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[PHOTO]
VANGUARD
CALIFORNIA
TAX-FREE FUND
ANNUAL REPORT
NOVEMBER 30, 1996
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our
course toward the twenty-first century. Our Report cover reflects that blending
of tradition and innovation, of past, present, and future. The montage
includes a bronze medallion with a likeness of our namesake, HMS Vanguard (Lord
Nelson's flagship at The Battle of the Nile); a clock built circa 1816 in
Scotland, featuring a portrait of Nelson (who is also shown, accepting a
surrender, in a detail from a nineteenth-century engraving); and several views
of our recently completed campus, which is steeped in nautical imagery--from
our buildings named after Nelson's warships (Victory, Majestic, and Goliath are
three shown), to our artwork and ornamental compass rose.
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[PHOTO]
VANGUARD HAS ALWAYS STRIVED TO BE THE STANDARD-BEARER for mutual fund
disclosure, going well beyond the "letter of the law" in our shareholder
communications. During the past year, we raised the standard once again by
rewriting and reformatting our Fund prospectuses. They are designed to ensure
that prospective investors fully understand, before they make an investment,
each Fund's investment strategies, risks, and costs. In that spirit, we have
redesigned our Annual Reports to shareholders, which provide a comprehensive
discussion and analysis of the year's results in the context of each Fund's
investment objectives and policies. Since Vanguard has long been recognized for
the quality and content of these Fund Reports, our overriding objective was to
maintain the character of the previous Reports, while adding information to
assist shareholders in understanding the investment characteristics of their
Fund.
THE NEW FUND REPORTS INCLUDE A MESSAGE TO SHAREHOLDERS from Chairman John
C. Bogle and President John J. Brennan. This Message continues to provide a
candid assessment of the Fund's performance relative to an appropriate
unmanaged market benchmark and a peer group of mutual funds with similar
investment policies. It also reviews the principal factors contributing to--and
detracting from--the returns earned by the Fund. To help you evaluate your
Fund's current-year performance, the Message includes a discussion of the
Fund's long-term investment results, as well as a look ahead to the prospects
for the coming year. A recap of the financial markets, which had been included
as part of the Chairman's letter, now appears in The Markets In Perspective.
This overview covers the world's financial markets, putting the results of the
Fund's strategy in a global perspective.
THE PORTFOLIO PROFILE REPRESENTS AN ADDITION TO OUR FUND REPORTS.
In this day and age, many investors use detailed statistical information to
evaluate their mutual fund holdings, and our new Portfolio Profile furnishes
shareholders with comprehensive data on key characteristics--sector
diversification, volatility, top-ten holdings, among others--that ultimately
define how a Fund is likely to perform in various market environments. For this
information to be used effectively, we include a brief description of the
profiled characteristics. The Report From The Adviser (for our traditionally
managed Funds) now covers specific topics that we have defined as being the
important ones for the adviser to address--and we do our best to ensure that
this Report is written in the same simple and candid manner that characterizes
all Vanguard communications. Finally, each Adviser's Report will include an
inset reminder of the adviser's basic investment philosophy.
WE TRUST THAT THIS REDESIGNED FUND REPORT will continue to meet your need
for a fair, candid, and clear presentation of your Fund's investment results
and a thorough portfolio review. We welcome any comments that you might have
at any time regarding these Reports.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Report From
The Adviser
6
Portfolio
Profiles
8
Performance
Summaries
12
Financial
Statements
15
Report Of
Independent
Accountants
34
Trustees And
Officers
INSIDE BACK COVER
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[PHOTO]
John C. Bogle
[PHOTO]
John J. Brennan
DEAR SHAREHOLDER,
The 1996 fiscal year for Vanguard California Tax-Free Fund, which
ended on November 30, proved notable for one important reason: Relative
stability returned to the municipal bond market for the first time in the past
four years.
Interest rates fluctuated in a fairly narrow range during the
year--responding to marked shifts in investor sentiment about the strength of
the U.S. economy and the specter of inflation--but on balance the yield on
long-term U.S. Treasury bonds increased only slightly and the yield available
on long-term tax-exempt bonds was essentially unchanged. In this calmer
environment, the returns of our Money Market, Insured Intermediate-Term, and
Insured Long-Term Portfolios exceeded the results of their competitive fund
groups. The table at right presents each Portfolio's twelve-month return as
well as its income and capital components.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
INVESTMENT RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1996
-----------------------------------
PORTFOLIO INCOME CAPITAL TOTAL
- -----------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term +5.6% +1.3% +6.9%
Insured Intermediate-Term +5.1 +1.3 +6.4
Money Market +3.3 0.0 +3.3
- -----------------------------------------------------------------
</TABLE>
The total return (capital change plus reinvested dividends) of the Insured
Long-Term Portfolio is based on a change in net asset value from $11.27 per
share on November 30, 1995, to $11.42 per share on November 30, 1996, adjusted
for dividends totaling $0.598 per share from net investment income. The Insured
Intermediate-Term Portfolio's return is based on a change in net asset value
from $10.44 per share on November 30, 1995, to $10.58 per share on November 30,
1996, adjusted for dividends totaling $0.508 per share from net investment
income. As expected--but is by no means guaranteed--the Money Market
Portfolio's net asset value remained at $1.00 per share. The Portfolio's yield
at the end of the fiscal year stood at 3.4%, down from 3.6% a year earlier.
FISCAL 1996 PERFORMANCE OVERVIEW
In the taxable bond market, yields experienced some interim variability, but
ended the period just a bit higher than their beginning levels. Yields on
municipal bonds remained unchanged on balance at 5.7%, as investor concerns
about the prospect of a "flat tax" all but disappeared.
This environment of relative stability contrasted starkly with the three
previous years. During 1993, interest rates tumbled and bond prices surged,
only to reverse themselves in the rapidly rising interest-rate environment of
1994. But in 1995, a remarkable about-face in the course of interest rates sent
bond prices soaring once again. The lesson is clear: While bond (and bond fund)
prices can fluctuate sharply over short periods, these price swings tend to be
offsetting over longer periods.
During fiscal 1996, when most municipal bond funds essentially earned
their coupons, the +6.9% annual total return for the California Insured
Long-Term Portfolio was nicely ahead of the +5.3% annual return for the average
California insured municipal
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bond fund and the +5.9% return of the Lehman Municipal Bond Index. This
national Index is a tough standard for all state tax-free funds, existing, as
it does, only on paper, outside the "real world" in which operating expenses
and transaction costs are very much in evidence. The +6.4% return for the
California Insured Intermediate-Term Portfolio easily bested both the +5.0%
return for the average California intermediate-term municipal bond fund and the
+5.2% return of the Lehman 7-Year Municipal Bond Index. Our Money Market
Portfolio returned +3.3%, compared with the +2.9% return for the average
California tax-exempt money market fund.
The table below presents a general comparison of the annual income earned
on tax-exempt and taxable securities as of November 30, 1996, assuming a
$100,000 investment. For California residents, the income earned by our
Portfolios is exempt from state, local, and federal income taxes. Given these
tax advantages, investors in the California Insured Long-Term Portfolio who are
taxed at the highest federal and state marginal tax rates can earn 78% more
after-tax income than they could in a comparable long-term taxable bond fund,
while investors in our Insured Intermediate-Term Portfolio could earn 57% more
after-tax income. For similarly situated investors in our Money Market
Portfolio, the after-tax yield premium of MIG-1 notes over U.S. Treasury bills
was 44% at the end of the twelve-month period. (Put another way, for a
California investor, a yield of 5.7% on a tax-exempt long-term portfolio would
be the equivalent of an 11.5% taxable yield; for a tax-exempt short-term yield
of 3.6%, the taxable equivalent would be 7.3%.) Our illustration assumes
current yields (as of November 30, 1996) of 6.4% for long-term U.S. Treasury
bonds, 6.0% for intermediate-term U.S. Treasury bonds, 5.1% for U.S. Treasury
bills, 5.7% for long-term municipals, 4.7% for intermediate-term municipals,
and 3.6% for short-term municipals.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
-----------------------------------------------
INTERMEDIATE-
LONG-TERM TERM SHORT-TERM
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable gross income $6,400 $6,000 $5,100
Less taxes (50.6%) (3,200) (3,000) (2,600)
Net after-tax income 3,200 3,000 2,500
- --------------------------------------------------------------------------
Tax-exempt income $5,700 $4,700 $3,600
- --------------------------------------------------------------------------
Tax-exempt income
advantage $2,500 $1,700 $1,100
- --------------------------------------------------------------------------
Percentage advantage 78% 57% 44%
- --------------------------------------------------------------------------
</TABLE>
Tax adjustment assumes federal tax rate of 39.6% and the top state tax rate of
11%; local taxes not considered. The illustration is not intended to represent
future results.
Please note that these examples ignore two important quality distinctions
between state-specific municipal bond funds and U.S. Treasury bond funds: (1)
U.S. Treasury bond funds hold solely Treasury securities, which are backed by
the full faith and credit of the U.S. government; and (2) state-specific
municipal bond funds incur a significant risk by concentrating assets in
securities from a particular economic region.
For our Insured Long-Term and Insured Intermediate-Term Portfolios, these
added risks are substantially mitigated by private insurance, which, in effect,
guarantees the full payment of annual income and the return of principal at
maturity for the municipal bonds we hold. Portfolio insurance is generally not
available for short-term securities; thus, the task of preserving principal in
our Money Market Portfolio falls to our investment adviser, Vanguard Fixed
Income Group. The Group carefully scrutinizes the credit quality of our
holdings and has earned our Portfolio Moody's Investor Service's highest
quality rating (or
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the equivalent) for shorter-term securities. That said, we emphasize that money
market fund investments are not guaranteed by the Federal Deposit Insurance
Corporation, which insures bank accounts and certificates of deposit.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
----------------------------------
AVERAGE
VANGUARD COMPETITIVE VANGUARD
PORTFOLIO (INCEPTION DATE) FUND FUND ADVANTAGE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term* (4/7/86) +7.6% +7.0% +0.6%
Insured Intermediate-Term**
(3/4/94) +7.2 +6.0 +1.2
Money Market** (6/1/87) +4.1 +3.7 +0.4
- -------------------------------------------------------------------------------------
</TABLE>
* Annualized ten-year return.
** Annualized returns since inception.
LONG-TERM PERFORMANCE OVERVIEW
The table at right compares the longer-term performance of each California
Portfolio with that of its mutual fund peer group. It also illustrates the
"Vanguard Advantage"--the performance edge our Portfolios provided over their
respective competitive standards.
Our expense ratio advantage over our typical competitor plays a key role
in our performance advantage. Our Portfolios maintain expense ratios (expenses
as a percentage of average net assets) of 0.19%, compared with the 1.01%
charged by the average long-term state tax-free fund and 0.59% for the average
money market state tax-free fund. This benefit over our competitors has been
available to our shareholders year after year with no sacrifice in credit
quality. Vanguard Fixed Income Group also plays a key role in our success,
managing the Portfolios ably and maintaining a level of investment quality that
is, in our judgment, second to none in the field.
IN SUMMARY
The past four years have illustrated the range of market environments that bond
fund investors may enjoy--or be forced to endure. Which of these environments
is normal for municipal bonds? The answer is probably: all of the above. In the
years ahead, there are sure to be more sharp rises in interest rates, more
sustained declines, and more years of relative tranquility. Indeed, this is
part and parcel of investing in bond funds. In the long run, however, the rate
of interest income--"the coupon"--will be the dominant source of our returns.
Whatever the year-to-year turbulence of the bond market, Vanguard
California Tax-Free Fund will do what it has always done: continue our focus on
providing returns that exceed those of competitive norms, even as we maintain
the highest standards of credit quality. As part of a long-term investment
program that includes stock funds, bond funds, and money market funds, the
California Tax-Free Portfolios should prove rewarding to investors.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
Chairman of the Board President
December 18, 1996
3
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The Markets In Perspective: Fiscal Year Ended November 30, 1996
U.S. EQUITY MARKETS
Few investors would have expected the stock market over the past 12 months to
come close to matching the 37.0% return of the prior 12. Yet when the past two
fiscal years are considered cumulatively, the Standard & Poor's 500 Composite
Stock Price Index has risen 75.1%. Not surprisingly, many of the factors that
drove the market higher in 1995 were also in place this year. Once again,
steady economic growth and low inflation were powerful motivators.
The equity markets were decidedly "un-equitable," however, when it came to
size and sectors. Companies with larger market values, such as those that
dominate the S&P 500 Index, prevailed. In fact, even within the Index, it was
the largest companies that turned in the best performance. The 50 biggest
companies in the S&P 500 Index (which account for roughly half its market
value) gained 31.8% in the fiscal year ended November 30, compared with an
increase of 27.9% for the entire Index. Looking at the S&P 500 Index's
performance by sector, financial stocks were strongest, closing the year with a
41.9% gain. Technology stocks were a close second, gaining 39.3%. Utilities,
plagued early in the year by higher interest rates and a rapidly changing
competitive landscape, eked out a 4.4% return, the lowest within the Index.
With the largest companies performing so well, it was difficult for
smaller issues to keep pace. This was evidenced in the considerable difference
between the 27.9% return of the S&P 500 Index and the 16.5% return of the
Russell 2000 Small Stock Index. Even for the smaller companies, there was a
significant range of performance among sectors. Energy stocks led the Russell
2000 Index with a 77.0% gain for the year. Here, rising prices, limited
exposure to the cyclical refining business, and a reduced number of competitors
created a favorable environment for the stocks. At the other end of the
spectrum were health-care stocks, which showed a loss of -0.4%.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1996
------------------------------------
1 YEAR 3 YEARS 5 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity
S&P 500 Index 27.9% 21.0% 18.2%
Russell 2000 Index 16.5 14.0 16.8
MSCI-EAFE Index 12.1 11.7 9.9
- ------------------------------------------------------------------------------
Fixed-Income
Lehman Aggregate Bond Index 6.1% 6.5% 7.9%
Lehman 10-Year Municipal
Bond Index 5.7 6.2 8.0
Salomon 90-Day U.S. Treasury Bills 5.3 5.0 4.4
- ------------------------------------------------------------------------------
Other
Consumer Price Index 3.2% 2.8% 2.9%
- ------------------------------------------------------------------------------
</TABLE>
U.S. FIXED-INCOME MARKETS
As the fiscal year ended, the 30-year U.S. Treasury yield of 6.4% was modestly
higher than its 6.1% level on November 30, 1995. The relatively small
difference in these figures belies the turmoil endured by the fixed-income
markets over the past 12 months.
When the fiscal year began, "Steady as she goes" was the common wisdom.
Modest economic growth and benign inflation were expected to continue, giving
the Federal Re-
4
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serve no reason to move interest rates higher. That complacency was shattered
by an exceptionally strong February jobs report, the first of what turned out
to be a succession of signs that in fact the economy was growing at a much
faster--and potentially inflation-inducing--pace. The bond market reacted
swiftly to compensate for the perceived risk: The 30-year Treasury yield jumped
from just below 6.0% in late December to 6.7% in late March. The next several
months saw a consistent pattern in which bond yields rose on the Friday of the
jobs-report release only to fall back by the middle of the month. In reality,
there was little bite to the bark. Inflation, as measured by the Consumer Price
Index, remained near an annualized rate of 3.2%. And, as the fiscal year
entered its final quarter, evidence once again pointed to more "acceptable"
levels of growth. That--plus the market's satisfaction with the national
election results and prospects for budget action--helped bonds finish the
fiscal year with a strong rally.
The rally enabled the longer-maturity sectors of the market to overcome
performance deficits and finish the year with positive returns. Although the
specter of the Federal Reserve Board loomed large during the year, in fact the
Board acted only twice, lowering the federal funds rate by a total of 0.5%.
Corporate bonds, mortgage-backed issues, and municipals were three
relatively bright spots over the past year. The strength in earnings that
benefited stock prices extended to the corporate bond sector as well. These
bonds, especially those of lower credit quality, performed well relative to
Treasuries as there appeared to be little risk of skipped interest payments or
bankruptcy against the good earnings backdrop. The stable-to-rising
interest-rate environment throughout most of the year benefited another large
segment of the bond market--mortgages--as the threat of refinancings receded.
Finally, municipal bonds outpaced their U.S. Treasury counterparts. The sector
was shielded to a certain extent from the inflation wars of the Treasury
market, and demand outstripped supply for much of the year.
INTERNATIONAL EQUITY MARKETS
Concern about U.S. Federal Reserve Board policy appeared to drive global
markets as much as it did those in the United States. In aggregate, the markets
rose 17.0%, as measured by the Morgan Stanley Capital International-Europe,
Australasia, Far East Index. A stronger dollar reduced this return to 12.1% for
U.S.-based investors.
Regionally, Europe's 22.9% return overshadowed the 1.4% generated by the
Pacific Basin. Europe's major markets continued to work toward the economic
targets that must be attained by 1999 under the Maastricht Treaty. This
ongoing, albeit bumpy, effort kept the continent's economic growth modest and
gave investors confidence. The Pacific region, of course, was dominated by the
influence of the Japanese market. Despite evidence of a strengthening economy
early in the year, Japan's market was shadowed by lingering problems in the
banking and real estate sectors and by tepid interest on the part of Japanese
investors. The dollar's appreciation against the yen had a significant impact
on returns, turning the year's 7.1% gain in yen into a -4.5% loss in dollars.
In contrast, the returns for a number of other countries in the region were
quite strong: for example, Hong Kong, 38.2%, and Malaysia, 31.8% (in U.S.
dollars).
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REPORT FROM THE ADVISER
[PHOTO]
Yields on tax-exempt securities decreased slightly while yields on
short-term securities ended virtually unchanged in the 12 months ended November
30, 1996, the fiscal year for Vanguard California Tax-Free Fund.
THE INSURED PORTFOLIOS
Over the 12 months, the yield on high-grade, long-term municipal bonds declined
by 8 basis points, or 0.08 percentage point, from 5.74% to 5.66%. By way of
comparison, the yield on the benchmark 30-year U.S. Treasury bond increased by
22 basis points, from 6.13% to 6.35%. However, these relatively small changes
obscure the volatility in both markets during the course of the year.
During the first half, reports of a solid increase in economic activity
and robust employment gains fanned fears of inflation. In reaction, by June
the fixed-income market had driven up the yields on the 30-year Treasury bond
and on long-term, high-grade municipal bonds to 7.19% and 6.22%, respectively.
But as the economy cooled from its earlier torrid pace, investors grew more
confident that the Federal Reserve Board would not have to tighten monetary
policy, and yields fell back nearly to their levels at the start of the year.
For municipal bonds, the issue of tax reform grew in importance in early
1996. Various flat-tax proposals either directly or indirectly threatened the
tax-exempt privilege of municipal securities. In its basic form, a flat tax
would reduce the current hierarchy of income-tax rates to only one lower level
for all earned income. Unearned income (interest, dividends, and capital gains)
would not be taxed at all. Since all interest would be exempt from federal
income tax, municipal bond interest payments would no longer offer a special
tax benefit. Early in the fiscal year, concern about such proposals caused the
prices of municipal bonds to fall relative to those of taxable bonds, enabling
municipal investors to purchase high-grade, tax-exempt bonds with attractive
yields--as high as 94% of comparable U.S. Treasury obligations.
However, as a campaign issue, the complete overhaul of the federal tax
system bombed by early summer. The flat tax suffered a peaceful demise upon the
nomination of Bob Dole and was effectively buried with the reelection of
President Clinton. By the end of the year, with the flat-tax trauma a thing of
the past, the ratio of tax-exempt yields to taxable yields fell to 89%. The
relative outperformance of municipals came despite an increase late in the year
in the supply of new tax-exempt bond issues, which raised the
tax-exempt/taxable yield ratio from a low of 84% in August.
For 1996, the Insured Long-Term and Insured Intermediate-Term Portfolios
provided positive rates of return, roughly commensurate with the dividends
derived from interest income on the Portfolios. Because market yields changed
only slightly over the year, income was the dominant component of total return.
In this environment, Vanguard's low expense ratio
INVESTMENT PHILOSOPHY
The Fund reflects a belief that it can achieve a high level of current income,
consistent with each Portfolio's stated maturity and stringent quality targets,
that is exempt from federal and California income taxes by investing in insured
and high-quality uninsured securities issued by state, county, and municipal
governments in California.
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provided a powerful advantage in maximizing the tax-exempt return to
shareholders. The lower expense ratio allows more investment income to flow
directly to shareholders, which translates into higher Portfolio returns. Over
time, this has the powerful and enduring effect of contributing to superior
performance.
Looking ahead, we believe that the tax-exempt investment arena will
continue to provide above-average value to shareholders who seek a high-quality
investment with durable and attractive after-tax returns. This is especially
true for our State Tax-Free Portfolios, which offer the extra benefit of income
that is exempt from state, as well as federal, taxes.
THE MONEY MARKET PORTFOLIO
Among money market segments, stable Federal Reserve policy during the second
half of the fiscal year allowed yields on U.S. Treasury bills and municipal
notes to move somewhat lower. The yields on one-year municipal notes declined
by 15 basis points during the second half, while yields on one-year U.S.
Treasury bills fell 35 basis points. Aside from the Fed's stable policy, two
issues had a significant impact on the short-term securities market.
The first was the onset of the traditional spring/summer municipal
borrowing season. This seasonal deluge of new short-term issues created a
temporary summertime overabundance of municipal notes and bonds in the market.
The excess supply caused a dramatic rise in yields during late July and August
(though in late September yields commenced a steady downward movement). We took
advantage of the opportunity to extend the average maturities of the Money
Market Portfolio, thereby locking in higher yields. Additionally, we further
diversified the Portfolio, thereby further spreading credit risk.
The second big influence on the market was the Securities and Exchange
Commission's decision to postpone the effective date for changes to its Rule
2a-7 under the Investment Company Act of 1940. This rule governs the credit and
maturity risk of money market funds. Under the proposed changes, regulations
would be tightened on tax-exempt money market funds so as to increase the
likelihood of their maintaining a stable net asset value. The changes were
expected to take effect on June 3, 1996, but the mutual fund industry made the
SEC aware of the need for numerous technical amendments, and the deadline was
therefore postponed. We anticipate that new regulations will be completed and
made mandatory by the second quarter of 1997. Competing funds that operate
under lower quality standards than Vanguard will need to alter their fund
management policies. Vanguard's tax-exempt money market Portfolios, however,
have always been managed in a conservative, quality-oriented manner, and we
anticipate minimal impact when the new regulations take effect.
In summary, the coming months will require vigilance. Market participants
will be required to adopt more stringent regulations at a time when tax-exempt
assets are growing and the supply of new issues is minimal. Vanguard's
conservative management style will give the Money Market Portfolio a strategic
advantage as stricter regulations dictate that competitors play catch-up in
terms of quality.
Ian A. MacKinnon, Senior Vice President
Pamela W. Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Vanguard Fixed Income Group December 16, 1996
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PORTFOLIO PROFILE: INSURED LONG-TERM PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to an unmanaged index. Key elements of this Profile are
defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------------
<S> <C>
Number of Issues 179
Yield 5.0%
Yield to Maturity* 5.0%
Average Coupon 5.7%
Average Maturity 13.2 years
Average Quality Aaa
Average Duration 8.7 years
Expense Ratio 0.19%
*After expenses.
VOLATILITY MEASURES
- -----------------------------------------
INSURED LONG-TERM LEHMAN
PORTFOLIO INDEX*
- -----------------------------------------
R-Squared 0.96 1.00
Beta 1.18 1.00
*Lehman Municipal Bond Index.
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -----------------------------------------
Under 1 Year 7.2%
1-5 Years 7.0
5-10 Years 24.5
10-20 Years 32.1
20-30 Years 24.2
Over 30 Years 5.0
- ----------------------------------------
Total 100.0%
INVESTMENT FOCUS
- ------------------------------------------------
AVERAGE MATURITY
[GRAPH]
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
Aaa 97.2%
Aa 2.8
A --
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
8
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[PHOTO]
AVERAGE COUPON. The average interest rate, expressed as a percentage of face
value, paid on the securities held by a portfolio. Average Duration. An
estimate of how much a portfolio's share price will fluctuate in response to a
change in interest rates. To estimate the price sensitivity of a portfolio,
multiply its duration by the change in rates. If interest rates rise by one
percentage point, the share price of a portfolio with an average duration of
five years would decline by about 5%. If rates decrease by a percentage point,
the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity and are repaid. In general, the longer the average maturity, the
more a portfolio's share price will fluctuate in response to changes in market
interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
credit ratings assigned to the portfolio's securities holdings by credit-rating
agencies. Agencies assign credit ratings after appraising an issuer's ability
to meet its debt obligations. Quality is graded on a scale, with Aaa indicating
the most creditworthy bond issuers and MIG-1 indicating the most creditworthy
issues of municipal money market securities. (Individual money market
securities with a rating of A, Aa, and Aaa all receive a MIG-1 designation.)
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the fluctuations in the overall market (or appropriate market
index). The market, or index, has a beta of 1.00, so a portfolio with a beta of
1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or other
credit problems on securities held by the portfolio.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's
share price will fluctuate in response to changes in interest rates. Callable
securities trading at a premium to par value are treated as coming due on their
earliest redemption date.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors. The average expense ratio in 1995 for state tax-free bond
funds was 1.01%; for state tax-free money market funds, the figure was 0.59%.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: average maturity (short, medium, or long) and average credit
quality (high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from
the problems of a particular issue.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of a portfolio's net asset value, is based on income earned by the
portfolio over the past 30 days (7 days for money market portfolios) and is
annualized, or projected forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
9
<PAGE> 12
PORTFOLIO PROFILE: INSURED INTERMEDIATE-TERM PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to an unmanaged index. Key elements of this Profile are
defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------------
<S> <C>
Number of Issues 121
Yield 4.6%
Yield to Maturity* 4.6%
Average Coupon 6.0%
Average Maturity 7.2 years
Average Quality Aaa
Average Duration 5.8 years
Expense Ratio 0.19%
* After expenses.
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -----------------------------------------
Under 1 Year 10.9%
1-5 Years 11.8
5-10 Years 46.6
10-20 Years 30.7
20-30 Years --
Over 30 Years --
- -----------------------------------------
Total 100.0%
INVESTMENT FOCUS
AVERAGE MATURITY
[GRAPH]
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
Aaa 99.2%
Aa 0.8
A --
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
PORTFOLIO PROFILE: MONEY MARKET PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics. Key
elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------------
<S> <C>
Yield 3.4%
Average Maturity 67 days
Average Quality MIG-1
Expense Ratio 0.19%
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
Aaa 24.7%
Aa 54.2
A 21.1
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
11
<PAGE> 14
PERFORMANCE SUMMARY: INSURED LONG-TERM PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note, too,
that both share price and return can fluctuate widely so that an investment in
the Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 4/7/86-11/30/96
- ---------------------------------------------------------
INSURED LONG-TERM PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1986 4.8% 4.6% 9.4% 9.4%
1987 -11.6 6.3 -5.3 -0.2
1988 4.9 7.3 12.2 10.6
1989 4.9 7.3 12.2 11.0
1990 0.3 6.8 7.1 7.7
1991 2.1 6.5 8.6 10.3
1992 4.4% 6.4% 10.8% 10.0%
1993 5.7 5.8 11.5 11.1
1994 -11.0 5.1 -5.9 -5.2
1995 13.6 6.5 20.1 18.9
1996 1.3 5.6 6.9 5.9
- ---------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 29 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: 11/30/86-11/30/96
Cumulative Performance 10 yr Graph - Portfolio/ Benchmark - Vanguard California
<TABLE>
<S> <C> <C> <C> <C>
1986 11 10000 10000 10000
1987 02 10352.05 10330.18 10332.31
1987 05 9271.917103 9459.89332554 9661.619468563
1987 08 9643.248111058 9766.696585874 10069.343299244
1987 11 9474.944501776 9578.199341767 9986.549922636
1988 02 10270.318717977 10281.660614223 10603.211795342
1988 05 9960.627527355 10086.987652154 10528.820283591
1988 08 10282.983316023 10345.254883999 10762.030379646
1988 11 10633.314274617 10662.212803135 11048.102208757
1989 02 10979.36485437 10920.238352971 11261.999684899
1989 05 11537.929061971 11387.537192571 11740.730942875
1989 08 11569.335304878 11520.771377725 11944.009395379
1989 11 11927.429371234 11806.486507892 12264.972302158
1990 02 11982.557949788 11898.577102654 12416.964371266
1990 05 12156.652534241 12063.967324381 12599.879970749
1990 08 12098.70177161 12096.540036156 12710.737909829
1990 11 12770.155522531 12600.965755664 13209.015172854
1991 02 12997.515371454 12863.065843382 13561.485072846
1991 05 13267.759711057 13167.92050387 13869.786836057
1991 08 13581.900457736 13473.41625956 14209.537246197
1991 11 13870.081221648 13783.30483353 14564.749421524
1992 02 14205.321084775 14090.672531317 14915.87735699
1992 05 14559.019374465 14437.303075588 15231.472405667
1992 08 15103.439344954 14987.364322768 15795.797661871
1992 11 15368.852084563 15176.205113235 16024.865171781
1993 02 16529.246523504 16296.209050591 16969.083081328
1993 05 16529.957281104 16341.838435933 17054.44369442
1993 08 17125.564701857 17047.805856365 17722.800374507
1993 11 17140.32693863 17025.643708752 17800.867702133
1994 02 17302.680115393 17103.961669812 18083.901498597
1994 05 16837.341836369 16406.120033684 17648.079472481
1994 08 17122.616919103 16663.696118213 17753.967949316
1994 11 16133.306358751 15607.217784318 16869.82034544
1995 02 17801.748369147 17155.453788522 18249.771649697
1995 05 18502.06914999 17903.431573702 19071.011373933
1995 08 18522.495434331 17853.301965296 19324.655825207
1995 11 19377.067806185 18776.317676901 20055.862152321
1996 02 19615.522002608 18960.325590135 20264.443118705
1996 05 19197.220995902 18467.357124792 19942.238473118
1996 08 19675.903701435 18886.566131524 20337.094794885
1996 11 20726 19739 21220
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996 FINAL VALUE OF A
------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LONG-TERM PORTFOLIO 6.91% 8.35% 7.56% $20,726
AVERAGE CALIFORNIA INSURED
MUNICIPAL FUND 5.31 7.45 7.04 19,739
LEHMAN MUNICIPAL BOND INDEX 5.88 7.84 7.81 21,220
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- -------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ----------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insured Long-Term Portfolio 4/7/86 7.47% 7.70% 1.20% 6.39% 7.59%
- -------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
12
<PAGE> 15
PERFORMANCE SUMMARY: INSURED INTERMEDIATE-TERM PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note, too,
that both share price and return can fluctuate widely so that an investment in
the Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 3/4/94-11/30/96
- ---------------------------------------------------------
INSURED INTERMEDIATE-TERM PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -3.6% 3.4% -0.2% -1.1%
1995 8.3 5.6 13.9 15.2
1996 1.3% 5.1% 6.4% 5.2%
- ---------------------------------------------------------
</TABLE>
*Lehman 7-Year Municipal Bond Index.
See Financial Highlights table on page 30 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: 3/4/94-11/30/96
- ----------------------------------------
<S> <C> <C> <C> <C>
1994 03 10000 10000 10000
1994 05 10142 10039 10059
1994 08 10313 10189 10236
1994 11 9981 9813 9889
1995 02 10538 10349 10458
1995 05 10895 10730 10876
1995 08 11044 10879 11134
1995 11 11367 11171 11397
1996 02 11539 11295 11531
1996 05 11436 11180 11379
1996 08 11668 11352 11568
1996 11 12095 11731 11994
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURED INTERMEDIATE-TERM PORTFOLIO 6.41% 7.18% $12,095
AVERAGE CALIFORNIA INTERMEDIATE
MUNICIPAL FUND 5.02 5.99 11,731
LEHMAN 7-YEAR MUNICIPAL BOND INDEX 5.24 6.86 11,994
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- -----------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION --------------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insured Intermediate-Term
Portfolio 3/4/94 5.74% 1.42% 5.08% 6.50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* SEC rules require that we provide this average annual total return
information through the latest calendar quarter as well as for the
Portfolio's fiscal year end.
13
<PAGE> 16
PERFORMANCE SUMMARY: MONEY MARKET PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note, too,
that returns can fluctuate widely. An investment in a money market 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.
TOTAL INVESTMENT RETURNS: 6/1/87-11/30/96
<TABLE>
<CAPTION>
- ----------------------------------------
MONEY MARKET PORTFOLIO
AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------
<S> <C> <C> <C> <C>
1987 0.0% 2.2% 2.2% 2.1%
1988 0.0 5.1 5.1 4.8
1989 0.0 6.2 6.2 5.8
1990 0.0 5.6 5.6 5.3
1991 0.0 4.4 4.4 4.2
1992 0.0% 3.0% 3.0% 2.7%
1993 0.0 2.4 2.4 2.0
1994 0.0 2.6 2.6 2.3
1995 0.0 3.7 3.7 3.3
1996 0.0 3.3 3.3 2.9
- ----------------------------------------
</TABLE>
*Average California Tax-Exempt Money Market Fund.
See Financial Highlights table on page 30 for dividend information for the past
five years.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO 3.32% 3.00% 4.05% $14,581
AVERAGE CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND 2.91 2.64 3.71 14,138
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
CUMULATIVE PERFORMANCE: 6/1/87-11/30/96
- -----------------------------------------
<S> <C> <C> <C>
1987 06 10000 10000
1987 08 10102 10097
1987 11 10224 10209.0767
1988 02 10348 10326.48108205
1988 05 10466 10436.974429628
1988 08 10596 10561.174425341
1988 11 10742 10696.357457985
1989 02 10898 10843.967190905
1989 05 11075 11014.217475802
1989 08 11243 11166.213676968
1989 11 11407 11316.957561607
1990 02 11566 11462.946314152
1990 05 11726 11615.40350013
1990 08 11885 11762.919124582
1990 11 12045 11914.660781289
1991 02 12191 12050.487914196
1991 05 12327 12173.402890921
1991 08 12452 12287.832878095
1991 11 12580 12408.253640301
1992 02 12690 12506.278844059
1992 05 12790 12595.073423852
1992 08 12871 12668.12484971
1992 11 12954 12741.599973838
1993 02 13033 12807.856293702
1993 05 13110 12873.1763608
1993 08 13188 12936.254924968
1993 11 13266 13002.229825086
1994 02 13338 13063.340305263
1994 05 13418 13131.269674851
1994 08 13505 13204.80478503
1994 11 13610 13294.597457568
1995 02 13734 13402.283696975
1995 05 13867 13520.223793508
1995 08 13987 13625.681539097
1995 11 14112 13733.324423256
1996 02 14232 13837.697688873
1996 05 14347 13937.329112233
1996 08 14462 14033.496683107
1996 11 14581 14138
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
CUMULATIVE PERFORMANCE: 6/1/87-11/30/96
- -----------------------------------------
<S> <C> <C> <C> <C>
1994 03 10000 10000 10000
1994 05 10142 10039 10059
1994 08 10313 10189 10236
1994 11 9981 9813 9889
1995 02 10538 10349 10458
1995 05 10895 10730 10876
1995 08 11044 10879 11134
1995 11 11367 11171 11397
1996 02 11539 11295 11531
1996 05 11436 11180 11379
1996 08 11668 11352 11568
1996 11 12095 11731 11994
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CUMULATIVE PERFORMANCE: 6/1/87-11/30/96
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
1986 11 10000 10000 10000
1987 02 10352.05 10330.18 10332.31
1987 05 9271.917103 9459.89332554 9661.619468563
1987 08 9643.248111058 9766.696585874 10069.343299244
1987 11 9474.944501776 9578.199341767 9986.549922636
1988 02 10270.318717977 10281.660614223 10603.211795342
1988 05 9960.627527355 10086.987652154 10528.820283591
1988 08 10282.983316023 10345.254883999 10762.030379646
1988 11 10633.314274617 10662.212803135 11048.102208757
1989 02 10979.36485437 10920.238352971 11261.999684899
1989 05 11537.929061971 11387.537192571 11740.730942875
1989 08 11569.335304878 11520.771377725 11944.009395379
1989 11 11927.429371234 11806.486507892 12264.972302158
1990 02 11982.557949788 11898.577102654 12416.964371266
1990 05 12156.652534241 12063.967324381 12599.879970749
1990 08 12098.70177161 12096.540036156 12710.737909829
1990 11 12770.155522531 12600.965755664 13209.015172854
1991 02 12997.515371454 12863.065843382 13561.485072846
1991 05 13267.759711057 13167.92050387 13869.786836057
1991 08 13581.900457736 13473.41625956 14209.537246197
1991 11 13870.081221648 13783.30483353 14564.749421524
1992 02 14205.321084775 14090.672531317 14915.87735699
1992 05 14559.019374465 14437.303075588 15231.472405667
1992 08 15103.439344954 14987.364322768 15795.797661871
1992 11 15368.852084563 15176.205113235 16024.865171781
1993 02 16529.246523504 16296.209050591 16969.083081328
1993 05 16529.957281104 16341.838435933 17054.44369442
1993 08 17125.564701857 17047.805856365 17722.800374507
1993 11 17140.32693863 17025.643708752 17800.867702133
1994 02 17302.680115393 17103.961669812 18083.901498597
1994 05 16837.341836369 16406.120033684 17648.079472481
1994 08 17122.616919103 16663.696118213 17753.967949316
1994 11 16133.306358751 15607.217784318 16869.82034544
1995 02 17801.748369147 17155.453788522 18249.771649697
1995 05 18502.06914999 17903.431573702 19071.011373933
1995 08 18522.495434331 17853.301965296 19324.655825207
1995 11 19377.067806185 18776.317676901 20055.862152321
1996 02 19615.522002608 18960.325590135 20264.443118705
1996 05 19197.220995902 18467.357124792 19942.238473118
1996 08 19675.903701435 18886.566131524 20337.094794885
1996 11 20726 19739 21220
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- ----------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO 6/1/87 3.37% 3.02% 0.00% 4.06% 4.06%
- ----------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
14
<PAGE> 17
[PHOTO]
FINANCIAL STATEMENTS
NOVEMBER 30, 1996
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's municipal bond
holdings, including each security's market value on the last day of the
reporting period and information on credit enhancements (insurance or letters
of credit). Securities are grouped and subtotaled according to their insured or
non-insured status. Other assets are added to, and liabilities are subtracted
from, the value of Total Municipal Bonds to calculate the Portfolio's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the
Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the Portfolio's net assets on both a dollar and per-share
basis. Undistributed Net Investment Income is usually zero because the
Portfolio distributes its net income to shareholders as a dividend each day.
Any realized gains must be distributed annually, so the bulk of net assets
consists of Paid in Capital (money invested by shareholders). The balance shown
for Accumulated Net Realized Gains usually approximates the amount available to
distribute to shareholders as taxable capital gains as of the statement date,
but may differ because certain investments or transactions may be treated
differently for financial statement and tax purposes. Any Accumulated Net
Realized Losses, and any cumulative excess of distributions over net realized
gains, will appear as negative balances.
Unrealized Appreciation (Depreciation) is the difference between the value of
the Portfolio's investments and their cost, and reflects the gains (losses)
that would be realized if the Portfolio were to sell all of its investments at
their statement-date values.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (102.0%)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (87.0%)
Anaheim CA Convention Center COP 0.00% 8/1/04 (1) $ 3,120 $ 2,172
Anaheim CA Convention Center COP 0.00% 8/1/05 (1) 1,250 823
Anaheim CA Convention Center COP 0.00% 8/1/06 (1) 3,125 1,942
Anaheim CA Convention Center COP 5.50% 8/1/14 (1) 5,750 5,785
City of Barstow CA Redev. Agency 6.25% 9/1/22 (1) 2,225 2,386
California Dept. of Water Resources 4.75% 12/1/29 (1) 22,040 19,751
California Dept. of Water Resources (Central Valley Project) 5.375% 12/1/27 (1)+ 33,000 32,341
California GO 5.25% 6/1/21 (2) 16,500 16,078
California GO 6.00% 8/1/19 (3) 4,400 4,603
California GO 7.00% 11/1/04 (3)(Prere.) 1,935 2,286
California GO 7.00% 11/1/13 (3) 65 75
California Educ. Fac. Auth. (Santa Clara Univ.) 5.75% 9/1/21 (1) 3,350 3,410
California Educ. Fac. Auth. (Santa Clara Univ.) 5.75% 9/1/26 (1) 3,135 3,191
California Health Fac. Finance Auth. (Adventist Health System) 6.75% 3/1/11 (1) 5,000 5,501
California Health Fac. Finance Auth. (Catholic Health Care West) VRDO 3.35% 12/4/96 (1) 700 700
California Health Fac. Finance Auth. (Catholic Health Care West) 5.75% 7/1/15 (2) 4,080 4,145
California Health Fac. Finance Auth. (Catholic Health Care West) 6.00% 7/1/17 (1) 21,000 22,000
California Health Fac. Finance Auth. (Mills Peninsula) 5.75% 1/15/15 (6) 12,500 12,643
California Health Fac. Finance Auth. (San Diego Hosp.) 6.20% 8/1/20 (1) 3,820 4,014
California Health Fac. Finance Auth. (San Diego Hosp.) 6.625% 5/1/19 (1) 6,525 6,907
California Health Fac. Finance Auth. (Unihealth America) 7.625% 10/1/15 (2) 50 54
California Housing Finance Agency Multifamily Housing Rev. 8.625% 8/1/15 (1) 170 179
California Public Works Board (Univ. of California) 5.375% 10/1/17 (2) 7,250 7,182
California Public Works Board (Univ. of California) 6.25% 12/1/07 (2) 6,945 7,650
California Public Works Board (Univ. of California) 6.50% 12/1/08 (2) 4,000 4,587
California Public Works Lease Rev. (Dept. of Corrections) 5.50% 12/1/12 (1) 2,000 2,024
Chino CA Basin Finance Auth. Muni. Water Dist. 6.00% 8/1/16 (2) 5,500 5,775
Clovis CA Unified School Dist. 0.00% 8/1/04 (3) 5,000 3,480
Clovis CA Unified School Dist. 0.00% 8/1/06 (3) 17,000 10,564
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Clovis CA Unified School Dist. 0.00% 8/1/07 (3) $15,000 $ 8,773
Clovis CA Unified School Dist. 0.00% 8/1/08 (3) 12,500 6,858
Clovis CA Unified School Dist. 0.00% 8/1/09 (3) 19,725 10,154
Clovis CA Unified School Dist. 0.00% 8/1/10 (3) 8,000 3,866
Clovis CA Unified School Dist. 0.00% 8/1/11 (3) 1,625 732
Contra Costa CA COP 5.50% 6/1/12 (2) 6,850 6,942
Contra Costa CA COP 6.70% 2/1/21 (2) 4,630 4,929
Culver City CA Redev. Finance Auth. 6.75% 11/1/99 (2)(Prere.) 955 1,032
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.375% 6/1/12 (2) 2,000 2,227
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.375% 6/1/21 (2) 5,750 6,403
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.50% 6/1/20 (2) 2,000 2,287
Eastern CA Muni. Water Dist. 6.75% 7/1/12 (3) 8,500 9,965
Elsinore Valley CA Muni. Water Dist. COP 5.90% 7/1/06 (3) 1,685 1,841
Elsinore Valley CA Muni. Water Dist. COP 6.00% 7/1/12 (3) 2,210 2,412
Encina CA Power Auth. Waste Water Rev. 6.875% 8/1/11 (3) 3,650 3,937
Fresno CA Sewer System Rev. 5.00% 9/1/23 (1) 9,000 8,457
Glendale CA Hosp. Rev. (Adventist Health System) 6.00% 3/1/14 (1) 3,000 3,075
Indian Wells CA Redev. Agency 5.50% 12/1/22 (1) 2,000 1,965
Industry CA GO 5.25% 7/1/19 (1) 6,035 5,887
Kern CA High School Dist. GO 6.25% 8/1/11 (1) 1,065 1,188
Kern CA High School Dist. GO 6.40% 8/1/14 (1) 1,490 1,689
Kern CA High School Dist. GO 6.40% 8/1/15 (1) 1,645 1,866
Kern CA High School Dist. GO 6.40% 8/1/16 (1) 1,815 2,071
LaQuinta CA Redev. Agency (Tax Allocation Project) 7.30% 9/1/10 (1) 1,145 1,391
Long Beach CA Financing Auth. Rev. 6.00% 11/1/17 (2) 2,000 2,181
Los Angeles CA Metro. Transp. Auth. Sales Tax VRDO 3.30% 12/5/96 (1) 600 600
Los Angeles CA Metro. Transp. Auth. 5.25% 7/1/23 (2) 19,685 18,842
Los Angeles County CA Pension Obligations VRDO 3.40% 12/4/96 (2) 2,000 2,000
Los Angeles County CA Transp. Comm. Sales Tax Rev. Refunding VRDO 3.40% 12/4/96 (3) 1,800 1,800
MSR CA Public Power Agency (San Juan Project) 6.125% 7/1/13 (2) 8,000 8,829
MSR CA Public Power Agency (San Juan Project) 6.625% 7/1/13 (5) 2,000 2,045
MSR CA Public Power Agency (San Juan Project) 6.75% 7/1/20 (1) 38,785 46,128
Metro. Water Dist. of Southern California Waterworks Rev. 5.50% 7/1/25 (1) 23,000 22,770
Modesto CA Irrigation Dist. Finance Auth. Rev. (Woodland Project) 6.50% 10/1/11 (2) 8,125 9,317
Modesto CA Irrigation Dist. Finance Auth. Rev. (Woodland Project) 6.50% 10/1/22 (2) 9,750 11,340
Mountain View CA Capital Improvement Finance Auth. Rev. 6.25% 8/1/12 (1) 5,000 5,343
North City West CA School Fac. Financing Auth. 6.00% 9/1/19 (4) 2,000 2,100
Northern California Power Agency (Hydro Electric Project) 5.50% 7/1/23 (1) 5,000 4,911
Northern California Power Agency (Hydro Electric Project) 6.00% 7/1/09 (1) 7,530 8,271
Northern California Power Agency (Hydro Electric Project) 6.30% 7/1/18 (1) 10,000 11,235
Northern California Power Agency (Hydro Electric Project) 7.50% 7/1/21 (2)(Prere.) 1,810 2,218
Oakland CA Redev. Agency (Central Dist. Project) 5.50% 2/1/14 (2) 5,500 5,641
Orange County CA Local Transp. Auth. 5.80% 2/15/05 (3) 6,000 6,445
Orange County CA Local Transp. Auth. 5.90% 2/15/06 (3) 8,000 8,648
Orange County CA Sanitation Dist. VRDO 3.30% 12/5/96 (2) LOC 4,300 4,300
Pittsburg CA Redev. Agency 5.50% 8/1/07 (3) 2,750 2,869
Pittsburg CA Redev. Agency 5.50% 8/1/15 (3) 9,200 9,115
Placer County CA Water Rev. COP 7.75% 7/1/18 (5) 3,500 3,782
Pomona CA Unified School Dist. GO 5.50% 8/1/16 (3) 1,000 1,027
Pomona CA Unified School Dist. GO 5.60% 8/1/14 (1) 1,585 1,645
Pomona CA Unified School Dist. GO 5.60% 8/1/15 (1) 2,000 2,075
Pomona CA Unified School Dist. GO 5.60% 8/1/16 (1) 1,000 1,039
Pomona CA Unified School Dist. GO 7.50% 8/1/17 (1) 2,540 3,244
Poway CA Redev. Agency 7.25% 12/15/11 (3) 7,500 8,289
Rancho CA Water Dist. Finance Auth. Rev. 5.875% 11/1/10 (3) 3,585 3,809
Rancho CA Water Dist. Finance Auth. Rev. 6.25% 8/1/12 (3) 2,000 2,138
Redding CA Joint Power Finance Auth. Waste Water Rev. 5.50% 12/1/18 (3) 5,400 5,299
Riverside County CA Transp. Comm. 5.75% 6/1/09 (2) 3,800 4,063
Sacramento CA Finance Auth. Rev. 5.375% 11/1/14 (2) 4,000 4,039
Sacramento CA Finance Auth. Rev. 5.40% 11/1/20 (2) 9,785 9,863
Sacramento CA Muni. Util. Dist. Rev. 6.25% 8/15/10 (1) 33,800 37,846
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sacramento CA Muni. Util. Dist. Rev. 6.30% 8/15/18 (1) $14,000 $ 14,820
Sacramento CA Redev. Agency (Tax Allocation Project) 6.50% 11/1/13 (1) 5,500 5,977
Sacramento County CA Public Fac. Fin. Corp. COP 5.50% 6/1/10 (1) 5,760 5,960
San Bernardino County CA COP (Medical Center Financing Project) 6.50% 8/1/17 (1) 17,915 20,668
San Diego CA Unified School Dist. COP 5.00% 8/1/07 (1) 4,400 4,465
San Diego CA Unified School Dist. COP 5.00% 8/1/08 (1) 4,630 4,664
San Diego CA Unified School Dist. COP 5.00% 8/1/09 (1) 4,875 4,870
San Francisco CA Airport Comm. Rev. 6.00% 5/1/10 (1) 2,000 2,123
San Francisco CA Airport Comm. Rev. 6.00% 5/1/11 (1) 2,100 2,222
San Francisco CA Airport Comm. Rev. 6.00% 5/1/20 (1) 6,500 6,765
San Francisco CA Airport Comm. Rev. 6.20% 5/1/06 (2) 5,000 5,458
San Francisco CA Airport Comm. Rev. 6.20% 5/1/08 (2) 1,000 1,079
San Francisco CA Bay Area Rapid Transit 6.75% 7/1/10 (2) 6,370 7,439
San Francisco CA Bay Area Rapid Transit 6.75% 7/1/11 (2) 7,455 8,726
San Francisco CA City & County Airport Rev. 6.30% 5/1/11 (2) 5,000 5,389
San Francisco CA City & County Airport Rev. 6.50% 5/1/06 (1) 3,280 3,662
San Francisco CA City & County Airport Rev. 6.60% 5/1/07 (1) 2,490 2,794
San Francisco CA City & County Airport Rev. 6.625% 5/1/08 (1) 3,720 4,179
San Francisco CA City & County Airport Rev. 6.70% 5/1/09 (1) 3,970 4,465
San Jose CA Merged Area Redev. Rev. Project 5.00% 8/1/20 (1) 4,600 4,320
San Jose CA Merged Area Redev. Rev. Project 6.00% 8/1/11 (1) 8,845 9,660
San Mateo CA Sewer 6.60% 8/1/14 (1) 2,500 2,601
San Mateo County CA Finance Auth. 6.50% 7/1/13 (1) 14,560 16,681
Santa Ana CA Community Redev. Auth. 7.375% 12/1/96 (3)(Prere.) 1,695 1,729
Santa Ana CA Community Redev. Auth. 7.40% 12/1/96 (3)(Prere.) 270 275
Santa Ana CA Finance Auth. Lease Rev. 6.25% 7/1/16 (1) 5,345 5,973
Santa Ana CA Finance Auth. Lease Rev. 6.25% 7/1/17 (1) 2,000 2,242
Santa Clara CA Redev. Agency (Bayshore Project) 7.00% 7/1/10 (2) 7,000 8,345
Santa Clara CA Valley Water Dist. COP 6.00% 2/1/24 (3) 20,000 20,813
Santa Clara County CA Financing Auth. Lease Rev. (Replacement Project) 6.75% 11/15/20 (2) 11,500 12,996
Santa Fe Springs CA Redev. Agency 6.00% 9/1/14 (1) 5,350 5,606
Santa Rosa CA Waste Water Rev. 6.00% 7/2/15 (2) 7,000 7,592
Santa Rosa CA Waste Water Rev. 6.00% 9/1/15 (3) 5,580 6,054
Santa Rosa CA Waste Water Rev. 6.25% 9/1/12 (3) 7,075 7,873
South Coast CA Air Quality Management Dist. Rev. 5.50% 8/1/14 (1) 8,000 8,049
South Coast CA Air Quality Management Dist. Rev. 6.00% 8/1/11 (2) 3,200 3,498
South County CA Waste Water Auth. 5.50% 8/1/22 (3) 8,625 8,473
South Orange County CA Public Finance Auth. 7.00% 9/1/11 (1) 3,000 3,593
South Orange County CA Public Finance Auth. 9.50% 8/15/04 (1) 3,000 3,970
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/07 (2) 1,600 1,699
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/10 (2) 2,500 2,655
Sweetwater CA Water Rev. 7.00% 4/1/99 (2)(Prere.) 3,050 3,313
Three Valley CA Muni. Water Dist. COP 5.25% 11/1/10 (3) 4,220 4,223
Tri-City CA Hosp. Dist. (Oceanside Hosp.) 7.00% 2/1/12 (1) 5,950 6,104
Turlock CA Irrigation Dist. COP 6.75% 1/1/97 (3)(Prere.) 3,020 3,119
Ukiah CA Electric Rev. 6.00% 6/1/08 (1) 4,565 5,032
Ukiah CA Electric Rev. 6.25% 6/1/18 (1) 6,000 6,701
Univ. of California Board of Regents 6.00% 9/1/08 (1) 2,515 2,695
Univ. of California Board of Regents 6.375% 9/1/19 (1) 6,500 7,046
Univ. of California (Medical Center) 5.75% 7/1/24 (2) 3,750 3,791
Univ. of California (Multiple Purpose Project) 6.25% 9/1/13 (1) 10,000 10,643
Walnut CA Public Finance Auth. 6.00% 9/1/15 (1) 5,000 5,210
Walnut Valley CA Unified School Dist. 6.00% 8/1/12 (2) 1,790 1,954
Walnut Valley CA Unified School Dist. 6.00% 8/1/13 (2) 1,980 2,157
Walnut Valley CA Unified School Dist. 6.00% 8/1/14 (2) 2,205 2,410
Walnut Valley CA Unified School Dist. 6.00% 8/1/15 (2) 2,470 2,679
Walnut Valley CA Unified School Dist. 6.00% 8/1/16 (2) 2,690 2,925
Walnut Valley CA Unified School Dist. 6.20% 8/1/09 (2) 1,270 1,420
West Sacramento CA Financing Auth. Rev. (Water System
Improvement Project) 5.25% 8/1/08 (3) 2,160 2,202
West Sacramento CA Tax Allocation Redev. Project 6.25% 9/1/21 (1) 8,250 8,757
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Whittier CA Insurance Health Fac. Rev. (Presbyterian Hosp.) 6.25% 6/1/07 (1) $ 4,260 $ 4,776
Whittier CA Insurance Health Fac. Rev. (Presbyterian Hosp.) 6.25% 6/1/08 (1) 1,750 1,969
------------
926,849
------------
PORTFOLIO INSURED
Sacramento CA Muni. Util. Dist. 8.00% 11/15/10 205 206
SECONDARY MARKET INSURED (4.8%)
California GO 6.25% 9/1/12 (3) 9,000 10,059
California Housing Finance Agency (Single Family Mortgage) 6.90% 8/1/16 (5) 5,750 5,871
California Public Works Board (Dept. of Corrections) 6.50% 9/1/17 (2) 30,000 34,578
------------
50,508
------------
NON-INSURED (10.2%)
California Dept. of Water Resources (Central Valley Project) 6.40% 12/1/26 20,400 22,701
California Health Fac. Finance Auth. VRDO
(Adventist Health System West Sutter Health) 3.45% 12/5/96 LOC 5,400 5,400
California Health Fac. Finance Auth. VRDO (Kaiser Permanente) 3.45% 12/4/96 400 400
California PCR Financing Auth. Rev. VRDO (Pacific Gas & Electric Co.) 4.20% 12/3/96 9,100 9,100
California RAN 4.50% 6/30/97 5,000 5,027
California RAN VRDO 3.45% 12/4/96 1,000 1,000
California RAN VRDO 3.50% 12/4/96 800 800
Chula Vista City CA IDR VRDO (San Diego Gas & Electric) 4.05% 12/3/96 5,000 5,000
Irvine CA Assessment Dist. VRDO (Orange County) 4.05% 12/3/96 LOC 300 300
Irvine CA Ranch Water Dist. VRDO 3.95% 12/3/96 LOC 300 300
Los Angeles CA Dept. of Water & Power 6.50% 4/1/10 3,950 4,393
Los Angeles CA Unified School Dist. TRAN 4.50% 9/30/97 3,600 3,627
Los Angeles County CA TRAN 4.50% 6/30/97 LOC 5,000 5,027
Metro. Water Dist. of Southern California 8.00% 7/1/08 2,000 2,549
Orange County CA Water Dist. VRDO 3.90% 12/3/96 LOC 300 300
Sacramento County CA TRAN 4.50% 9/30/97 8,300 8,360
Sacramento County CA VRDO
(Administrative Center & Courthouse Project) 3.30% 12/5/96 LOC 800 800
San Diego CA Local Govt. Pooled TRAN 4.75% 10/1/97 2,400 2,422
San Diego CA Unified School Dist. TRAN 4.75% 10/1/97 4,800 4,841
San Diego County CA TRAN 4.375% 9/30/97 LOC 5,800 5,836
Santa Clara CA El Camino Hosp. Dist. Fac. Auth. Rev. Lease VRDO
(Valley Medical Center Project) 3.45% 12/3/96 LOC 11,300 11,300
Santa Clara County CA Finance Auth. Lease Rev. VRDO
(VMC Fac. Replacement Project) 3.50% 12/4/96 5,300 5,300
Santa Clara County CA TRAN 4.50% 8/1/97 4,000 4,024
------------
108,807
============
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $1,008,274) 1,086,370
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.0%)
- ----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 19,163
Liabilities (39,974)
------------
(20,811)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------------------
Applicable to 93,272,806 outstanding shares of beneficial interest
(unlimited authorization--no par value) $1,065,559
==================================================================================================================================
NET ASSET VALUE PER SHARE $11.42
==================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements. For explanations of
abbreviations and other references, see page 25.
18
<PAGE> 21
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 982,604 $ 10.53
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 5,124 .05
Unrealized Appreciation (Depreciation)--Note F
Investment Securities 78,096 .84
Futures Contracts (265) --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,065,559 $11.42
===================================================================================================================================
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED INTERMEDIATE-TERM PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.7%)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (93.9%)
Anaheim CA Electric System COP 6.80% 10/1/98 (2) $ 1,000 $ 1,050
California GO 6.50% 3/1/02 (2) 5,570 6,132
California Health Fac. Finance Auth. (Catholic Health Care West) VRDO 3.35% 12/4/96 (1) 4,000 4,000
California Health Fac. Finance Auth. (Catholic Health Care West) 5.75% 7/1/10 (1) 7,000 7,282
California Health Fac. Finance Auth. (Catholic Health Care West) 5.875% 7/1/09 (2) 5,000 5,289
California Health Fac. Finance Auth. (Catholic Health Care West) 7.00% 7/1/05 (2) 3,410 3,956
California Health Fac. Finance Auth. (Catholic Health Care West) 7.00% 7/1/06 (2) 3,395 3,963
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/01 (1) 1,600 1,712
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/02 (1) 1,280 1,381
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/04 (1) 1,645 1,795
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/06 (1) 1,000 1,096
California Health Fac. Finance Auth. (Mills Peninsula) 6.00% 1/15/00 (6) 1,080 1,134
California Health Fac. Finance Auth. (Sisters of Providence) 6.00% 10/1/09 (2) 4,490 4,916
California Health Fac. Finance Auth. (Summit Medical Center) 5.25% 5/1/11 (4) 1,700 1,695
California Public Works Board (Dept. of Corrections) 5.25% 12/1/13 (2) 3,250 3,228
California Public Works Board (Dept. of Corrections) 5.50% 1/1/10 (2) 10,000 10,225
California Public Works Board (Dept. of Corrections) 6.40% 11/1/10 (1) 5,000 5,490
California Public Works Board (Dept. of Corrections) 6.60% 12/1/02 (2)(Prere.) 3,500 3,972
California Public Works Board (Univ. of CA Regents) 6.25% 12/1/07 (2) 1,000 1,102
Capistrano CA Unified Public Schools 6.00% 9/1/04 (2) 2,160 2,361
Capistrano CA Unified Public Schools 6.00% 9/1/05 (2) 2,395 2,625
Central Coast Water Auth. of CA 6.05% 10/1/02 (2)(Prere.) 1,800 1,993
Central Coast Water Auth. of CA 6.25% 10/1/06 (2) 2,000 2,236
Chino CA Basin Finance Auth. Muni. Water Dist. 6.50% 8/1/10 (2) 3,095 3,541
City of Corona CA Redev. Project 7.50% 9/1/04 (3) 970 1,156
City of Corona CA Redev. Project 7.50% 9/1/05 (3) 1,040 1,255
Clovis CA Unified School Dist. 0.00% 8/1/05 (3) 16,000 10,532
Culver City CA Redev. Finance Auth. 6.75% 11/1/99 (2)(Prere.) 2,500 2,735
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.375% 6/1/12 (2)(Prere.) 2,000 2,227
El Dorado County CA Public Agency Finance Auth. 5.60% 2/15/12 (3) 3,900 4,004
La Quinta CA Redev. Agency 8.00% 9/1/03 (1) 1,325 1,591
Long Beach CA Financing Auth. 6.00% 11/1/09 (2) 3,735 4,110
Long Beach CA Financing Auth. 6.00% 11/1/10 (2) 3,860 4,227
Los Angeles CA Dev. Auth. COP (Children's Hosp.) 6.00% 6/1/11 (1) 2,365 2,571
Los Angeles CA Transp. Rev. 6.25% 7/1/13 (1) 1,500 1,612
Los Angeles CA Waste Water 5.75% 6/1/11 (1) 7,960 8,219
Los Angeles CA Waste Water 6.50% 6/1/07 (1) 1,695 1,896
Los Angeles CA Waste Water 8.70% 11/1/02 (3) 2,535 3,093
Los Angeles County CA Pension Obligations VRDO 3.40% 12/4/96 (2) 200 200
MSR CA Public Power Agency (San Juan Project) 5.85% 7/1/06 (2) 1,500 1,619
MSR CA Public Power Agency (San Juan Project) 6.625% 7/1/13 (5) 2,830 2,893
North City West CA Community Dist. 5.75% 9/1/15 (4) 2,000 2,037
North City West CA Community Dist. 6.00% 9/1/05 (4) 1,510 1,655
North City West CA Community Dist. 6.00% 9/1/06 (4) 1,600 1,756
North City West CA Community Dist. 6.00% 9/1/07 (4) 1,695 1,861
Oakland CA Redev. Agency (Central Dist. Project) 6.00% 2/1/06 (2) 5,125 5,645
Orange County CA Sanitation Dist. COP 6.00% 8/1/01 (3)(Prere.) 1,500 1,640
Orange County CA Sanitation Dist. COP 6.40% 8/1/07 (3) 1,415 1,540
Orange County CA Sanitation Dist. VRDO 3.30% 12/5/96 (2) LOC 989 989
Orange County CA Transp. Auth. 9.50% 2/15/03 (3) 5,765 7,286
Rancho CA Water Dist. Finance Auth. Rev. 5.875% 11/1/10 (3) 3,000 3,188
Rancho CA Water Dist. Finance Auth. Rev. 6.25% 8/1/12 (3) 1,950 2,085
Rancho CA Water Dist. Finance Auth. Rev. 6.50% 11/1/01 (3) 1,590 1,746
Rancho Cucamonga CA Redev. Auth. 5.00% 9/1/11 (1) 3,165 3,106
Redding CA Electric System Rev. COP 7.125% 7/1/97 (1)(Prere.) 1,000 1,041
Riverside County CA Public Finance 5.25% 9/1/03 (1) 2,210 2,316
Sacramento CA Muni. Util. Dist. Rev. 6.25% 8/15/07 (1) 8,000 8,783
Sacramento CA Redev. Agency (Merged Downtown Project) 6.50% 11/1/13 (1) 2,000 2,174
Sacramento CA Redev. Agency (Merged Downtown Project) 6.75% 11/1/05 (1) 1,000 1,096
</TABLE>
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sacramento County CA Public Fac. Finance Corp. COP
(Main Detention Fac. Project) 5.50% 6/1/10 (1) $ 5,500 $ 5,691
San Diego County CA Regional Transp. Comm. 5.00% 4/1/98 (3) 4,500 4,570
San Diego County CA Regional Transp. Comm. 6.00% 4/1/04 (2) 3,000 3,276
San Diego County CA Regional Transp. Comm. 6.00% 4/1/07 (2) 3,000 3,298
San Diego County CA Regional Transp. Comm. 6.25% 4/1/02 (3) 5,000 5,452
San Francisco CA Airport Comm. Rev. 6.20% 5/1/07 (2) 1,615 1,755
San Francisco CA Airport Comm. Rev. 6.50% 5/1/13 (2) 2,160 2,378
San Francisco CA City & County Airport Rev. 5.50% 5/1/10 (3) 2,880 2,953
San Francisco CA City & County Airport Rev. 5.50% 5/1/11 (3) 3,080 3,146
San Francisco CA City & County Airport Rev. 6.40% 5/1/05 (1) 2,800 3,144
San Francisco CA City & County Airport Rev. 6.60% 5/1/07 (1) 1,000 1,122
San Francisco CA County Sewer Rev. 6.00% 10/1/11 (2) 2,000 2,110
San Joaquin County CA COP (Human Services Project) 6.70% 5/15/99 (5)(Prere.) 5,300 5,737
San Jose CA Merged Area Redev. Project 6.00% 8/1/06 (1) 1,000 1,101
San Jose/Santa Clara CA Clean Water Finance Auth. 7.00% 10/1/04 (1) 5,615 5,888
San Jose/Santa Clara CA Clean Water Finance Auth. 7.25% 10/1/02 (1) 1,500 1,571
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/99 (2) 1,645 1,699
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/00 (2) 2,075 2,159
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/01 (2) 2,215 2,322
Santa Rosa CA Waste Water Service Fac. Dist. 6.20% 7/2/09 (2) 2,450 2,646
South Orange County CA Public Finance Auth. 6.25% 8/15/99 (3) 2,000 2,115
South Orange County CA Public Finance Auth. 7.00% 9/1/05 (1) 3,440 4,000
South Orange County CA Public Finance Auth. 7.00% 9/1/07 (1) 1,000 1,185
South Orange County CA Public Finance Auth. 7.00% 9/1/10 (1) 3,300 3,940
South Orange County CA Public Finance Auth. 9.50% 8/15/04 (1) 4,395 5,816
Southern California Public Power Auth. (Palo Verde) 7.00% 7/1/07 (2) 1,300 1,381
Southern California Rapid Transit Dist. 6.00% 9/1/08 (2) 2,650 2,840
Sweetwater CA Water Rev. 7.00% 4/1/10 (2) 1,950 2,095
Tri-City CA Hosp. Dist. 5.50% 2/15/08 (1) 3,805 3,966
Tri-City CA Hosp. Dist. 5.50% 2/15/09 (1) 2,665 2,750
Tri-City CA Hosp. Dist. 5.625% 2/15/11 (1) 2,970 3,033
Tri-City CA Hosp. Dist. 5.625% 2/15/12 (1) 1,880 1,912
Tri-City CA Hosp. Dist. (Oceanside Hosp.) 7.00% 2/1/05 (1) 915 939
Tulare County CA COP 5.70% 11/15/03 (1) 1,000 1,076
Tulare County CA COP 5.80% 11/15/04 (1) 1,000 1,085
Univ. of California Board of Regents 6.00% 9/1/08 (1) 1,500 1,608
Univ. of California Board of Regents 10.00% 9/1/02 (1) 2,950 3,777
Univ. of California Board of Regents 12.00% 9/1/03 (2) 2,000 2,857
Univ. of California (Multiple Purpose Project) 5.00% 9/1/11 (2) 7,000 6,821
Univ. of California (Multiple Purpose Project) 10.00% 9/1/02 (2) 1,000 1,277
Univ. of California (Multiple Purpose Project) 10.00% 9/1/03 (2) 2,000 2,626
Visalia Waste Water System Rev. of CA 6.00% 12/1/07 (1) 1,000 1,104
West Basin CA Water Dist. 6.80% 8/1/00 (2)(Prere.) 2,000 2,219
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/00 (1) 1,895 2,005
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/03 (1) 3,380 3,669
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/04 (1) 3,580 3,905
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/05 (1) 3,675 4,020
-------------
322,097
-------------
NON-INSURED (5.8%)
California Educ. Fac. Auth. (Univ. of Southern California) 5.60% 10/1/09 + 2,680 2,750
California Health Fac. Finance Auth. Rev. VRDO
(Adventist Health System West Sutter Health) 3.45% 12/5/96 LOC 1,500 1,500
California PCR Financing Auth. VRDO (Pacific Gas & Electric Co.) 4.15% 12/3/96 LOC 4,900 4,900
California RAN VRDO 3.45% 12/4/96 200 200
Irvine CA Assessment Dist. VRDO (Orange County) 4.05% 12/3/96 LOC 300 300
Irvine CA Ranch Water Dist. VRDO 3.90% 12/3/96 LOC 500 500
Irvine CA Ranch Water Dist. VRDO 3.95% 12/3/96 LOC 400 400
Los Angeles CA Unified School Dist. TRAN 4.50% 9/30/97 1,000 1,008
Sacramento County CA TRAN 4.50% 9/30/97 900 907
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED INTERMEDIATE-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sacramento County CA VRDO (Administration Center &
Courthouse Project) 3.30% 12/5/96 LOC $ 1,400 $ 1,400
San Diego CA Local Govt. Pooled TRAN COP 4.75% 10/1/97 600 605
San Diego CA Unified School Dist. TRAN 4.75% 10/1/97 1,300 1,311
San Diego County CA TRAN 4.375% 9/30/97 LOC 1,600 1,610
Santa Clara County CA Finance Auth. Lease Rev. VRDO
(VMC Fac. Replacement Project) 3.50% 12/4/96 1,200 1,200
Santa Clara County CA TRAN 4.50% 8/1/97 1,400 1,408
-----------
19,999
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $328,992) 342,096
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.3%)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 6,101
Liabilities (5,104)
-----------
997
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable to 32,432,991 outstanding shares of beneficial interest
(unlimited authorization--no par value) $343,093
===================================================================================================================================
NET ASSET VALUE PER SHARE $10.58
===================================================================================================================================
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 25.
- -----------------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
Paid in Capital $329,810 $ 10.17
Undistributed Net Investment Income --
Accumulated Net Realized Gains--Note E 269 .01
Unrealized Appreciation (Depreciation)--Note F
Investment Securities 13,104 .40
Futures Contracts (90) --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $343,093 $10.58
===================================================================================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.2%)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alameda County CA TRAN 4.50% 6/30/97 $30,000 $ 30,092
Anaheim CA Public Improvement Corp. Lease COP VRDO
(Refunding Project) 3.40% 12/4/96 (2) 40,480 40,480
Anaheim City CA Electric Rev. 4.25% 10/1/97 (2) 5,500 5,518
California Educ. Fac. Auth. Rev. VRDO (California Institute 3.40% 12/5/96 4,400 4,400
of Technology)
California GO 8.90% 3/1/97 3,000 3,039
California Health Fac. Finance Auth. Rev. VRDO
(Adventist Health System West Sutter Health) 3.40% 12/5/96 LOC 16,900 16,900
California Health Fac. Finance Auth. Rev. VRDO
(Catholic Health Care West) 3.35% 12/4/96 (1) 37,600 37,600
California Health Fac. Finance Auth. Rev. VRDO (Kaiser Permanente) 3.45% 12/4/96 47,900 47,900
California Health Fac. Finance Auth. Rev. VRDO
(Memorial Health Services) 3.45% 12/4/96 10,600 10,600
California Health Fac. Finance Auth. Rev. VRDO (Pooled Program) 3.40% 12/4/96 LOC 22,800 22,800
California Health Fac. Finance Auth. Rev. VRDO
(St. Francis Medical Center) 3.35% 12/4/96 (1) 41,500 41,500
California Health Fac. Finance Auth. Rev. VRDO
(St. Francis Medical Center) 3.50% 12/4/96 (1) 8,100 8,100
California PCR Finance Auth. CP (Pacific Gas & Electric Co.) 3.65% 12/16/96 LOC 4,200 4,200
California PCR Finance Auth. VRDO (Exxon Project) 4.00% 12/3/96 4,100 4,100
California PCR Finance Auth. VRDO (Pacific Gas & Electric Co.) 4.15% 12/3/96 LOC 71,900 71,900
California RAN 4.50% 6/30/97 25,000 25,073
California RAN VRDO 3.45% 12/4/96 60,900 60,900
California RAN VRDO 3.50% 12/4/96 6,400 6,400
California School Cash Reserve Program Auth. (Pool) 4.75% 7/2/97 (1) 13,000 13,062
California Statewide Communities Dev. Auth. COP VRDO
(Memorial Health Services) 3.45% 12/4/96 12,000 12,000
California Statewide Communities Dev. Auth. COP VRDO
(St. Joseph Health System Group) 3.95% 12/3/96 6,200 6,200
California Statewide Communities Dev. Auth. VRDO
(Kaiser Foundation Hosp.) 3.45% 12/4/96 9,500 9,500
Contra Costa County CA TRAN 4.50% 7/3/97 26,005 26,105
East Bay CA Muni. Util. Dist. CP (Water Series) 3.55% 2/25/97 7,150 7,150
Foothill CA Eastern Transp. Corridor Agency Toll Road Rev. VRDO 3.30% 12/5/96 LOC 17,100 17,100
Irvine CA Assessment Dist. VRDO (Irvine County) 3.45% 12/4/96 LOC 37,602 37,602
Irvine CA Assessment Dist. Improvement Boards VRDO (Irvine County) 3.90% 12/3/96 LOC 15,385 15,385
Irvine CA Ranch Water Dist. VRDO 3.90% 12/3/96 LOC 19,650 19,650
Irvine CA Ranch Water Dist. VRDO 3.95% 12/3/96 LOC 35,100 35,100
Kern County CA TRAN 4.50% 10/2/97 8,000 8,036
Kern County CA VRDO (Public Fac. Project) 3.35% 12/4/96 LOC 29,200 29,200
Livermore Valley CA Joint Unified School Dist. TRAN 4.50% 9/24/97 7,500 7,531
Long Beach CA TRAN 4.75% 10/9/97 6,500 6,540
Los Angeles CA Dept. of Water & Power CP 3.50% 2/27/97 7,350 7,350
Los Angeles CA Dept. of Water & Power CP 3.55% 2/25/97 7,000 7,000
Los Angeles CA Unified School Dist. TRAN 4.50% 6/30/97 11,500 11,552
Los Angeles CA Unified School Dist. TRAN 4.50% 9/30/97 28,000 28,130
Los Angeles CA Waste Water Systems CP 3.50% 2/27/97 LOC 5,000 5,000
Los Angeles City CA TRAN 4.50% 6/19/97 12,000 12,033
Los Angeles County CA Metro. Transp. Auth. CP 3.45% 12/2/96 LOC 12,400 12,400
Los Angeles County CA Metro. Transp. Auth. CP 3.55% 12/19/96 LOC 11,000 11,000
Los Angeles County CA Metro. Transp. Auth. Sales Tax VRDO 3.30% 12/5/96 (1) 28,300 28,300
Los Angeles County CA Transp. Comm. Sales Tax Rev. VRDO 3.40% 12/4/96 (3) 6,200 6,200
Los Angeles County CA Pension Obligations VRDO 3.40% 12/4/96 (2) 75,300 75,300
Los Angeles County CA TRAN 4.50% 6/30/97 LOC 30,000 30,107
Metro. Water Dist. of Southern California CP 3.40% 12/13/96 12,800 12,800
Metro. Water Dist. of Southern California CP 3.50% 3/13/97 4,000 4,000
Metro. Water Dist. of Southern California CP 3.55% 2/25/97 2,000 2,000
Orange County CA Improvement Boards (Irvine Coast Assessment Dist.) 4.05% 12/3/96 LOC 29,700 29,700
Orange County CA Sanitation Dist. VRDO 3.30% 12/5/96 (2) LOC 7,405 7,405
Orange County CA Sanitation Dist. VRDO 3.90% 12/3/96 LOC 38,490 38,490
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Orange County CA Sanitation Dist. VRDO 3.90% 12/3/96 (2) LOC $24,160 $ 24,160
Orange County CA Sanitation Dist. VRDO 3.90% 12/3/96 LOC 600 600
Orange County CA Sanitation Dist. VRDO 4.05% 12/3/96 (3) 15,600 15,600
Otay CA Water Dist. COP VRDO (Capital Project) 3.55% 12/4/96 LOC 6,000 6,000
Riverside County CA Public Fac. Project VRDO 3.40% 12/3/96 LOC 16,225 16,225
Sacramento CA Muni. Util. Dist. Rev. TOB VRDO 3.65% 12/5/96 (1) 12,185 12,185
Sacramento City CA TRAN 4.75% 12/27/96 1,800 1,801
Sacramento County CA TRAN 4.50% 9/30/97 16,500 16,575
Sacramento County CA VRDO
(Administration Center & Courthouse Project) 3.30% 12/5/96 LOC 25,325 25,325
San Bernardino CA Transp. Auth. Sales Tax Rev. VRDO 3.45% 12/5/96 LOC 38,690 38,690
San Bernardino County CA COP VRDO
(County Center Refinancing Project) 3.45% 12/4/96 LOC 9,100 9,100
San Bernardino County CA TRAN 4.50% 6/30/97 LOC 10,000 10,035
San Diego City CA TAN 4.50% 7/2/97 13,425 13,482
San Diego County CA TRAN 4.375% 9/30/97 LOC 23,100 23,210
San Francisco CA City & County TRAN 4.50% 10/8/97 5,000 5,031
San Francisco CA City & County Unified School Dist. TRAN 4.50% 7/24/97 10,000 10,032
San Jose CA Rev. Merged Area Redev. Project VRDO 3.95% 12/3/96 LOC 5,000 5,000
San Jose/Santa Clara CA Clean Water & Sewer Finance Auth. VRDO 3.40% 12/4/96 (3) 3,700 3,700
San Luis Obispo CA TRAN 4.50% 7/8/97 10,000 10,035
San Mateo County CA TRAN 4.50% 7/1/97 12,550 12,589
Santa Clara CA El Camino Hosp. Dist. Fac. Auth. Rev. Lease VRDO
(Valley Medical Center Project) 3.45% 12/3/96 LOC 26,300 26,300
Santa Clara County CA TRAN 4.50% 8/1/97 36,800 36,938
Southern California Public Power Auth. VRDO
(Southern Transmission Project) 3.40% 12/4/96 (2) 56,100 56,100
Southern California Public Power Auth. VRDO
(Southern Transmission Project) 3.40% 12/4/96 (4) 20,000 20,000
Turlock CA Irrigation Dist. COP VRDO (Transmission Project) 3.50% 12/4/96 LOC 3,000 3,000
Ventura County CA TRAN 4.75% 7/2/97 10,000 10,051
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $1,432,194) 1,432,194
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.8%)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 15,867
Liabilites (4,966)
------------
10,901
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable to 1,443,033,562 outstanding shares of beneficial interest
(unlimited authorization--no par value) $ 1,443,095
===================================================================================================================================
NET ASSET VALUE PER SHARE $1.00
===================================================================================================================================
</TABLE>
* See Note A in Notes to Financial Statements.
For expanations of abbreviations and other references, see page 25.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 1,443,173 $ 1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (78) --
Unrealized Appreciation --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 1,443,095 $ 1.00
===================================================================================================================================
</TABLE>
24
<PAGE> 27
KEY TO ABBREVIATIONS
BAN--Bond Anticipation Note.
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
IDR--Industrial Development Revenue Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
RAN--Revenue Anticipation Note.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
TRAN--Tax Revenue Anticipation Note.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
+ Security purchased on a when-issued or delayed delivery basis for which the
Portfolio has not taken delivery as of November 30, 1996.
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) BIGI (Bond Investors Guaranty Insurance).
(6) Connie Lee Inc.
(7) 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.
25
<PAGE> 28
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. These
expenses directly reduce the amount of investment income available to pay to
shareholders as tax-exempt income dividends. This Statement also shows any Net
Gain (Loss) realized on the sale of investments, and the increase or decrease
in the Unrealized Appreciation (Depreciation) on investments during the period.
If a Portfolio invested in futures contracts during the period, the results of
these investments are shown separately.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1996
-----------------------------------------------------
INSURED INSURED
LONG-TERM INTERMEDIATE-TERM MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $55,403 $13,461 $45,020
---------------------------------------------------
Total Income 55,403 13,461 45,020
---------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 124 30 159
Management and Administrative 1,453 378 1,802
Marketing and Distribution 201 69 378
Insurance Expense 1 -- --
Custodian Fees 23 9 35
Auditing Fees 8 7 8
Shareholders' Reports 27 5 29
Annual Meeting and Proxy Costs 6 2 6
Trustees' Fees and Expenses 3 1 3
--------------------------------------------------
Total Expenses 1,846 501 2,420
Expenses Paid Indirectly--Note C (23) (18) (35)
--------------------------------------------------
Net Expenses 1,823 483 2,385
- ---------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 53,580 12,978 42,635
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 9,494 932 22
Futures Contracts (978) (146) --
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN 8,516 786 22
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 4,887 4,271 --
Futures Contracts 2,106 176 --
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 6,993 4,447 --
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $69,089 $18,211 $42,657
===========================================================================================================================
</TABLE>
26
<PAGE> 29
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes
information that is detailed in the Statement of Operations. Because the
Portfolio distributes its income to shareholders each day, the amounts of
Distributions--Net Investment Income generally equal the net income earned as
shown under the Operations section. The amounts of Distributions--Realized
Capital Gain may not match the capital gains shown in the Operations section,
because distributions are determined on a tax basis and may be made in a period
different from the one in which the gains were realized on the financial
statements. The Capital Share Transactions section shows the amount
shareholders invested in the Portfolio, either by purchasing shares or by
reinvesting distributions, and the amounts redeemed. The corresponding numbers
of Shares Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INSURED INSURED
LONG-TERM INTERMEDIATE-TERM
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------
1996 1995 1996 1995
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 53,580 $ 50,834 $ 12,978 $ 8,062
Realized Net Gain (Loss) 8,516 (3,444) 786 (322)
Change in Unrealized Appreciation
(Depreciation) 6,993 116,910 4,447 12,089
----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 69,089 164,300 18,211 19,829
----------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (53,580) (50,834) (12,978) (8,062)
Realized Capital Gain -- -- -- --
----------------------------------------------------------------------------
Total Distributions (53,580) (50,834) (12,978) (8,062)
----------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 193,541 203,465 194,699 142,574
Issued in Lieu of Cash Distributions 35,791 34,047 9,727 5,947
Redeemed (153,953) (210,397) (72,250) (54,878)
----------------------------------------------------------------------------
Net Increase from Capital
Share Transactions 75,379 27,115 132,176 93,643
Total Increase 90,888 140,581 137,409 105,410
----------------------------------------------------------------------------
NET ASSETS
Beginning of Year 974,671 834,090 205,684 100,274
----------------------------------------------------------------------------
End of Year $1,065,559 $974,671 $343,093 $205,684
===============================================================================================================================
(1) Shares Issued (Redeemed)
Issued 17,449 19,004 18,763 14,150
Issued in Lieu of Cash Distributions 3,216 3,152 936 584
Redeemed (13,877) (19,770) (6,973) (5,429)
----------------------------------------------------------------------------
Net Increase in Shares Outstanding 6,788 2,386 12,726 9,305
===============================================================================================================================
</TABLE>
27
<PAGE> 30
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
MONEY MARKET
PORTFOLIO
--------------------------------
YEAR ENDED NOVEMBER 30,
--------------------------------
1996 1995
(000) (000)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 42,635 $ 40,549
Realized Net Gain (Loss) 22 60
Change in Unrealized Appreciation (Depreciation) -- --
----------------------------------------
Net Increase in Net Assets Resulting from Operations 42,657 40,609
----------------------------------------
DISTRIBUTIONS
Net Investment Income (42,635) (40,549)
Realized Capital Gain -- --
----------------------------------------
Total Distributions (42,635) (40,549)
----------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 1,395,492 1,118,819
Issued in Lieu of Cash Distributions 39,782 37,820
Redeemed (1,194,129) (1,113,589)
----------------------------------------
Net Increase from Capital Share Transactions 241,145 43,050
----------------------------------------
Total Increase 241,167 43,110
----------------------------------------
NET ASSETS
Beginning of Year 1,201,928 1,158,818
----------------------------------------
End of Year $1,443,095 $1,201,928
=========================================================================================================
(1)Shares Issued (Redeemed)
Issued 1,395,492 1,118,819
Issued in Lieu of Cash Distributions 39,782 37,820
Redeemed (1,194,129) (1,113,589)
----------------------------------------
Net Increase in Shares Outstanding 241,145 43,050
=========================================================================================================
</TABLE>
28
<PAGE> 31
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total
Return and shows net investment income and expenses as percentages of average
net assets. These data will help you assess: the variability of the Portfolio's
net income and total returns from year to year; the relative contributions of
net income and capital gains to the Portfolio's total return; how much it costs
to operate the Portfolio; and the extent to which the Portfolio tends to
distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in
the Portfolio for one year. Money market portfolios do not show a Portfolio
Turnover Rate because securities purchased with less than one year to maturity
are excluded from the calculation of turnover rates.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM PORTFOLIO
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $11.27 $ 9.92 $11.30 $10.89 $10.43
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .598 .602 .604 .604 .633
Net Realized and Unrealized Gain (Loss) on Investments .150 1.350 (1.228) .609 .464
-------------------------------------------------------------------
Total from Investment Operations .748 1.952 (.624) 1.213 1.097
-------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.598) (.602) (.604) (.604) (.633)
Distributions from Realized Capital Gains -- -- (.152) (.199) (.004)
-------------------------------------------------------------------
Total Distributions (.598) (.602) (.756) (.803) (.637)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.42 $11.27 $ 9.92 $11.30 $10.89
================================================================================================================================
TOTAL RETURN 6.91% 20.11% -5.88% 11.53% 10.81%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,066 $975 $834 $1,074 $828
Ratio of Total Expenses to Average Net Assets 0.19% 0.20% 0.19% 0.19% 0.24%
Ratio of Net Investment Income to Average Net Assets 5.38% 5.59% 5.60% 5.38% 5.92%
Portfolio Turnover Rate 23% 23% 28% 27% 54%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
INSURED INTERMEDIATE-TERM PORTFOLIO
YEAR ENDED NOV. 30,
--------------------- MAR. 4* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1996 1995 NOV. 30, 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.44 $ 9.64 $10.00
- ------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .508 .511 .346
Net Realized and Unrealized Gain (Loss) on Investments .140 .800 (.360)
------------------------------------
Total from Investment Operations .648 1.311 (.014)
------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.508) (.511) (.346)
Distributions from Realized Capital Gains -- -- --
------------------------------------
Total Distributions (.508) (.511) (.346)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.58 $10.44 $ 9.64
============================================================================================================
TOTAL RETURN 6.41% 13.88% -0.19%
============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $343 $206 $100
Ratio of Total Expenses to Average Net Assets 0.19% 0.21% 0.19%**
Ratio of Net Investment Income to Average Net Assets 4.90% 5.05% 4.97%**
Portfolio Turnover Rate 21% 11% 6%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
**Commencement of operations.
**Annualized.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<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 .033 .036 .026 .024 .029
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-----------------------------------------------------------------
Total from Investment Operations .033 .036 .026 .024 .029
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.033) (.036) (.026) (.024) (.029)
Distributions from Realized Capital Gains -- -- -- -- --
-----------------------------------------------------------------
Total Distributions (.033) (.036) (.026) (.024) (.029)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
===============================================================================================================================
TOTAL RETURN 3.32% 3.69% 2.59% 2.40% 2.97%
===============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,443 $1,202 $1,159 $1,006 $794
Ratio of Total Expenses to Average Net Assets 0.19% 0.20% 0.19% 0.19% 0.24%
Ratio of Net Investment Income to Average Net Assets 3.27% 3.61% 2.57% 2.37% 2.92%
Portfolio Turnover Rate N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
Vanguard California Tax-Free Fund is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund, and comprises
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 conform to generally
accepted accounting principles for mutual funds. The Fund consistently follows
such policies in preparing its financial statements.
1. SECURITY VALUATION: Money Market Portfolio: investment securities are
valued at amortized cost, which approximates market value. Other Portfolios:
Bonds, and temporary cash investments acquired more than 60 days to maturity,
are valued using the latest bid prices or using valuations based on a matrix
system (which considers such factors as security prices, yields, maturities,
and credit ratings), both as furnished by independent pricing services. Other
temporary cash investments are valued at amortized cost, which approximates
market value.
2. FEDERAL INCOME TAXES: Each Portfolio 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 CONTRACTS: The Insured Long-Term and Insured Intermediate-Term
Portfolios may use Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury
Note futures contracts, with the objectives of enhancing returns, managing
interest-rate risk, maintaining liquidity, diversifying credit risk and
minimizing transaction costs. The Portfolios may purchase or sell futures
contracts instead of bonds to take advantage of pricing differentials between
the futures contracts and the underlying 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. The aggregate principal amounts of the contracts are not recorded in
the financial statements. Fluctuations in the value of the contracts are
recorded in the Statement of Net Assets as an asset (liability) and in the
Statement of Operations as unrealized appreciation (depreciation) until the
contracts are closed, when they are recorded as realized futures gains
(losses).
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the 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 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 November 30, 1996, the Fund had contributed capital aggregating
$258,000 to Vanguard (included in Other Assets), representing 1.3% of
Vanguard's capitalization. The Fund's trustees and officers are also directors
and officers of Vanguard.
31
<PAGE> 34
C. The Fund's investment adviser may direct new issue portfolio purchases,
subject to obtaining the best price and execution, to underwriters who have
agreed to rebate or credit to the Fund part of the underwriting fees generated.
Such rebates or credits are used solely to reduce the Fund's administrative
expenses. The Fund's custodian bank has also agreed to reduce its fees when the
Fund maintains cash on deposit in the non-interest-bearing custody account. For
the year ended November 30, 1996, directed brokerage and custodian fee offset
arrangements reduced expenses by:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
EXPENSE REDUCTION
(000) TOTAL EXPENSE
-------------------------------------- REDUCTION AS A
DIRECTED CUSTODIAN PERCENT OF AVERAGE
PORTFOLIO BROKERAGE FEES NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term -- $23 --
Insured Intermediate-Term $9 9 0.01%
Money Market -- 35 --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
D. During the year ended November 30, 1996, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(000)
---------------------------------------
PORTFOLIO PURCHASES SALES
- ----------------------------------------------------------------------------
<S> <C> <C>
Insured Long-Term $290,646 $210,454
Insured Intermediate-Term 175,840 54,049
- ----------------------------------------------------------------------------
</TABLE>
E. Capital gains 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. For federal income tax purposes, the
Portfolios had the following capital gains available for distribution at
November 30, 1996, or capital losses available to offset future capital gains:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CAPITAL LOSS
--------------------------------------
CAPITAL GAINS EXPIRATION
AVAILABLE FOR FISCAL YEAR(S)
DISTRIBUTION AMOUNT ENDING
PORTFOLIO (000) (000) NOVEMBER 30
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term $8,540 -- --
Insured Intermediate-Term 725 -- --
Money Market -- $(84) 2000-2003
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Insured Long-Term and Insured Intermediate-Term Portfolios used
capital loss carryforwards of $1,098,000 and $418,000, respectively, to offset
taxable capital gains realized during the year ended November 30, 1996,
reducing the amount of capital gains that would otherwise be available to
distribute to shareholders.
32
<PAGE> 35
F. At November 30, 1996, net 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 $78,096 -- $78,096
Insured Intermediate-Term 13,104 -- 13,104
- ---------------------------------------------------------------------------------------------
</TABLE>
At November 30, 1996, the aggregate settlement value of open futures
contracts expiring in March 1997, and the related unrealized depreciation were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(000)
---------------------------
AGGREGATE
NUMBER OF SETTLEMENT UNREALIZED
PORTFOLIO/FUTURES CONTRACTS SHORT CONTRACTS VALUE DEPRECIATION
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term/
U.S. Treasury Bond 300 $34,763 $(265)
Insured Intermediate-Term/
U.S. Treasury Note 140 15,614 (90)
- ---------------------------------------------------------------------------------
</TABLE>
The market values of securities deposited as initial margin for open
futures contracts by the Insured Long-Term and Insured Intermediate-Term
Portfolios were $3,295,000 and $437,000, respectively.
33
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Trustees of
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
Insured Long-Term Portfolio, Insured Intermediate-Term Portfolio, and Money
Market Portfolio (constituting Vanguard California Tax-Free Fund, hereafter
referred to as the "Fund") at November 30, 1996, and the results of each of
their operations, the changes in each of their net assets and the financial
highlights for each of the periods indicated, 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 at November 30, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 31, 1996
34
<PAGE> 37
SPECIAL 1996 TAX INFORMATION (UNAUDITED)
VANGUARD CALIFORNIA TAX-FREE FUND
This information for the fiscal year ended November, 30, 1996, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term and Insured Intermediate-Term Portfolios designate
$6,411,000 and $725,000, respectively, as capital gain dividends (from net
long-term capital gains), which will be distributed in December 1996.
Each Portfolio designates 100% of its income dividends as exempt-interest
dividends.
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
35
<PAGE> 38
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard
Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment
companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer Inc.;
Director of Sun Company, Inc. and Westinghouse Electric
Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc.,
and Massa-chusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of
America, Amdahl Corp., Baker Fentress & Co., The Jeffrey
Co., and Southern New England Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The
BFGoodrich Co., and The Standard Products Co.
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 Co., Procter & Gamble
Co., 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. and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt
University.
OTHER FUND OFFICERS
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.
RICHARD F. HYLAND, Treasurer; Principal of The Vanguard Group, Inc.;
Treasurer of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.;
Controller of each of the investment companies in The
Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President, Information Technology.
JAMES H. GATELY, Senior Vice President, Individual Investor Group.
IAN A. MACKINNON, Senior Vice President, Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President, Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[PHOTO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
[email protected] http://www.vanguard.com
All Vanguard Funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses
may be obtained directly from The Vanguard Group.
(C) 1996 Vanguard Marketing Corporation, Distributor
<PAGE> 39
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity-International
Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Fee Funds
(CA, FL, NJ, NY, OH, PA)
Q750-11/96
[PHOTO]
