829) 62,200 103,991
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . 101,715 (240,338) 70,522 100,274
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 834,090 1,074,428 100,274 --
- -------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . $935,805 $ 834,090 $170,796 $100,274
=========================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.301 $.604 $.253 $.346
Realized Net Gain . . . . . . . . . . . -- $.152 -- --
- -------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . 11,416 20,735 8,780 13,645
Issued in Lieu of Cash Distributions . 1,592 4,508 255 189
Redeemed . . . . . . . . . . . . . . . (12,530) (36,222) (2,784) (3,432)
- -------------------------------------------------------------------------------------------------------------------------
478 (10,979) 6,251 10,402
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
MAY 31, November 30,
1995 1994
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,373 $ 27,867
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . 41 20
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . . . . . . 20,414 27,887
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,373) (27,867)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (20,373) (27,867)
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . 463,432 868,227
-- In Lieu of Cash Distributions . . . . . . . . . . . . . . . 19,030 26,198
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . 113,001 333,192
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . (468,546) (833,429)
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . (171,619) (241,116)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . . . . . . . . . . . . . . . (44,702) 153,072
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . . . . . . (44,661) 153,092
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158,818 1,005,726
- -------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,114,157 $1,158,818
=========================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . $.019 $.026
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576,433 1,201,419
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . 19,030 26,198
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (640,165) (1,074,545)
- -------------------------------------------------------------------------------------------------------------------------
(44,702) 153,072
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED --------------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . $9.92 $11.30 $10.89 $10.43 $10.22 $10.19
----- ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . .301 .604 .604 .633 .644 .660
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . 1.140 (1.228) .609 .464 .210 .030
----- ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . 1.441 (.624) 1.213 1.097 .854 .690
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.301) (.604) (.604) (.633) (.644) (.660)
Distributions from Realized Capital Gains . . -- (.152) (.199) (.004) -- --
----- ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . (.301) (.756) (.803) (.637) (.644) (.660)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $11.06 $9.92 $11.30 $10.89 $10.43 $10.22
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +14.68% -5.88% +11.53% +10.81% +8.61% +7.06%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $936 $834 $1,074 $828 $629 $385
Ratio of Expenses to Average Net Assets . . . . . .21%* .19% .19% .24% .25% .26%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 5.72%* 5.60% 5.38% 5.92% 6.24% 6.57%
Portfolio Turnover Rate . . . . . . . . . . . . . 14%* 28% 27% 54% 19% 6%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+Insurance expense represents .01% and .01%.
*Annualized.
18
<PAGE> 19
<TABLE>
<CAPTION>
INSURED INTERMEDIATE-TERM PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED March 4 to
For a Share Outstanding Throughout Each Period MAY 31, 1995 November 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $9.64 $10.00
----- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .253 .346
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . . . . .620 (.360)
----- ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . .873 (.014)
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . . . (.253) (.346)
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . . . . -- --
----- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . (.253) (.346)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . $10.26 $9.64
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +9.16% -0.19%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . . . $171 $100
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . .21%* .19%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . . . . 5.10%* 4.97%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9%* 6%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
19
<PAGE> 20
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED --------------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<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 . . . . . . . . . . . .019 .026 .024 .029 .043 .054
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . .019 .026 .024 .029 .043 .054
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.019) (.026) (.024) (.029) (.043) (.054)
Distributions from Realized Capital Gains . . -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . (.019) (.026) (.024) (.029) (.043) (.054)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +1.89% +2.59% +2.40% +2.97% +4.44% +5.59%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,114 $1,159 $1,006 $794 $759 $723
Ratio of Expenses to Average Net Assets . . . . . .21%* .19% .19% .24% .24% .25%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 3.76%* 2.57% 2.37% 2.92% 4.32% 5.43%
Portfolio Turnover Rate . . . . . . . . . . . . . N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
20
<PAGE> 21
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 Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note
futures contracts to a limited extent, with the objectives of enhancing
returns, managing interest rate risk, maintaining liquidity, diversifying
credit risk and minimizing transaction costs. The Portfolios may purchase
futures contracts instead of municipal bonds when futures contracts are
believed to be priced more attractively than municipal bonds. The
Portfolios may also seek to take advantage of price differences among bond
market sectors by simultaneously buying futures (or bonds) of one market
sector and selling futures (or bonds) of another sector. Futures contracts
may also be used to simulate a fully invested position in the underlying
bonds while maintaining a cash balance for liquidity.
The primary risks associated with the use of futures contracts are imperfect
correlation between changes in market values of 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 values 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.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (continued)
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. At May 31, 1995, the Fund had contributed capital aggregating
$300,000 to Vanguard (included in Other Assets), representing 1.5% of
Vanguard's capitalization. The Fund's officers and trustees are also officers
and directors of Vanguard.
C. During the six months ended May 31, 1995, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(000)
-----------------------
Portfolio Purchases Sales
- --------------------------------------------------------------
<S> <C> <C>
INSURED LONG-TERM $58,126 $86,797
INSURED INTERMEDIATE-TERM 64,708 4,905
- --------------------------------------------------------------
</TABLE>
At November 30, 1994, the Insured Long-Term and Insured Intermediate-Term
Portfolios had available capital loss carryforwards of $552,000 and $195,000,
respectively, to offset future net capital gains through November 30, 2002.
D. At May 31, 1995, 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 $54,032 $(849) $53,183
INSURED
INTERMEDIATE-TERM 5,178 -- 5,178
- ----------------------------------------------------------------------------------
</TABLE>
At May 31, 1995, the aggregate settlement value of the Insured Long-Term
Portfolio's short positions in Municipal Bond Index and U.S. Treasury Bond
futures contracts and the Insured Intermediate-Term Portfolio's short positions
in the U.S. Treasury Bond futures contracts expiring through September 1995,
the related unrealized depreciation, and the market value of securities
deposited as initial margin for those contracts were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(000)
-----------------------------------------------------
Market Value
Aggregate of Securities
Settlement Unrealized Deposited as
Portfolio Value Depreciation Initial Margin
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURED LONG-TERM $52,768 $(2,568) $3,161
INSURED
INTERMEDIATE-TERM 5,633 (286) 213
- ----------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
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 of Rhone-Poulenc
Rorer, Inc.; Director of Sun Company, Inc.
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., The Jeffrey Co.,
and Southern New England Communications Company.
ALFRED M. RANKIN, JR., Chairman, President, and
Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich
Company, Reliance Electric 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 Chief Executive
Officer 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
ROBERT A. DISTEFANO IAN A. MACKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
23
<PAGE> 24
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
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 Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
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
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739
</TABLE>
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.
Q752-5/95
VANGUARD
CALIFORNIA
TAX-FREE FUND
SEMI-ANNUAL REPORT
MAY 31, 1995
