<PAGE> 1
VANGUARD
CALIFORNIA
TAX-FREE FUND
Annual Report - November 30, 1997
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 2
OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 6,000 highly
motivated men and women--who form the cornerstone of our operations. As with any
cornerstone, we could not survive long--let alone prosper--without it. That's
why we chose this fiscal year's annual report to celebrate the spirit,
enthusiasm, and achievements of our crew. (We call those who work at Vanguard
crew members, not employees, because they operate as a team to accomplish our
mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving
you in the years ahead.
[PHOTO] [PHOTO]
John C. Bogle John J. Brennan
Chairman President
CONTENTS
A MESSAGE TO OUR SHAREHOLDERS ....................... 1
THE MARKETS IN PERSPECTIVE .......................... 5
REPORT FROM THE ADVISER ............................. 7
PERFORMANCE SUMMARIES ............................... 9
PORTFOLIO PROFILES .................................. 12
FINANCIAL STATEMENTS ................................ 16
REPORT OF INDEPENDENT ACCOUNTANTS ................... 36
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
DEAR SHAREHOLDER,
During the twelve months ended November 30--Vanguard California Tax-Free Fund's
1997 fiscal year--the prices of tax-exempt bonds edged higher, reflecting a
modest decline in long-term interest rates in the face of continued mild
inflation. Short-term interest rates, on the other hand, moved slightly higher.
In this environment, the +3.4% return of our Money Market Portfolio, the
+5.9% return of our Insured Intermediate-Term Portfolio, and the +6.5% return of
our Insured Long-Term Portfolio exceeded the results of their peers. The table
at right presents each Portfolio's twelve-month return, as well as its income
and capital components.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
COMPONENTS OF TOTAL RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1997
------------------------------------
PORTFOLIO INCOME CAPITAL TOTAL
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Money Market +3.4% 0.0% +3.4%
Insured Intermediate-Term +4.9 +1.0 +5.9
Insured Long-Term +5.4 +1.1 +6.5
- ----------------------------------------------------------------------
</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 $11.42
per share on November 30, 1996, to $11.45 per share on November 30, 1997,
adjusted for dividends totaling $0.592 per share from net investment income and
distributions totaling $0.091 per share from net realized capital gains. The
Insured Intermediate-Term Portfolio's return is based on a change in net asset
value from $10.58 per share on November 30, 1996, to $10.66 per share on
November 30, 1997, adjusted for dividends totaling $0.505 per share from net
investment income and a distribution of $0.022 per share from net realized
capital gains. The Money Market Portfolio's net asset value remained at $1 per
share, as is expected but not guaranteed. At the end of the fiscal year, the
Insured Long-Term Portfolio's yield stood at 4.80%, the Insured
Intermediate-Term Portfolio's yield at 4.40%, and the Money Market Portfolio's
yield at 3.60%.
FISCAL 1997 PERFORMANCE OVERVIEW
Steady economic growth teamed with low inflation to create a near-perfect
environment for investors over the past twelve months. Interest rates began the
period heading higher, a climb that was punctuated in March when the Federal
Reserve Board raised its target for short-term rates by 25 basis points.
However, that small increase was the only Fed action of the year. After peaking
in mid-April, the yield on the benchmark U.S. Treasury long-term bond headed
down to end the twelve months at 6.05%, more than one full percentage point
below its apex of 7.17% on April 14. Yields on high-grade, long-term municipal
bonds ended the period at 5.36%, down from 5.66% at the end of November 1996.
Yields on top-grade (MIG-1) municipal notes rose on balance to 3.80% from 3.55%
a year earlier.
While the economic environment was kind to bonds, it truly worked wonders
for equities. Low inflation, continued strong growth in corporate earnings, and
a record level of consumer confidence combined to drive stocks upward. Despite a
severe shock in late October, the Standard & Poor's 500 Composite Stock Price
Index posted a return of +28.5% for the fiscal year ended November 30.
This year's generally placid interest-rate environment marked the second
straight year of relative tranquillity in the bond market. However, we need not
look far back for
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<PAGE> 4
evidence that calm is by no means a constant in the bond market. During fiscal
1995, bond prices soared as interest rates fell sharply. Just the opposite was
true during 1994, when the bond market suffered one of its worst years ever. For
bond fund investors, the important lesson is that fluctuations in bond (and bond
fund) prices, which can have a significant impact on returns from year to year,
tend to wash away over longer periods, leaving the rate of interest income--the
coupon--as the dominant source of long-term returns.
The +6.5% annual total return for the California Insured Long-Term
Portfolio was a hair ahead of the +6.4% annual return for the average California
municipal bond fund, but trailed the +7.2% return of the Lehman Brothers
Municipal Bond Index. This "all-state" Index is a tough standard for any single
state tax-free fund, existing, as it does, outside the real world of operating
expenses and transaction costs. The +5.9% return of our Insured
Intermediate-Term Portfolio outpaced the +5.4% return of its average peer but
fell just short of the +6.0% return of the Lehman 7 Year Municipal Bond Index.
The total returns of both Portfolios received a slight boost from the price
increase engendered by the decline in interest rates, but the lion's share of
our return during the twelve months came from interest income. Our Money Market
Portfolio's return of +3.4%, all of which came from interest income,
outdistanced the +3.0% return of its average peer.
THE MUNICIPAL BOND TAX ADVANTAGE
For California residents, the income earned by our Portfolios is exempt from
state, local, and federal income taxes. Given these advantages, investors in the
California Insured Long-Term Portfolio who are taxed at the highest combined
federal-state marginal tax rate can earn 64% more after-tax income than they
could in a comparable long-term taxable bond fund, while investors in our
Insured Intermediate-Term Portfolio can earn 44% more after-tax income. For
similarly situated investors in our Money Market Portfolio, the yield of MIG-1
notes at the end of the fiscal year was 33% higher than the after-tax yield of
three-month U.S. Treasury bills. Put another way, a yield of 5.4% on a
tax-exempt long-term portfolio would be the equivalent of a 9.9% taxable yield
to California taxpayers subject to the highest tax rates. For a tax-exempt
short-term yield of 3.8%, the taxable equivalent would be 6.9%. These advantages
are truly remarkable, as reflected in the table at left, which compares the
annual net income earned on tax-exempt and taxable securities as of November 30,
1997, assuming a $100,000 investment.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
---------------------------------------
INTERMEDIATE-
SHORT-TERM TERM LONG-TERM
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable gross income $5,200 $5,900 $6,100
Less taxes (45.2%) (2,350) (2,700) (2,800)
Net after-tax income 2,850 3,200 3,300
- ------------------------------------------------------------------------
Tax-exempt income $3,800 $4,600 $5,400
- ------------------------------------------------------------------------
Tax-exempt income
advantage $950 $1,400 $2,100
- ------------------------------------------------------------------------
Percentage advantage 33% 44% 64%
- ------------------------------------------------------------------------
</TABLE>
The tax adjustment assumes a typical itemized tax return based on a federal tax
rate of 39.6% and the top state tax rate of 9.3%; local taxes are not
considered. The illustration is not intended to represent future results.
Our illustration assumes current yields (as of November 30, 1997) of 6.1%
for long-term U.S. Treasury bonds, 5.9% for intermediate-term U.S. Treasury
bonds, 5.2% for U.S. Treasury bills, 5.4% for long-term municipals, 4.6% for
intermediate-term municipals, and 3.8% for short-term municipals.
2
<PAGE> 5
We emphasize that these examples ignore two important differences in
credit quality between state-specific municipal bond funds and U.S. Treasury
bond funds: (1) Treasuries 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, the
added credit risk is 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.
Because portfolio insurance is generally not available for short-term
securities, the task of preserving principal in our Money Market Portfolio falls
to our investment adviser, Vanguard Fixed Income Group. This Group carefully
scrutinizes the credit quality of our holdings, which on average have earned
Moody's highest quality rating. That said, we point out that money market
investments are not guaranteed by the Federal Deposit Insurance Corporation,
which insures bank accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
The accompanying table compares the longer-term performance of each Portfolio of
Vanguard California Tax-Free Fund with that of its average peer. It also
illustrates our performance edge over our competitors-- a difference we call the
"Vanguard Advantage."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED NOVEMBER 30, 1997
----------------------------------------------------------------
AVERAGE FINAL VALUE OF A
ANNUAL RATE $10,000 INITIAL INVESTMENT*
---------------------- --------------------------------------
AVERAGE AVERAGE
PORTFOLIO VANGUARD COMPETING VANGUARD COMPETING VANGUARD
(INCEPTION DATE) PORTFOLIO FUND PORTFOLIO FUND ADVANTAGE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market
(6/1/1987) +4.0% +3.6% $14,747 $14,266 $ 481
Insured
Intermediate-
Term** (3/4/1994) +6.8 +5.8 12,810 12,361 449
Insured Long-Term
(4/7/1986) +8.8 +8.1 23,297 21,862 1,435
- --------------------------------------------------------------------------------------
</TABLE>
*Assuming reinvestment of all income dividends and capital gains distributions.
**Annualized returns since inception.
Our expense-ratio advantage over the typical competing fund plays a key
role in our performance advantage. Our Portfolios maintain expense ratios
(annual expenses as a percentage of average net assets) of about 0.20%, compared
with the 1.04% charged by the average long-term state tax-free fund, 0.91% for
the average intermediate-term state tax-free fund, and 0.60% for the average
state tax-free money market fund. This cost savings, which flows directly to our
shareholders, has been available year after year, and we expect it to continue
to aid us in our goal of providing returns that exceed those of our competitive
norms. Vanguard Fixed Income Group plays a key role too, managing the Portfolios
ably and maintaining a level of investment quality that we believe is without
peer in the industry.
Over the past several years--indeed, on balance for more than 15
years--bond investors have benefited from returns that are above historical
averages. Because long-term yields are at lower levels today than for most of
the recent past, it is virtually certain that returns for the next decade will
not match those of the past decade.
3
<PAGE> 6
IN SUMMARY
Bond investors have enjoyed a long period of generally declining interest rates,
while stock investors have experienced a stretch that is nothing short of
remarkable. But a sensible investor understands that the financial markets are
not a one-way street. Risk is an ever-present element of investing, even when
the markets are providing generous rewards.
That said, the greatest risk is not investing in the first place. We
believe that a sound method for dealing with risk is to construct a balanced
investment program of stock funds, bond funds, and reserves, one that is suited
to your objectives, financial situation, tolerance for risk, and time horizon.
If you have such a program in place, you should be prepared to "stay the course"
toward your investment goals, no matter what lies ahead.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
December 17, 1997
4
<PAGE> 7
THE MARKETS IN PERSPECTIVE
Year Ended November 30, 1997
U.S. EQUITY MARKETS
The fiscal year ended November 30 tested investors' mettle on a number of
occasions, but most ended on a positive note. The increasingly global nature of
investing has rarely been more in evidence than it was over the period. Turmoil
in Southeast Asia raised serious questions about future growth in the region
and, significantly, called into question the earnings outlook for U.S. companies
with exposure there.
Over the 12 months, large-capitalization stocks continued their advance,
propelling the S&P 500 Index to a 28.5% gain. Small-cap stocks also fared well,
as illustrated by the 23.4% increase of the Russell 2000 Index. These gains
withstood a rocky October, when the sharp declines in Asian markets led many
investors to question their expectations regarding U.S. equities. Although the
domestic market dropped substantially--the Dow Jones Industrial Average fell 554
points, or 7.2%, on October 27--it then rebounded smartly over the next few
days.
Among large-cap stocks, the financial services sector was again one of
the best performers, with an increase of 34.8% in fiscal 1997. Also noteworthy
was a November surge in utility stocks, which brought that sector's 12-month
return up to 34.5%. Utilities, those seemingly perennial cellar-dwellers, were
boosted by a drop in interest rates and by a general consensus that their
valuations at last adequately reflected the risks associated with the new
competitive landscape. In the final quarter of the fiscal year, utility stocks
jumped 23.6%, roughly three times the return generated by the S&P 500 Index
(6.7%). In sharp contrast were a number of market sectors that felt the brunt of
the disarray in Asian economies and--while showing positive gains for the
year--turned in negative fourth fiscal quarters. As the fiscal year ended, there
were growing indications from technology and manufacturing companies that the
economic distress in Southeast Asia would likely reduce their current and future
earnings.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1997
----------------------------------
1 YEAR 3 YEARS 5 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 28.5% 31.1% 20.2%
Russell 2000 Index 23.4 22.7 16.8
MSCI EAFE Index -0.1 6.5 11.6
- -----------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 7.6% 10.3% 7.6%
Lehman 10-Year Municipal Bond Index 7.1 10.3 7.5
Salomon Brothers Three-Month
U.S. Treasury Bill Index 5.2 5.4 4.7
- -----------------------------------------------------------------------------
OTHER
Consumer Price Index 1.8% 2.6% 2.6%
- -----------------------------------------------------------------------------
</TABLE>
While small-company stocks failed to match the outsized advance of the
S&P 500 Index, their performance grew notably stronger in the second half of the
fiscal year. For the year, the Russell 2000 Index gained 23.4%. During the
second six months, the Russell 2000's 13.8% essentially matched the S&P 500's
13.6%. The improved performance of smaller companies cannot be attributed to any
single factor, but is, rather, due to a combination of attractive valuations and
good earnings.
5
<PAGE> 8
U.S. FIXED-INCOME MARKETS
Bonds were overshadowed by stocks for much of the year. Investors' returns from
bonds, however, were quite respectable. As the year progressed, investors grew
more confident that four seemingly strange bedfellows--strong economic growth,
reasonable inflation, low unemployment, and stable wage growth--would continue
to coexist peacefully. As a result, when interest rates dipped noticeably toward
the fiscal year's end, they fell furthest for issues with the longest
maturities. The yield on the 30-year U.S. Treasury bond closed the fiscal year
at 6.05%, compared to 6.35% on November 30, 1996. Falling rates flattened the
yield curve considerably: Only 0.85% separated the yield on Treasury bills from
the yield on the 30-year issue, down from a spread of 1.22% at the previous
fiscal year-end.
The positive effect of the yield drop on bond prices was apparent in the
7.6% return of the Lehman Aggregate Bond Index, the broadest measure of
investment-grade issues. Investors in lower-quality securities fared even
better, as shown by the 12.6% gain of the Lehman High Yield Bond Index. The
strength of the economy, together with the lack of inflationary pressure,
produced an ideal environment for junk bonds.
INTERNATIONAL EQUITY MARKETS
Arguably, investors' greatest disappointments were in international
markets--and, of course, Asian markets in particular. During the fiscal year,
the Morgan Stanley Capital International (MSCI) Pacific Index declined by 26.3%
in U.S. dollar terms; the index fell 17.3% in the fourth quarter alone. Among
individual markets, the fiscal year saw sharp declines (in U.S. dollar terms) in
Japan, down 24.5%, including a 16.1% drop in the fourth quarter; Hong Kong, down
25%; Malaysia, down 68%; and Singapore, down 23%. The general slump in Asian
markets began in midsummer with currency devaluations by a number of countries.
Because the values of many of these currencies had been linked to the U.S.
dollar, their fall caused it to appreciate greatly--so much so that Asian
businesses soon found it difficult to purchase American-made products and to
repay dollar-denominated loans. This situation raised questions about how the
region's economic growth would be affected. Related worries focused on imprudent
aspects of various countries' financial systems and the probability of corporate
bankruptcies. In short, there was no place to hide.
By contrast, the European markets continued to provide U.S. investors
with solid returns, although they, too, stumbled in late October and recovered
in November. The MSCI Europe Index posted a gain of 21.8% for the 12 months. The
robust character of the European markets reflects strong corporate earnings and
optimism that the European Monetary Union will provide a solid framework for
future fiscal responsibility and economic growth.
6
<PAGE> 9
REPORT FROM THE ADVISER
Long-term tax-exempt bonds enjoyed a light tailwind in the 12 months ended
November 30, 1997, the fiscal year for Vanguard California Tax-Free Fund. A
slight decline in bond yields raised the prices of existing bonds, augmenting
returns from interest income. Yields on short-term tax-exempt securities rose
slightly on balance over the year.
THE INSURED INTERMEDIATE-TERM AND INSURED LONG-TERM PORTFOLIOS
For the Insured Intermediate-Term and Insured Long-Term Portfolios, fiscal 1997
was another period of positive performance. As in the previous fiscal year, most
of our return represented coupon income derived from the Portfolios' holdings.
Because of Vanguard's characteristically low expense ratio--less than 0.20% of
average net assets in fiscal 1997--the vast majority of the gross interest
collected by the Portfolios flows through to shareholders.
During the fiscal year, yields on 30-year high-quality municipal
securities fell 0.20 percentage point, from 5.45% to 5.25%. In comparison, the
yield on the 30-year U.S. Treasury bond declined 0.30 percentage point, from
6.35% to 6.05%. Despite the relatively narrow difference between yields at the
beginning and end of the year, the path was far from direct.
During the first half of the year, robust expansion of the U.S. economy
and steady job growth caused concern among fixed-income investors that inflation
would accelerate. Yields rose, and in April the yield on the 30-year Treasury
bond peaked at 7.17%. However, inflation remained in check, and investors came
to welcome the economy's steady growth as sustainable without upward price
pressure. This led to a rally in bond prices after midyear. Later, the bond
market got an additional boost from a dramatic meltdown in Asian currency and
equity markets. This instability triggered a "flight to quality" in which many
investors bought U.S. Treasury securities, pushing yields even lower. (A "flight
to quality" is a movement of capital to the safest investments as people seek to
protect themselves from loss during an unsettling period in a market.)
Two factors in the tax-exempt bond market have led to tightened yield
differentials between bond sectors. First, the current environment of low
interest rates has prompted many fixed-income investors to stretch for
additional yield by purchasing low-quality securities. This additional demand
has reduced the interest-rate premium that investors normally require before
they will buy bonds with poorer credit quality. Second, the increased use of
municipal bond insurance by issuers to boost the credit quality of their
securities has reduced the availability of low-investment-grade securities.
Today, approximately 50% of all new municipal bond issues are insured and carry
an AAA rating.
The combination of increased demand for and diminished supply of
lower-quality securities has caused a dramatic decline in the yield spreads
between tax-exempt bonds of higher and lower credit quality. For example, at the
beginning of fiscal 1997, an investor could receive 0.75 percentage point of
additional income for purchasing the lowest-quality investment-grade
7
<PAGE> 10
municipal bond rather than the highest-quality bond. By November 30, that spread
had fallen to only 0.35 percentage point. We do not expect a continued
tightening of quality spreads, but we cannot predict when spreads might widen.
In the meantime, shareholders in the Insured Intermediate-Term and Insured
Long-Term Portfolios are getting the highest credit quality while giving up very
little in incremental yield.
Vanguard's low-cost structure proved its value during the fiscal year as
investors tended to stretch further for yield and reduced their credit
protection. The powerful advantage of our low expense ratios--0.18% for our
Insured Intermediate-Term Portfolio and 0.16% for our Insured Long-Term
Portfolio versus 1.04% for the average long-term state tax-free fund--allows
more tax-exempt investment income to flow directly to shareholders without
requiring us to incur higher credit risk. Cost has been especially important in
recent years when income, not capital change, has accounted for the majority of
return for fixed-income investments. Over the long-term, low expenses correlate
directly with superior portfolio performance.
We think that the current environment bodes well for tax-exempt
investors. With moderate economic growth and subdued inflation, fixed-income
investments offer a consistent, durable return, which provides an important
anchor to windward in a diversified portfolio. In this realm, the Insured
Intermediate-Term and Insured Long-Term Portfolios offer the advantages of low
expenses, high credit quality, and income exempt from both state and federal
taxes. It is a combination difficult to surpass.
THE MONEY MARKET PORTFOLIO
Yields on one-year, tax-exempt money market instruments remained essentially
unchanged during the second half of the fiscal year, despite the onset of
summer's busy municipal borrowing season. The benchmark one-year MIG-1 note
closed the fiscal year with a yield of 3.80%, up 0.25 percentage point from the
yield at the start of the year. By way of comparison, we note that the yield on
one-year U.S. Treasury bills rose only 0.14 percentage point on balance over the
fiscal year, finishing with a yield of 5.49%. This increase was marginal despite
an increase of 0.25 percentage point in the federal funds rate engineered in
March by the Federal Reserve Board's Open Market Committee. The net result of
these market movements was a more favorable environment for municipal money
market investors, as the ratio of one-year MIG-1 note yields to yields on
one-year Treasuries rose from 66.4% at the start of the fiscal year to 69.2% at
its end.
The Money Market Portfolio is positioned neutrally as we begin the new
fiscal year. This strategy affords the Portfolio maximum flexibility in the face
of uncertainty, as the financial markets weigh the strength demonstrated by the
U.S. economy against the potential impact of continued economic turmoil in Asia.
What is certain, however, is that Vanguard California Tax-Free Fund will
continue to be managed conservatively with an emphasis on high quality. This
will allow the consistency and durability of Vanguard's low expenses to work on
behalf of our shareholders.
Ian A. MacKinnon, Managing Director
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Christopher M. Ryon, Principal
Vanguard Fixed Income Group
December 19, 1997
INVESTMENT PHILOSOPHY
The adviser believes that each Portfolio, while operating within stated maturity
and stringent quality targets, can achieve a high level of current income that
is exempt from federal and California income taxes by investing in insured and
high-quality uninsured securities issued by California state, county, and
municipal governments.
8
<PAGE> 11
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
per share.
TOTAL INVESTMENT RETURNS: JUNE 1, 1987-NOVEMBER 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MONEY MARKET PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<C> <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
1997 0.0 3.4 3.4 3.0
- ----------------------------------------------------------
</TABLE>
*Average California Tax-Exempt Money Market Fund.
See Financial Highlights table on page 31 for dividend information for the past
five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1987-NOVEMBER 30, 1997
- -----------------------------------------------------------------------
MONEY MARKET AVERAGE CALIFORNIA
PORTFOLIO TAX-EXEMPT MONEY MARKET FUND
- -----------------------------------------------------------------------
<S> <C> <C>
1987 11 10000 10000
1988 02 10121 10115
1988 05 10236 10222
1988 08 10364 10345
1988 11 10506 10480
1989 02 10658 10620
1989 05 10832 10781
1989 08 10996 10934
1989 11 11157 11088
1990 02 11312 11227
1990 05 11469 11371
1990 08 11624 11518
1990 11 11781 11675
1991 02 11923 11803
1991 05 12056 11918
1991 08 12178 12032
1991 11 12304 12161
1992 02 12412 12251
1992 05 12509 12333
1992 08 12589 12406
1992 11 12670 12487
1993 02 12747 12548
1993 05 12823 12605
1993 08 12898 12669
1993 11 12975 12742
1994 02 13045 12799
1994 05 13123 12859
1994 08 13208 12933
1994 11 13311 13030
1995 02 13433 13131
1995 05 13562 13242
1995 08 13680 13345
1995 11 13803 13459
1996 02 13920 13558
1996 05 14032 13651
1996 08 14145 13744
1996 11 14261 13850
1997 02 14376 13946
1997 05 14499 14047
1997 08 14622 14151
1997 11 14747 14266
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997
---------------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Portfolio 3.41% 3.08% 3.96% $14,747
Average California Tax-Exempt
Money Market Fund 3.00 2.70 3.62 14,266
- ------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1997*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ----------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 6/1/1987 3.38% 3.05% 0.00% 3.99% 3.99%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
9
<PAGE> 12
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.
TOTAL INVESTMENT RETURNS: MARCH 4, 1994-NOVEMBER 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
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
1997 1.0 4.9 5.9 6.0
- ----------------------------------------------------------
</TABLE>
*Lehman 7 Year Municipal Bond Index.
See Financial Highlights table on page 32 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MARCH 4, 1994-NOVEMBER 30, 1997
- ----------------------------------------------------------
AVERAGE
INSURED CALIFORNIA LEHMAN 7 YEAR
INTERMEDIATE-TERM INTERMEDIATE MUNICIPAL
PORTFOLIO MUNICIPAL FUND BOND INDEX
- ----------------------------------------------------------
<S> <C> <C> <C>
3/4/94 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
1997 02 12175 11779 12101
1997 05 12314 11909 12156
1997 08 12603 12180 12468
1997 11 12810 12361 12719
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997
------------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Intermediate-Term Portfolio 5.91% 6.84% $12,810
Average California Intermediate Municipal Fund 5.37 5.83 12,361
Lehman 7 Year Municipal Bond Index 6.04 6.64 12,719
- ------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1997*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insured Intermediate-Term Portfolio 3/4/1994 8.18% 1.89% 5.08% 6.97%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
10
<PAGE> 13
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.
TOTAL INVESTMENT RETURNS: APRIL 7, 1986-NOVEMBER 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------
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
1997 1.1 5.4 6.5 7.2
- --------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 32 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1987-NOVEMBER 30, 1997
- -------------------------------------------------------------
AVERAGE
INSURED CALIFORNIA LEHMAN
LONG-TERM INSURED MUNICIPAL
PORTFOLIO MUNICIPAL FUND BOND INDEX
- -------------------------------------------------------------
<S> <C> <C> <C>
1987 11 10000 10000 10000
1988 02 10839 10734 10618
1988 05 10513 10531 10543
1988 08 10853 10801 10777
1988 11 11223 11124 11063
1989 02 11588 11401 11277
1989 05 12177 11876 11757
1989 08 12210 12014 11960
1989 11 12588 12319 12281
1990 02 12647 12418 12434
1990 05 12830 12579 12617
1990 08 12769 12617 12728
1990 11 13478 13150 13227
1991 02 13718 13428 13580
1991 05 14003 13734 13888
1991 08 14335 14088 14228
1991 11 14639 14351 14584
1992 02 14993 14684 14936
1992 05 15366 15061 15252
1992 08 15940 15673 15816
1992 11 16221 15800 16045
1993 02 17445 16981 16991
1993 05 17446 17026 17076
1993 08 18075 17795 17746
1993 11 18090 17703 17824
1994 02 18262 17828 17931
1994 05 17770 17097 17498
1994 08 18071 17350 17778
1994 11 17027 16212 16893
1995 02 18788 17864 18275
1995 05 19527 18652 19098
1995 08 19549 18582 19355
1995 11 20451 19514 20087
1996 02 20703 19752 20295
1996 05 20261 19245 19971
1996 08 20766 19663 20369
1996 11 21863 20551 21268
1997 02 21864 20614 21413
1997 05 22142 20836 21625
1997 08 22753 21402 22253
1997 11 23297 21862 22793
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997
------------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured Long-Term Portfolio 6.52% 7.50% 8.83% $23,297
Average California Insured Municipal Fund 6.38 6.71 8.14 21,862
Lehman Municipal Bond Index 7.17 7.27 8.59 22,793
- ------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1997*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ----------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insured Long-Term Portfolio 4/7/1986 9.33% 7.57% 2.86% 6.33% 9.19%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
PORTFOLIO PROFILE
Money Market Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
November 30, 1997. Key elements of this Profile are defined on page 13.
FINANCIAL ATTRIBUTES
<TABLE>
- -----------------------------------------------------------
<S> <C>
Yield 3.6%
Average Maturity 65 days
Average Quality MIG-1
Expense Ratio 0.18%
</TABLE>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
<TABLE>
- -----------------------------------------------------------
<S> <C>
MIG-1/SP-1+ 78.5%
A-1/P-1 20.7
AAA/AA 0.7
A 0.1
- -----------------------------------------------------------
Total 100.0%
</TABLE>
12
<PAGE> 15
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 bond 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
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. Quality is graded on a scale, with Aaa or AAA indicating the
most creditworthy bond issuers and SP-1 or MIG-1 indicating the most
creditworthy issuers of money market securities.
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%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or other
credit problems on securities held by a 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 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.
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 income from interest and dividends. The
yield, expressed as a percentage of the portfolio's net asset value, is based on
income earned 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.
13
<PAGE> 16
PORTFOLIO PROFILE
Insured Intermediate-Term Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
November 30, 1997, compared where appropriate to an unmanaged index. Key
elements of this Profile are defined on page 13.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Number of Issues 180
Yield 4.4%
Yield to Maturity 4.4%
Average Coupon 5.7%
Average Maturity 6.8 years
Average Quality AAA
Average Duration 5.3 years
Expense Ratio 0.18%
Cash Reserves 0.0%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
INSURED INTERMEDIATE- LEHMAN
TERM PORTFOLIO INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.93 1.00
Beta 0.71 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 6.4%
1-5 Years 31.8
5-10 Years 36.0
10-20 Years 25.8
20-30 Years 0.0
Over 30 Years 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- -------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
AAA 97.5%
AA 2.5
A 0.0
BBB 0.0
BB 0.0
B 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
14
<PAGE> 17
PORTFOLIO PROFILE
Insured Long-Term Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
November 30, 1997, compared where appropriate to an unmanaged index. Key
elements of this Profile are defined on page 13.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Number of Issues 179
Yield 4.8%
Yield to Maturity 4.8%
Average Coupon 5.4%
Average Maturity 11.5 years
Average Quality AAA
Average Duration 7.8 years
Expense Ratio 0.16%
Cash Reserves 1.8%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
INSURED LONG- LEHMAN
TERM PORTFOLIO INDEX*
- ----------------------------------------------------------
<S> <C>
R-Squared 0.96 1.00
Beta 1.28 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 8.7%
1-5 Years 11.6
5-10 Years 24.7
10-20 Years 40.7
20-30 Years 13.9
Over 30 Years 0.4
- -------------------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- -------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
AAA 96.0%
AA 4.0
A 0.0
BBB 0.0
BB 0.0
B 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
15
<PAGE> 18
FINANCIAL STATEMENTS
November 30, 1997
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
noninsured 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
qcost, 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*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.3%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alameda-Contra Costa CA School Financing Auth. COP VRDO
(Capital Improvement Financing Pooled Project) 3.60% 12/4/1997 LOC $22,200 $ 22,200
Alameda County CA TRAN 4.50% 7/22/1998 19,000 19,068
Anaheim CA Public Improvement Corp. Lease COP VRDO
(Refunding Project) 3.55% 12/3/1997 (2) 44,605 44,605
California Educ. Fac. Auth. Rev. VRDO
(California Institute of Technology) 3.65% 12/4/1997 9,200 9,200
California GO 10.00% 4/1/1998 19,600 19,985
California GO CP 3.75% 1/16/1998 7,400 7,400
California Health Fac. Finance Auth. Rev. VRDO
(Adventist Health System West Sutter Health) 3.55% 12/4/1997 LOC 7,000 7,000
California Health Fac. Finance Auth. Rev. VRDO
(Adventist Health System West Sutter Health) 3.60% 12/4/1997 LOC 16,900 16,900
California Health Fac. Finance Auth. Rev. VRDO
(Catholic Health Care West) 3.75% 12/3/1997 (1) 31,100 31,100
California Health Fac. Finance Auth. Rev. VRDO (Kaiser Permanente) 3.65% 12/3/1997 25,700 25,700
California Health Fac. Finance Auth. Rev. VRDO
(Memorial Health Services) 3.65% 12/3/1997 10,100 10,100
California Health Fac. Finance Auth. Rev. VRDO (Pooled Program) 3.90% 12/3/1997 LOC 20,300 20,300
California Health Fac. Finance Auth. Rev. VRDO
(St. Francis Medical Center) 3.65% 12/3/1997 (1) 8,000 8,000
California Health Fac. Finance Auth. Rev. VRDO
(St. Francis Medical Center) 3.75% 12/3/1997 (1) 41,500 41,500
California Health Fac. Finance Auth. Rev. VRDO
(St. Joseph Health System Group) 3.70% 12/2/1997 10,250 10,250
California Health Fac. Finance Auth. Rev. VRDO (Sutter Health) 3.70% 12/2/1997 LOC 2,100 2,100
California PCR Finance Auth. CP (Pacific Gas & Electric Co.) 3.70% 12/17/1997 LOC 31,000 31,000
California PCR Finance Auth. VRDO (Exxon Project) 3.65% 12/2/1997 6,500 6,500
California PCR Finance Auth. VRDO (Pacific Gas & Electric Co.) 3.75% 12/2/1997 LOC 83,200 83,200
California PCR Finance Auth. VRDO (Pacific Gas & Electric Co.) 3.80% 12/2/1997 12,600 12,600
California PCR Finance Auth. VRDO (Southern California Edison Co.) 4.00% 12/2/1997 2,200 2,200
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Public Works Board Lease Rev. (Univ. of California) 4.50% 10/1/1998 $ 2,100 $ 2,109
California RAN 4.50% 6/30/1998 25,000 25,091
California School Cash Reserve Program Auth. (Pool) TRAN 4.75% 7/2/1998 15,000 15,070
California Statewide Communities Dev. Auth. COP VRDO
(Memorial Health Services) 3.65% 12/3/1997 19,000 19,000
California Statewide Communities Dev. Auth. COP VRDO
(St. Joseph Health System Group) 3.70% 12/2/1997 11,000 11,000
California Statewide Communities Dev. Auth. VRDO
(Kaiser Foundation Hosp.) 3.65% 12/3/1997 53,700 53,700
Contra Costa CA Community College Dist. TRAN 4.25% 6/30/1998 10,000 10,025
Contra Costa County CA TRAN 4.50% 7/1/1998 20,000 20,073
Cupertino CA Unified School Dist. TRAN 4.25% 6/30/1998 7,250 7,268
Foothill CA Eastern Transp. Corridor Agency Toll Road Rev. VRDO 3.65% 12/4/1997 LOC 25,000 25,000
Fresno City CA TRAN 4.25% 6/30/1998 5,000 5,013
Fresno County CA TRAN 4.25% 7/1/1998 28,300 28,372
Irvine CA Assessment Dist. Improvement Boards VRDO
(Northwest Irvine) 3.75% 12/2/1997 LOC 25,000 25,000
Irvine CA Assessment Dist. Improvement Boards VRDO (Oak Creek) 3.75% 12/2/1997 LOC 26,700 26,700
Irvine CA Assessment Dist. Improvement Boards VRDO (Irvine County) 3.60% 12/3/1997 LOC 51,556 51,556
Irvine CA Assessment Dist. VRDO (Irvine County) 3.75% 12/2/1997 LOC 15,085 15,085
Irvine CA Ranch Water Dist. VRDO 3.60% 12/2/1997 LOC 26,400 26,400
Irvine CA Ranch Water Dist. VRDO 3.70% 12/2/1997 LOC 59,575 59,575
Irvine CA Ranch Water Dist. VRDO (Consolidated Bonds Refunding) 3.75% 12/2/1997 LOC 5,900 5,900
Kern County CA VRDO (Public Fac. Project) 3.75% 12/3/1997 LOC 27,700 27,700
Los Angeles City CA TRAN 4.50% 6/30/1998 30,000 30,105
Los Angeles City CA Waste Water System Rev. CP 3.80% 12/16/1997 LOC 15,000 15,000
Los Angeles City CA Waste Water System Rev. CP 3.80% 2/18/1998 LOC 5,000 5,000
Los Angeles County CA Capital Asset Lease Rev. CP 3.80% 2/12/98 LOC 11,000 11,000
Los Angeles County CA Community College Dist. TRAN 4.50% 7/2/1998 9,000 9,030
Los Angeles County CA Dept. of Water & Power Electric Plant CP 3.70% 12/10/1997 LOC 11,000 11,000
Los Angeles County CA Dept. of Water & Power Electric Plant CP 3.80% 2/24/1998 LOC 17,700 17,700
Los Angeles County CA Local Educ. Agency Pool TRAN 4.50% 9/30/1998 30,000 30,154
Los Angeles County CA Metro. Transp. Auth. CP 3.70% 12/11/1997 LOC 19,545 19,545
Los Angeles County CA Metro. Transp. Auth. CP 3.70% 2/19/1998 LOC 8,000 8,000
Los Angeles County CA Metro. Transp. Auth. CP 3.75% 2/19/1998 LOC 14,108 14,108
Los Angeles County CA Metro. Transp. Auth. Sales Tax VRDO 3.65% 12/4/1997 (1) 27,300 27,300
Los Angeles County CA Pension Obligations VRDO 3.55% 12/3/1997 (2) 80,300 80,300
Los Angeles County CA Public Works Finance Auth. Rev.
(Los Angeles County Regional Park and Open Space Dist.) 5.00% 10/1/1998 12,330 12,455
Los Angeles County CA TRAN 4.50% 6/30/1998 60,000 60,212
Marin County CA TRAN 4.50% 7/31/1998 26,900 27,013
Orange County CA Improvement Boards VRDO
(Irvine Coast Assessment Dist.) 3.70% 12/2/1997 LOC 23,300 23,300
Orange County CA Sanitation Dist. VRDO 3.60% 12/2/1997 (3) 20,100 20,100
Orange County CA Sanitation Dist. VRDO 3.65% 12/4/1997 (2) 7,476 7,476
Orange County CA Sanitation Dist. VRDO 3.75% 12/2/1997 (2) LOC 23,960 23,960
Orange County CA Sanitation Dist. VRDO 3.75% 12/2/1997 LOC 28,100 28,100
Orange County CA Water Dist. VRDO 3.65% 12/2/1997 LOC 5,100 5,100
Otay CA Water Dist. COP VRDO (Capital Project) 3.70% 12/3/1997 LOC 8,900 8,900
Rancho Mirage CA Joint Powers Financing Auth. COP
(Eisenhower Medical Center) 3.65% 12/3/1997 (1) 25,100 25,100
Riverside County CA Public Fac. Project VRDO 3.70% 12/2/1997 LOC 14,500 14,500
Riverside County CA Public Fac. Project VRDO 3.95% 12/2/1997 LOC 6,220 6,220
Sacramento County CA VRDO
(Administration Center & Courthouse Project) 3.55% 12/4/1997 LOC 29,275 29,275
San Bernardino County CA COP VRDO
(County Center Refinancing Project) 3.60% 12/3/1997 LOC 9,100 9,100
San Bernardino County CA TRAN 4.50% 6/30/1998 15,000 15,055
San Diego CA Local Govt. COP TRAN 4.50% 10/1/1998 25,000 25,118
San Jose CA Redev. Agency Rev. VRDO (Merged Area Redev. Proj.) 3.60% 12/3/1997 LOC 7,300 7,300
San Jose/Santa Clara CA Clean Water & Sewer Finance Auth. VRDO 3.55% 12/3/1997 (3) 3,700 3,700
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
San Mateo County CA TRAN 4.50% 7/1/1998 $ 2,000 $ 2,008
Santa Clara CA El Camino Hosp. Dist. Fac. Auth. Rev. Lease VRDO
(Valley Medical Center Project) 3.70% 12/2/1997 LOC 26,100 26,100
Santa Clara CA Unified School Dist. TRAN 4.25% 7/1/1998 11,000 11,025
Santa Clara County CA TRAN 4.75% 10/1/1998 38,300 38,559
Southern California Metro. Water Dist. CP 3.70% 2/19/1998 8,000 8,000
Southern California Metro. Water Dist. CP 3.70% 2/20/1998 21,800 21,800
Southern California Public Power Auth. VRDO
(Southern Transmission Project) 3.55% 12/3/1997 (2) LOC 94,800 94,800
Southern California Public Power Auth. VRDO
(Southern Transmission Project) 3.60% 12/3/1997 (4) 24,365 24,365
Torrance CA Little Co. of Mary Hosp. VRDO
(Torrance Memorial Medical Center) 3.85% 12/4/1997 LOC 3,000 3,000
Turlock CA Irrigation Dist. COP VRDO (Transmission Project) 3.60% 12/3/1997 LOC 7,175 7,175
Ventura County CA TRAN 4.50% 7/1/1998 10,000 10,033
West Basin CA Muni. Water Dist. Rev. COP VRDO
(Phase II Recycled Water Project) 3.50% 12/3/1997 10,000 10,000
West Basin CA Muni. Water Dist. Rev. COP VRDO
(Phase II Recycled Water Project) 3.75% 12/3/1997 10,000 10,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,787,636) $1,787,636
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 20,653
Liabilities (8,357)
----------
12,296
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 1,799,850,854 outstanding shares of beneficial interest
(unlimited authorization--no par value) $1,799,932
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 27.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,799,991 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (59) --
Unrealized Appreciation -- --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,799,932 $1.00
==========================================================================================================================
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED INTERMEDIATE-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (100.0%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (94.0%)
Anaheim CA Electric System COP 6.80% 10/1/1998 (2) $ 1,000 $ 1,025
California GO 6.50% 3/1/2002 (2) 5,570 6,078
California Health Fac. Finance Auth. (Catholic Health Care West) 5.50% 7/1/2008 (1) 3,290 3,510
California Health Fac. Finance Auth. (Catholic Health Care West) 5.50% 7/1/2009 (1) 3,580 3,807
California Health Fac. Finance Auth. (Catholic Health Care West) 5.50% 7/1/2010 (1) 3,060 3,232
California Health Fac. Finance Auth. (Catholic Health Care West) 5.50% 7/1/2011 (1) 3,950 4,147
California Health Fac. Finance Auth. (Catholic Health Care West) 5.50% 7/1/2012 (1) 3,635 3,793
California Health Fac. Finance Auth. (Catholic Health Care West) 5.75% 7/1/2010 (1) 7,000 7,493
California Health Fac. Finance Auth. (Catholic Health Care West) 5.875% 7/1/2009 (2) 5,000 5,410
California Health Fac. Finance Auth. (Catholic Health Care West) 7.00% 7/1/2005 (2) 3,410 3,960
California Health Fac. Finance Auth. (Catholic Health Care West) 7.00% 7/1/2006 (2) 3,395 3,984
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/2001 (1) 1,600 1,700
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/2002 (1) 1,280 1,375
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/2004 (1) 1,645 1,799
California Health Fac. Finance Auth. (Children's Hosp.) 6.00% 7/1/2006 (1) 1,000 1,107
California Health Fac. Finance Auth. (Mills Peninsula) 6.00% 1/15/2000 (6) 1,080 1,120
California Health Fac. Finance Auth. (Pomona Valley Hosp.) 5.50% 7/1/2002 (1) 2,500 2,624
California Health Fac. Finance Auth. (Pomona Valley Hosp.) 5.50% 7/1/2003 (1) 3,010 3,172
California Health Fac. Finance Auth. (Pomona Valley Hosp.) 5.50% 7/1/2004 (1) 2,750 2,910
California Health Fac. Finance Auth. (Pomona Valley Hosp.) 5.50% 7/1/2010 (1) 3,570 3,727
California Health Fac. Finance Auth. (Pomona Valley Hosp.) 5.75% 7/1/2005 (1) 3,335 3,587
California Health Fac. Finance Auth. (Pomona Valley Hosp.) 5.75% 7/1/2006 (1) 3,415 3,681
California Health Fac. Finance Auth. (Presbyterian Hosp.) 5.25% 5/1/2001 (1) 1,500 1,553
California Health Fac. Finance Auth. (Presbyterian Hosp.) 5.25% 5/1/2002 (1) 1,000 1,040
California Health Fac. Finance Auth. (Presbyterian Hosp.) 5.25% 5/1/2003 (1) 1,000 1,044
California Health Fac. Finance Auth. (Presbyterian Hosp.) 5.50% 5/1/2004 (1) 1,855 1,968
California Health Fac. Finance Auth. (Presbyterian Hosp.) 5.50% 5/1/2005 (1) 1,500 1,597
California Health Fac. Finance Auth. (Scripps Memorial Hosp.) 6.25% 10/1/2013 (1) 3,000 3,231
California Health Fac. Finance Auth. (Sisters of Providence) 6.00% 10/1/2009 (2) 4,490 5,019
California Health Fac. Finance Auth. (Summit Medical Center) 5.25% 5/1/2011 (4) 1,700 1,740
California Health Fac. Finance Auth. (Sutter Health) 5.50% 8/15/2012 (4) 3,000 3,132
California Health Fac. Finance Auth. VRDO (Catholic Health Care West) 3.75% 12/3/1997 (1) 5,000 5,000
California Public Works Board 6.50% 12/1/2008 (2) 1,000 1,158
California Public Works Board (Dept. of Corrections) 5.50% 1/1/2010 (2) 10,000 10,505
California Public Works Board (Dept. of Corrections) 5.50% 1/1/2014 (2) 5,975 6,152
California Public Works Board (Dept. of Corrections) 6.40% 11/1/2010 (1) 5,000 5,579
California Public Works Board (Dept. of Corrections) 6.60% 12/1/2002 (2)(Prere.) 3,500 3,934
California Public Works Board (Univ. of California Regents) 5.50% 9/1/2008 (2) 5,185 5,536
California Public Works Board (Univ. of California Regents) 5.50% 9/1/2009 (2) 4,015 4,272
California Public Works Board (Univ. of California Regents) 6.25% 12/1/2007 (2) 1,000 1,094
Capistrano CA Unified Public Schools 6.00% 9/1/2004 (2) 2,160 2,367
Capistrano CA Unified Public Schools 6.00% 9/1/2005 (2) 2,395 2,641
Central Coast Water Auth. of California 6.05% 10/1/2002 (2)(Prere.) 1,800 1,971
Central Coast Water Auth. of California 6.25% 10/1/2006 (2) 2,000 2,208
Chino CA Basin Finance Auth. Muni. Water Dist. 6.50% 8/1/2010 (2) 3,095 3,596
Clovis CA Unified School Dist. 0.00% 8/1/2005 (3) 16,000 11,320
Contra Costa CA (Merrithew Memorial Hosp.) 5.25% 11/1/2001 (1) 3,000 3,119
Contra Costa CA (Merrithew Memorial Hosp.) 5.25% 11/1/2003 (1) 3,230 3,382
Contra Costa CA (Merrithew Memorial Hosp.) 6.00% 11/1/2006 (1) 2,000 2,212
Contra Costa CA (Merrithew Memorial Hosp.) 6.00% 11/1/2007 (1) 2,000 2,218
City of Corona CA Redev. Project 7.50% 9/1/2004 (3) 970 1,147
City of Corona CA Redev. Project 7.50% 9/1/2005 (3) 1,040 1,244
Culver City CA Redev. Finance Auth. 6.75% 11/1/1999 (2)(Prere.) 2,500 2,674
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.375% 12/1/2001 (2)(Prere.) 4,000 4,397
East Whittier CA City School Dist. 5.75% 8/1/2017 (3) 1,670 1,789
El Dorado County CA Public Agency Finance Auth. Rev. 5.50% 2/15/2021 (3) 2,420 2,448
El Dorado County CA Public Agency Finance Auth. Rev. 5.60% 2/15/2012 (3) 3,900 4,095
Glendale CA School Dist. 5.75% 9/1/2017 (3) 3,790 3,971
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED INTERMEDIATE-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
La Quinta CA Redev. Agency (Tax Allocation Project) 7.30% 9/1/2007 (1) $ 1,240 $ 1,497
La Quinta CA Redev. Agency (Tax Allocation Project) 8.00% 9/1/2003 (1) 1,325 1,566
Long Beach CA Financing Auth. 6.00% 11/1/2009 (2) 3,735 4,178
Long Beach CA Financing Auth. 6.00% 11/1/2010 (2) 3,860 4,310
Los Angeles CA Dev. Auth. COP (Children's Hosp.) 6.00% 6/1/2011 (1) 2,365 2,610
Los Angeles CA Transp. Comm. Sales Tax Rev. 6.25% 7/1/2013 (1) 1,500 1,631
Los Angeles CA Waste Water 5.75% 6/1/2011 (1) 7,960 8,381
Los Angeles CA Waste Water 6.50% 6/1/2007 (1) 1,695 1,905
Los Angeles CA Waste Water 8.70% 11/1/2002 (3) 2,535 3,035
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.50% 7/2/2017 (2) 1,500 1,527
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 8.00% 7/1/1999 (2) 5,445 5,780
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 9.00% 7/1/2005 (1) 4,015 5,181
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 9.00% 7/1/2006 (1) 4,380 5,764
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 9.00% 7/1/2007 (1) 4,770 6,378
Los Angeles County CA Pension Obligations VRDO 3.55% 12/3/1997 (2) 600 600
Los Angeles County CA Public Works Finance Auth. Rev. 4.10% 3/1/2000 (4) 5,000 5,007
MSR CA Public Power Agency (San Juan Project) 5.50% 7/1/2001 (1) 6,500 6,805
MSR CA Public Power Agency (San Juan Project) 5.85% 7/1/2006 (2) 1,500 1,625
Mountainview CA Capital Improvement Finance Auth. 6.25% 8/1/2012 (1) 5,000 5,392
North City West CA Community Dist. 5.75% 9/1/2015 (4) 2,000 2,096
North City West CA Community Dist. 6.00% 9/1/2005 (4) 1,510 1,665
North City West CA Community Dist. 6.00% 9/1/2006 (4) 1,600 1,773
North City West CA Community Dist. 6.00% 9/1/2007 (4) 1,695 1,883
Oakland CA Redev. Agency (Central Dist. Project) 6.00% 2/1/2006 (2) 5,125 5,675
Orange County CA Sanitation Dist. COP 6.00% 8/1/2001 (3)(Prere.)+ 1,500 1,620
Orange County CA Sanitation Dist. COP 6.40% 8/1/2007 (3) 1,415 1,533
Orange County CA Sanitation Dist. VRDO 3.65% 12/4/1997 (2) 189 189
Orange County CA Transp. Auth. 9.50% 2/15/2003 (3) 5,765 7,116
Pittsburg CA Redev. Agency Rev. 5.50% 8/1/2007 (3) 2,750 2,897
Poway CA Redev. Agency 7.25% 12/15/2011 (3) 7,500 8,159
Rancho CA Water Dist. Finance Auth. Rev. 5.875% 11/1/2010 (3) 3,000 3,251
Rancho CA Water Dist. Finance Auth. Rev. 6.25% 8/1/2012 (3) 1,950 2,103
Rancho CA Water Dist. Finance Auth. Rev. 6.50% 11/1/2001 (3) 1,590 1,728
Rancho Cucamonga CA Redev. Auth. 5.00% 9/1/2011 (1) 3,165 3,188
Riverside County CA Public Finance 5.25% 9/1/2003 (1) 2,210 2,319
Sacramento CA Muni. Util. Dist. Rev. 5.00% 7/1/2000 (2) 8,500 8,703
Sacramento CA Muni. Util. Dist. Rev. 5.75% 1/1/2010 (1) 5,000 5,305
Sacramento CA Muni. Util. Dist. Rev. 6.20% 8/15/2005 (1) 2,000 2,176
Sacramento CA Muni. Util. Dist. Rev. 6.25% 8/15/2007 (1) 8,000 8,721
Sacramento CA Redev. Agency (Merged Downtown Project) 6.75% 11/1/2005 (1) 1,000 1,089
Sacramento CA Redev. Agency (Tax Allocation Project) 6.50% 11/1/2013 (1) 2,000 2,154
Sacramento County CA Public Fac. Finance Corp. COP
(Main Detention Fac. Project) 5.50% 6/1/2010 (1) 5,500 5,870
San Bernardino CA Medical Center COP 4.30% 8/1/2000 (1) 6,000 6,031
San Bernardino CA Medical Center COP 4.40% 8/1/2001 (1) 9,500 9,583
San Bernardino CA Medical Center COP 4.50% 8/1/2002 (1) 8,000 8,087
San Bernardino CA Medical Center COP 5.00% 8/1/2003 (1) 2,500 2,582
San Diego County CA Regional Transp. Comm. 6.00% 4/1/2004 (2) 3,000 3,280
San Diego County CA Regional Transp. Comm. 6.00% 4/1/2007 (2) 3,000 3,330
San Diego County CA Regional Transp. Comm. 6.25% 4/1/2002 (3) 5,000 5,415
San Diego Public Fac. Finance Auth. Sewer Rev. 5.00% 5/15/2008 (3) 1,000 1,028
San Diego Public Fac. Finance Auth. Sewer Rev. 5.00% 5/15/2009 (3) 1,240 1,265
San Diego Public Fac. Finance Auth. Sewer Rev. 5.10% 5/15/2010 (3) 2,770 2,825
San Diego Unified School Dist. COP 5.375% 7/1/2002 (1) 10,835 11,361
San Francisco CA Airport Comm. Rev. 6.20% 5/1/2007 (2) 1,615 1,751
San Francisco CA Airport Comm. Rev. 6.50% 5/1/2013 (2) 2,160 2,365
San Francisco CA Bay Area Rapid Transit Rev. 5.55% 7/1/2009 (3) 4,920 5,170
San Francisco CA City & County Airport Rev. 5.50% 5/1/2010 (3) 2,880 3,025
San Francisco CA City & County Airport Rev. 5.50% 5/1/2011 (3) 3,080 3,218
San Francisco CA City & County Airport Rev. 6.30% 5/1/2011 (2) 1,085 1,179
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
San Francisco CA City & County Airport Rev. 6.40% 5/1/2005 (1) $ 2,800 $ 3,092
San Francisco CA City & County Airport Rev. 6.60% 5/1/2007 (1) 1,000 1,116
San Francisco CA City & County GO 4.00% 6/15/2000 (3) 7,970 7,972
San Francisco CA County Sewer Rev. 6.00% 10/1/2011 (2) 2,000 2,137
San Joaquin County CA COP (Human Services Project) 6.70% 5/15/1999 (5)(Prere.) 5,300 5,608
San Joaquin Hills CA Transp. Corridor Agency Toll Road Rev. 0.00% 1/15/2003 (1) 6,000 4,809
San Jose CA Merged Area Redev. Project 5.375% 8/1/1999 (1) 1,945 1,991
San Jose CA Merged Area Redev. Project 5.375% 8/1/2000 (1) 2,045 2,114
San Jose CA Merged Area Redev. Project 5.375% 8/1/2001 (1) 2,165 2,260
San Jose CA Merged Area Redev. Project 5.375% 8/1/2002 (1) 2,270 2,385
San Jose CA Merged Area Redev. Project 6.00% 8/1/2006 (1) 1,000 1,110
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/1999 (2) 1,645 1,678
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/2000 (2) 2,075 2,140
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/2001 (2) 2,215 2,310
Santa Margarita/Dana Point CA Auth. Rev. 5.50% 8/1/2008 (2) 3,345 3,562
Santa Margarita/Dana Point CA Auth. Rev. 5.50% 8/1/2009 (2) 3,860 4,092
Santa Margarita/Dana Point CA Auth. Rev. 5.50% 8/1/2010 (2) 2,245 2,364
Santa Margarita/Dana Point CA Auth. Rev. 7.25% 8/1/2006 (1) 3,315 3,968
Santa Margarita/Dana Point CA Auth. Rev. 7.25% 8/1/2010 (1) 2,180 2,687
Santa Margarita/Dana Point CA Auth. Rev. 7.25% 8/1/2011 (1) 1,640 2,032
Santa Rosa CA Waste Water Service Fac. Dist. 6.20% 7/2/2009 (2) 2,450 2,647
South Orange County CA Public Finance Auth. 6.25% 8/15/1999 (3) 2,000 2,078
South Orange County CA Public Finance Auth. 7.00% 9/1/2005 (1) 3,440 4,005
South Orange County CA Public Finance Auth. 7.00% 9/1/2007 (1) 1,000 1,190
South Orange County CA Public Finance Auth. 7.00% 9/1/2009 (1) 5,000 6,034
South Orange County CA Public Finance Auth. 7.00% 9/1/2010 (1) 3,300 3,993
South Orange County CA Public Finance Auth. 9.50% 8/15/2004 (1) 4,395 5,702
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/2007 (2) 1,300 1,357
Southern California Rapid Transit Dist. 6.00% 9/1/2008 (2) 2,650 2,862
Sweetwater CA Water Rev. 7.00% 4/1/2010 (2) 1,950 2,057
Tri-City CA Hosp. Dist. 5.50% 2/15/2008 (1) 3,805 4,053
Tri-City CA Hosp. Dist. 5.50% 2/15/2009 (1) 2,665 2,818
Tri-City CA Hosp. Dist. 5.625% 2/15/2011 (1) 2,970 3,122
Tri-City CA Hosp. Dist. 5.625% 2/15/2012 (1) 1,880 1,968
Tulare County CA COP 5.70% 11/15/2003 (1) 1,000 1,075
Tulare County CA COP 5.80% 11/15/2004 (1) 1,000 1,088
Univ. of California Board of Regents 6.00% 9/1/2008 (1) 1,500 1,641
Univ. of California Board of Regents 10.00% 9/1/2002 (1) 2,950 3,673
Univ. of California Hosp. Medical Center 5.625% 7/1/2010 (2) 6,660 7,058
Univ. of California (Multiple Purpose Project) 10.00% 9/1/2002 (2) 1,000 1,244
Univ. of California (Multiple Purpose Project) 10.00% 9/1/2003 (2) 2,000 2,566
Univ. of California (Multiple Purpose Project) 12.00% 9/1/2003 (2) 2,000 2,759
Visalia Waste Water System Rev. of California 6.00% 12/1/2007 (1) 1,000 1,116
West Basin CA Water Dist. 6.80% 8/1/2000 (2)(Prere.) 2,000 2,177
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2000 (1) 1,895 1,982
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2003 (1) 3,380 3,659
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2004 (1) 3,580 3,912
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2005 (1) 3,675 4,043
-----------
560,780
-----------
NONINSURED (6.0%)
Alameda-Costra Costa CA School Financing Auth. COP VRDO
(Capital Improvement Financing Pooled Project) 3.60% 12/4/1997 LOC 1,900 1,900
California Educ. Fac. Auth. (Univ. of Southern California) 5.60% 10/1/2009 2,680 2,884
California Health Fac. Finance Auth. Rev. VRDO
(Adventist Health System West Sutter Health) 3.55% 12/4/1997 LOC 500 500
California Health Fac. Finance Auth. Rev. VRDO
(Kaiser Permanente) 3.65% 12/3/1997 7,100 7,100
California PCR Financing Auth. VRDO (Pacific Gas & Electric Co.) 3.65% 12/2/1997 LOC 900 900
California PCR Financing Auth. VRDO (Pacific Gas & Electric Co.) 3.75% 12/2/1997 LOC 1,000 1,000
California PCR Financing Auth. VRDO (Pacific Gas & Electric Co.) 3.80% 12/2/1997 700 700
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED INTERMEDIATE-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Irvine CA Ranch Water Dist. VRDO 3.70% 12/2/1997 LOC $ 800 $ 800
Long Beach City CA TRAN 4.50% 10/8/1998 3,400 3,420
Los Angeles CA Unified School Dist. TRAN 4.50% 10/1/1998 3,500 3,520
Sacramento County CA COP VRDO
(Administration Center & Courthouse Project) 3.55% 12/4/1997 LOC 180 180
San Diego CA Unified School Dist. COP 5.25% 7/1/2001 11,265 11,670
Santa Clara County CA Finance Auth Rev. VRDO
(VMC Facilities Replacement Project) 3.65% 12/3/1997 1,200 1,200
-----------
35,774
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $576,487) 596,554
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 10,611
Liabilities (10,733)
-----------
(122)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable to 55,948,630 outstanding shares of beneficial interest
(unlimited authorization--no par value) $596,432
===================================================================================================================================
NET ASSET VALUE PER SHARE $10.66
===================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Securities with a value of $1,080,000 have been segregated as initial margin
for open futures contracts.
For explanations of abbreviations and other references, see page 27.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $577,804 $10.33
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (1,463) (.03)
Unrealized Appreciation--Note F
Investment Securities 20,067 .36
Futures Contracts 24 --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $596,432 $10.66
===================================================================================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.2%)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (85.5%)
Anaheim CA Convention Center COP 0.00% 8/1/2004 (1) $ 3,120 $ 2,315
Anaheim CA Convention Center COP 0.00% 8/1/2005 (1) 1,250 880
Anaheim CA Convention Center COP 0.00% 8/1/2006 (1) 3,125 2,085
Anaheim CA Convention Center COP 5.50% 8/1/2014 (1) 5,750 5,868
Anaheim CA Pub. Improvement Corp. Lease COP VRDO 3.55% 12/3/1997 (2) 375 375
City of Barstow CA Redev. Agency 6.25% 9/1/2022 (1) 2,225 2,424
California GO 6.00% 8/1/2019 (3) 4,400 4,690
California GO 7.00% 11/1/2004 (3)(Prere.) 1,935 2,269
California GO 7.00% 11/1/2013 (3) 65 75
California Health Fac. Finance Auth. (Adventist Health System) 6.75% 3/1/2011 (1) 5,000 5,412
California Health Fac. Finance Auth. (Catholic Health Care West) 5.75% 7/1/2015 (2) 4,080 4,263
California Health Fac. Finance Auth. (Catholic Health Care West) 6.00% 7/1/2017 (1) 27,900 29,839
California Health Fac. Finance Auth. (San Diego Hosp.) 6.20% 8/1/2020 (1) 3,820 4,054
California Health Fac. Finance Auth. (San Diego Hosp.) 6.625% 5/1/2019 (1) 6,525 6,791
California Health Fac. Finance Auth. (Unihealth America) 7.625% 10/1/2015 (2) 50 52
California Health Fac. Finance Auth. VRDO (Catholic Health Care West) 3.75% 12/3/1997 (1) 3,300 3,300
California Housing Finance Agency Multifamily Housing Rev. 8.625% 8/1/2015 (1) 170 178
California Public Works Board (Dept. of Corrections) 5.50% 12/1/2012 (1) 2,000 2,065
California Public Works Board (Dept. of Corrections) 5.50% 1/1/2017 (2) 20,305 20,730
California Public Works Board (Dept. of Corrections) 5.625% 11/1/2016 (1) 9,200 9,546
California Public Works Board (Univ. of California) 5.375% 10/1/2017 (2) 7,250 7,336
California Public Works Board (Univ. of California) 6.25% 12/1/2007 (2) 6,945 7,599
California Public Works Board (Univ. of California) 6.50% 12/1/2008 (2) 4,000 4,632
Capistrano CA Unified Public Schools 5.70% 9/1/2016 (2) 10,000 10,409
Chino CA Basin Finance Auth. Muni. Water Dist. 6.00% 8/1/2016 (2) 5,500 5,859
Clovis CA Unified School Dist. 0.00% 8/1/2004 (3) 5,000 3,725
Clovis CA Unified School Dist. 0.00% 8/1/2006 (3) 17,000 11,400
Clovis CA Unified School Dist. 0.00% 8/1/2007 (3) 15,000 9,515
Clovis CA Unified School Dist. 0.00% 8/1/2008 (3) 14,265 8,544
Clovis CA Unified School Dist. 0.00% 8/1/2009 (3) 19,725 11,132
Clovis CA Unified School Dist. 0.00% 8/1/2010 (3) 21,485 11,390
Clovis CA Unified School Dist. 0.00% 8/1/2011 (3) 1,625 810
Contra Costa CA COP 5.50% 6/1/2012 (2) 6,850 7,050
Contra Costa CA COP 6.70% 2/1/2021 (2) 4,630 4,870
Culver City CA Redev. Finance Auth. 6.75% 11/1/1999 (2)(Prere.) 955 1,017
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.375% 6/1/2021 (2) 5,750 6,320
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.50% 6/1/2020 (2) 2,000 2,273
Eastern CA Muni. Water Dist. 6.75% 7/1/2012 (3) 8,500 10,125
El Dorado County Public Agency Finance Auth. Rev. 5.50% 2/15/2016 (3) 9,000 9,225
Elsinore Valley CA Muni. Water Dist. COP 5.90% 7/1/2006 (3) 1,685 1,859
Elsinore Valley CA Muni. Water Dist. COP 6.00% 7/1/2012 (3) 2,210 2,461
Encina CA Power Auth. Waste Water Rev. 6.875% 8/1/2011 (3) 3,650 3,890
Glendale CA Hosp. Rev. (Adventist Health System) 6.00% 3/1/2014 (1) 3,000 3,123
Kern CA High School Dist. GO 6.25% 8/1/2011 (1) 1,065 1,212
Kern CA High School Dist. GO 6.40% 8/1/2014 (1) 1,490 1,718
Kern CA High School Dist. GO 6.40% 8/1/2015 (1) 1,645 1,900
Kern CA High School Dist. GO 6.40% 8/1/2016 (1) 1,815 2,099
La Quinta CA Redev. Agency (Tax Allocation Project) 7.30% 9/1/2010 (1) 1,145 1,412
Long Beach CA Financing Auth. Rev. 6.00% 11/1/2017 (2) 2,000 2,221
Los Angeles CA Metro. Transp. Auth. 5.25% 7/1/2023 (2) 13,025 12,790
Los Angeles CA Metro. Transp. Auth. 5.25% 7/1/2027 (1) 8,210 8,100
Los Angeles CA Metro. Transp. Auth. Sales Tax VRDO 3.65% 12/4/1997 (1) 1,600 1,600
Los Angeles County CA Transp. Comm. Sales Tax VRDO 3.55% 12/3/1997 (3) 7,100 7,100
MSR CA Public Power Agency (San Juan Project) 6.125% 7/1/2013 (2) 8,000 9,003
MSR CA Public Power Agency (San Juan Project) 6.75% 7/1/2020 (1) 38,785 46,497
Metro. Water Dist. of Southern California Waterworks Rev. 5.00% 7/1/2027 (1) 10,855 10,418
Metro. Water Dist. of Southern California Waterworks Rev. 5.50% 7/1/2025 (1) 20,000 20,207
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.75% 9/1/2015 (2) 3,750 3,918
Modesto CA Irrigation Dist. Finance Auth. Rev. (Woodland Project) 6.50% 10/1/2011 (2) 8,125 9,473
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Modesto CA Irrigation Dist. Finance Auth. Rev. (Woodland Project) 6.50% 10/1/2022 (2) $ 9,750 $ 11,590
North City West CA School Fac. Financing Auth. 6.00% 9/1/2019 (4) 2,000 2,139
Northern California Power Agency (Hydro Electric Project) 6.00% 7/1/2009 (1)+ 7,530 8,404
Northern California Power Agency (Hydro Electric Project) 6.30% 7/1/2018 (1) 10,000 11,458
Northern California Power Agency (Hydro Electric Project) 7.50% 7/1/2021 (2)(Prere.) 1,810 2,310
Oakland CA Redev. Agency (Central Dist. Project) 5.50% 2/1/2014 (2) 5,500 5,790
Orange County CA Local Transp. Auth. 5.80% 2/15/2005 (3) 6,000 6,487
Orange County CA Local Transp. Auth. 5.90% 2/15/2006 (3) 8,000 8,738
Orange County CA Sanitation Dist. VRDO 3.65% 12/4/1997 (2) 10,200 10,200
Placer County CA Water Rev. COP 7.75% 7/1/2018 (5) 3,500 3,649
Pomona CA Unified School Dist. GO 5.50% 8/1/2016 (3) 1,000 1,051
Pomona CA Unified School Dist. GO 5.60% 8/1/2014 (1) 1,585 1,688
Pomona CA Unified School Dist. GO 5.60% 8/1/2015 (1) 2,000 2,128
Pomona CA Unified School Dist. GO 5.60% 8/1/2016 (1) 1,000 1,062
Pomona CA Unified School Dist. GO 7.50% 8/1/2017 (1) 2,540 3,273
Port of Oakland CA Rev. 5.40% 11/1/2017 (1) 16,705 16,954
Port of Oakland CA Rev. 5.60% 11/1/2019 (1) 22,280 22,884
Rancho CA Water Dist. Finance Auth. Rev. 5.875% 11/1/2010 (3) 3,585 3,884
Rancho CA Water Dist. Finance Auth. Rev. 6.25% 8/1/2012 (3) 2,000 2,157
Redding CA Joint Power Finance Auth. Waste Water Rev. 5.50% 12/1/2018 (3) 5,400 5,459
Riverside County CA Transp. Comm. 5.75% 6/1/2009 (2) 3,800 4,155
Sacramento CA Finance Auth. Rev. 5.375% 11/1/2014 (2) 9,000 9,361
Sacramento CA Finance Auth. Rev. 5.40% 11/1/2020 (2) 9,785 10,116
Sacramento CA Muni. Util. Dist. Rev. 6.25% 8/15/2010 (1) 33,800 38,490
Sacramento CA Muni. Util. Dist. Rev. 6.30% 8/15/2018 (1) 14,000 15,178
Sacramento CA Redev. Agency (Tax Allocation Project) 6.50% 11/1/2013 (1) 5,500 5,923
Sacramento County CA Public Fac. Finance Corp. COP 5.50% 6/1/2010 (1) 5,760 6,147
San Bernardino County CA COP (Medical Center Financing Project) 6.50% 8/1/2017 (1) 17,915 20,749
San Diego CA Public Fac. Financing Auth. Sewer Rev. 5.25% 5/15/2027 (3) 6,450 6,364
San Diego CA Unified School Dist. COP 5.00% 8/1/2009 (1) 4,875 4,953
San Diego CA Unified School Dist. COP 5.375% 7/1/2003 (1) 10,435 10,987
San Francisco CA Airport Comm. Rev. 6.00% 5/1/2010 (1) 2,000 2,140
San Francisco CA Airport Comm. Rev. 6.00% 5/1/2011 (1) 2,100 2,237
San Francisco CA Airport Comm. Rev. 6.00% 5/1/2020 (1) 6,500 6,874
San Francisco CA Airport Comm. Rev. 6.20% 5/1/2006 (2) 5,000 5,422
San Francisco CA Airport Comm. Rev. 6.20% 5/1/2008 (2) 1,000 1,084
San Francisco CA Bay Area Rapid Transit Rev. 6.75% 7/1/2010 (2) 6,370 7,547
San Francisco CA Bay Area Rapid Transit Rev. 6.75% 7/1/2011 (2) 7,455 8,861
San Francisco CA City & County Airport Rev. 5.65% 5/1/2024 (3) 6,200 6,350
San Francisco CA City & County Airport Rev. 6.30% 5/1/2011 (2) 5,000 5,435
San Francisco CA City & County Airport Rev. 6.50% 5/1/2006 (1) 3,280 3,646
San Francisco CA City & County Airport Rev. 6.60% 5/1/2007 (1) 2,490 2,780
San Francisco CA City & County Airport Rev. 6.625% 5/1/2008 (1) 3,720 4,147
San Francisco CA City & County Airport Rev. 6.70% 5/1/2009 (1) 3,970 4,434
San Joaquin Hills CA Transp. Corridor Agency Toll Road Rev. 0.00% 1/15/2024 (1) 9,000 2,213
San Joaquin Hills CA Transp. Corridor Agency Toll Road Rev. 0.00% 1/15/2025 (1) 29,000 6,750
San Joaquin Hills CA Transp. Corridor Agency Toll Road Rev. 0.00% 1/15/2032 (1) 27,000 4,281
San Jose CA Merged Area Redev. Rev. Project 4.75% 8/1/2022 (1) 8,545 7,857
San Jose CA Merged Area Redev. Rev. Project 5.00% 8/1/2020 (1) 17,600 16,795
San Jose CA Merged Area Redev. Rev. Project 6.00% 8/1/2011 (1) 8,845 9,862
San Mateo County CA Finance Auth. 6.50% 7/1/2013 (1) 14,560 16,974
Santa Ana CA Finance Auth. Lease Rev. 6.25% 7/1/2016 (1) 5,345 6,083
Santa Ana CA Finance Auth. Lease Rev. 6.25% 7/1/2017 (1) 2,000 2,280
Santa Clara CA Redev. Agency (Bayshore Project) 7.00% 7/1/2010 (2) 7,000 8,347
Santa Clara CA Valley Water Dist. COP 6.00% 2/1/2024 (3) 20,000 21,148
Santa Clara County CA Financing Auth. Lease Rev.
(Replacement Project) 6.75% 11/15/2020 (2) 11,500 13,321
Santa Fe Springs CA Redev. Agency 6.00% 9/1/2014 (1) 5,350 5,637
Santa Rosa CA Waste Water Rev. 6.00% 9/1/2015 (3) 5,580 6,168
Santa Rosa CA Waste Water Rev. 6.25% 9/1/2012 (3) 7,075 7,784
Santa Rosa CA Waste Water Service Fac. Dist. 6.00% 7/2/2015 (2) 7,000 7,734
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Coast CA Air Quality Management Dist. Rev. 5.50% 8/1/2014 (1) $ 8,000 $ 8,165
South Coast CA Air Quality Management Dist. Rev. 6.00% 8/1/2011 (2) 3,200 3,568
South County CA Waste Water Auth. 5.50% 8/1/2022 (3) 8,625 8,686
South Orange County CA Public Finance Auth. 7.00% 9/1/2011 (1) 3,000 3,645
South Orange County CA Public Finance Auth. 9.50% 8/15/2004 (1) 3,000 3,892
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/2007 (2) 1,600 1,670
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/2010 (2) 2,500 2,610
Southern California Public Power Auth. Transmission Project VRDO
(Southern Transmission) 3.55% 12/2/1997 (2) 12,400 12,400
Southern California Public Power Auth. (Transmission Project) VRDO 3.60% 12/3/1997 (4) 4,000 4,000
Sweetwater CA Water Rev. 7.00% 4/1/1999 (2)(Prere.) 3,050 3,229
Three Valley CA Muni. Water Dist. COP 5.25% 11/1/2010 (3) 4,220 4,319
Ukiah CA Electric Rev. 6.00% 6/1/2008 (1) 4,565 5,093
Ukiah CA Electric Rev. 6.25% 6/1/2018 (1) 6,000 6,861
Univ. of California Board of Regents 6.00% 9/1/2008 (1) 2,515 2,751
Univ. of California Board of Regents 6.375% 9/1/2019 (1) 6,500 7,213
Univ. of California (Medical Center) 5.75% 7/1/2012 (2) 10,395 11,002
Univ. of California (Medical Center) 5.75% 7/1/2014 (2) 12,160 12,757
Univ. of California (Medical Center) 5.75% 7/12/2024 (2) 10,000 10,418
Univ. of California (Medical Center) 6.00% 7/1/2026 (2) 11,000 11,689
Univ. of California (Multiple Purpose Project) 6.25% 9/1/2013 (1) 10,000 11,044
Walnut CA Public Finance Auth. 6.00% 9/1/2015 (1) 5,000 5,248
Walnut Valley CA Unified School Dist. 6.00% 8/1/2012 (2) 1,790 1,988
Walnut Valley CA Unified School Dist. 6.00% 8/1/2013 (2) 1,980 2,196
Walnut Valley CA Unified School Dist. 6.00% 8/1/2014 (2) 2,205 2,444
Walnut Valley CA Unified School Dist. 6.00% 8/1/2015 (2) 2,470 2,739
Walnut Valley CA Unified School Dist. 6.00% 8/1/2016 (2) 2,690 2,983
Walnut Valley CA Unified School Dist. 6.20% 8/1/2009 (2) 1,270 1,442
West Sacramento CA Financing Auth. Rev.
(Water System Improvement Project) 5.25% 8/1/2008 (3) 2,160 2,232
West Sacramento CA Tax Allocation Redev. Project 6.25% 9/1/2021 (1) 8,250 8,895
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.25% 6/1/2007 (1) 4,260 4,810
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.25% 6/1/2008 (1) 1,750 1,981
------------
1,031,332
------------
PORTFOLIO INSURED
Sacramento CA Muni. Util. Dist. 8.00% 11/15/2010 205 206
------------
SECONDARY MARKET INSURED (4.6%)
California GO 6.25% 9/1/2012 (3) 9,000 10,286
California Housing Finance Agency (Single Family Mortgage) 6.90% 8/1/2016 (5) 5,115 5,173
California Public Works Board (Dept. of Corrections) 6.50% 9/1/2017 (2) 30,000 35,126
Los Angeles CA Dept. of Water & Power 4.75% 11/15/2019 (1) 5,000 4,621
------------
55,206
------------
NONINSURED (8.1%)
Alameda-Contra Costa CA School Financing Auth. COP VRDO
(Capital Improvement Financing Pooled Project) 3.60% 12/4/1997 LOC 2,490 2,490
California Dept. of Water Resources (Central Valley Project) 6.40% 6/1/2002 (Prere.) 20,400 22,488
California Educ. Fac. Auth. Rev. (Univ. of Southern California Project) 5.80% 10/1/2015 5,000 5,220
California Health Fac. Finance Auth. VRDO
(Adventist Health System West Sutter Health) 3.55% 12/4/1997 LOC 300 300
California Health Fac. Finance Auth. VRDO (Kaiser Permanente) 3.65% 12/3/1997 1,200 1,200
California Health Fac. Finance Auth. VRDO (Memorial Health Service) 3.65% 12/3/1997 500 500
California PCR Financing Auth. Rev. VRDO (Pacific Gas & Electric Co.) 3.65% 12/2/1997 LOC 300 300
California RAN 4.50% 6/30/1998 15,000 15,059
Chula Vista CA IDR VRDO (San Diego Gas & Electric) 3.80% 12/2/1997 600 600
Irvine CA Ranch Water Dist. VRDO 3.70% 12/2/1997 LOC 1,100 1,100
Los Angeles CA Dept. of Water & Power 6.50% 4/1/2010 3,950 4,345
Los Angeles CA Unified School Dist. TRAN 4.50% 10/1/1998 3,625 3,646
Los Angeles County CA Public Works Financing Auth. Rev. 5.50% 10/1/2011 5,000 5,221
Los Angeles County CA Public Works Financing Auth. Rev. 5.50% 10/1/2012 6,750 7,018
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Los Angeles County CA Local Educ. Pool TRAN 4.50% 9/30/1998 $10,000 $ 10,050
Metro. Water Dist. of Southern California 8.00% 7/1/2008 2,000 2,565
Orange County CA Sanitation Dist. VRDO 3.75% 12/2/1997 LOC 1,300 1,300
Riverside County CA Public Fac. Project VRDO 3.70% 12/2/1997 LOC 1,400 1,400
Sacramento County CA COP VRDO
(Administrative Center & Courthouse Project) 3.55% 12/4/1997 LOC 2,565 2,565
San Diego CA Local Govt. Pooled COP TRAN 4.50% 10/1/1998 10,000 10,055
Santa Clara County CA El Camino Hosp. Dist. Fac. Auth. Rev. Lease VRDO
(Valley Medical Center Project) 3.70% 12/2/1997 LOC 1,200 1,200
-----------
98,622
-----------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,098,958) 1,185,366
- ------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
Other Assets--Note B 23,713
Liabilities (2,554)
-----------
21,159
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------------------------------------
Applicable to 105,416,793 outstanding shares of beneficial interest
(unlimited authorization--no par value) $1,206,525
==============================================================================================================================
NET ASSET VALUE PER SHARE $ 11.45
==============================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Securities with a value of $3,348,000 have been segregated as initial margin
for open futures contracts. For explanations of abbreviations and other
references, see page 27.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,119,528 $10.62
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 633 .01
Unrealized Appreciation (Depreciation)--Note F
Investment Securities 86,408 .82
Futures Contracts (44) --
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,206,525 $11.45
==============================================================================================================================
</TABLE>
26
<PAGE> 29
KEY TO ABBREVIATIONS
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
IDR--Industrial Development Revenue Bond.
PCR--Pollution Control Revenue Bond.
RAN--Revenue Anticipation Note.
TRAN--Tax Revenue Anticipation Note.
VRDO--Variable Rate Demand Obligation.
(Prere.)--Prerefunded.
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.
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.
27
<PAGE> 30
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>
- --------------------------------------------------------------------------------------------------------------------------
INSURED INSURED
MONEY MARKET INTERMEDIATE-TERM LONG-TERM
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997
----------------------------------------------------------
(000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $57,973 $23,171 $60,419
----------------------------------------------------------
Total Income 57,973 23,171 60,419
----------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 239 66 165
Management and Administrative 2,134 637 1,318
Marketing and Distribution 512 131 240
Insurance Expense -- -- 1
Custodian Fees 27 9 17
Auditing Fees 8 7 7
Shareholders' Reports 24 4 16
Annual Meeting and Proxy Costs 5 2 4
Trustees' Fees and Expenses 3 1 2
----------------------------------------------------------
Total Expenses 2,952 857 1,770
Expenses Paid Indirectly--Note C (27) (9) (17)
----------------------------------------------------------
Net Expenses 2,925 848 1,753
----------------------------------------------------------
NET INVESTMENT INCOME 55,048 22,323 58,666
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 19 433 7,686
Futures Contracts -- (1,436) (3,627)
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 19 (1,003) 4,059
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- 6,963 8,312
Futures Contracts -- 114 221
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- 7,077 8,533
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $55,067 $28,397 $71,258
==========================================================================================================================
</TABLE>
28
<PAGE> 31
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>
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSURED INTERMEDIATE-TERM
PORTFOLIO PORTFOLIO
--------------------------------- ----------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
1997 1996 1997 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 55,048 $ 42,635 $ 22,323 $ 12,978
Realized Net Gain (Loss) 19 22 (1,003) 786
Change in Unrealized Appreciation
(Depreciation) -- -- 7,077 4,447
----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 55,067 42,657 28,397 18,211
----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (55,048) (42,635) (22,323) (12,978)
Realized Capital Gain -- -- (729) --
----------------------------------------------------------------------
Total Distributions (55,048) (42,635) (23,052) (12,978)
----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 1,814,001 1,395,492 358,923 194,699
Issued in Lieu of Cash Distributions 50,897 39,782 17,852 9,727
Redeemed (1,508,080) (1,194,129) (128,781) (72,250)
----------------------------------------------------------------------
Net Increase from Capital Share
Transactions 356,818 241,145 247,994 132,176
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 356,837 241,167 253,339 137,409
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,443,095 1,201,928 343,093 205,684
----------------------------------------------------------------------
End of Year $1,799,932 $1,443,095 $596,432 $343,093
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 1,814,001 1,395,492 34,064 18,763
Issued in Lieu of Cash Distributions 50,897 39,782 1,692 936
Redeemed (1,508,080) (1,194,129) (12,240) (6,973)
----------------------------------------------------------------------
Net Increase in Shares Outstanding 356,818 241,145 23,516 12,726
=========================================================================================================================
</TABLE>
29
<PAGE> 32
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
PORTFOLIO
------------------------------
YEAR ENDED NOVEMBER 30,
------------------------------
1997 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 58,666 $ 53,580
Realized Net Gain (Loss) 4,059 8,516
Change in Unrealized Appreciation (Depreciation) 8,533 6,993
-------------------------------
Net Increase in Net Assets Resulting from Operations 71,258 69,089
-------------------------------
DISTRIBUTIONS
Net Investment Income (58,666) (53,580)
Realized Capital Gain (8,550) --
-------------------------------
Total Distributions (67,216) (53,580)
-------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 254,391 193,541
Issued in Lieu of Cash Distributions 45,804 35,791
Redeemed (163,271) (153,953)
-------------------------------
Net Increase from Capital Share Transactions 136,924 75,379
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 140,966 90,888
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,065,559 974,671
-------------------------------
End of Year $1,206,525 $1,065,559
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 22,618 17,449
Issued in Lieu of Cash Distributions 4,070 3,216
Redeemed (14,544) (13,877)
-------------------------------
Net Increase in Shares Outstanding 12,144 6,788
=========================================================================================================================
</TABLE>
30
<PAGE> 33
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 are not required to report
a Portfolio Turnover Rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT OPERATIONS
Net Investment Income .034 .033 .036 .026 .024
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-------------------------------------------------------------
Total from Investment Operations .034 .033 .036 .026 .024
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.034) (.033) (.036) (.026) (.024)
Distributions from Realized Capital Gains -- -- -- -- --
-------------------------------------------------------------
Total Distributions (.034) (.033) (.036) (.026) (.024)
-------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 3.41% 3.32% 3.69% 2.59% 2.40%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,800 $1,443 $1,202 $1,159 $1,006
Ratio of Total Expenses to Average Net Assets 0.18% 0.19% 0.20% 0.19% 0.19%
Ratio of Net Investment Income to Average Net Assets 3.35% 3.27% 3.61% 2.57% 2.37%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
INSURED INTERMEDIATE-TERM PORTFOLIO
YEAR ENDED NOV. 30,
-------------------------------------- MAR. 4* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1997 1996 1995 NOV. 30, 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.58 $10.44 $ 9.64 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .505 .508 .511 .346
Net Realized and Unrealized Gain (Loss) on Investments .102 .140 .800 (.360)
-------------------------------------------------------
Total from Investment Operations .607 .648 1.311 (.014)
-------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.505) (.508) (.511) (.346)
Distributions from Realized Capital Gains (.022) -- -- --
-------------------------------------------------------
Total Distributions (.527) (.508) (.511) (.346)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.66 $10.58 $10.44 $ 9.64
=============================================================================================================================
TOTAL RETURN 5.91% 6.41% 13.88% -0.19%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $596 $343 $206 $100
Ratio of Total Expenses to Average Net Assets 0.18% 0.19% 0.21% 0.19%**
Ratio of Net Investment Income to Average Net Assets 4.78% 4.90% 5.05% 4.97%**
Portfolio Turnover Rate 10% 21% 11% 6%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM PORTFOLIO
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.42 $11.27 $ 9.92 $11.30 $10.89
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .592 .598 .602 .604 .604
Net Realized and Unrealized Gain
(Loss) on Investments .121 .150 1.350 (1.228) .609
--------------------------------------------------------------------
Total from Investment Operations .713 .748 1.952 (.624) 1.213
--------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.592) (.598) (.602) (.604) (.604)
Distributions from Realized Capital Gains (.091) -- -- (.152) (.199)
--------------------------------------------------------------------
Total Distributions (.683) (.598) (.602) (.756) (.803)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.45 $11.42 $11.27 $ 9.92 $11.30
=============================================================================================================================
TOTAL RETURN 6.52% 6.91% 20.11% -5.88% 11.53%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,207 $1,066 $975 $834 $1,074
Ratio of Total Expenses to Average Net Assets 0.16% 0.19% 0.20% 0.19% 0.19%
Ratio of Net Investment Income to Average Net Assets 5.26% 5.38% 5.59% 5.60% 5.38%
Portfolio Turnover Rate 21% 23% 23% 28% 27%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 35
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 Money Market, Insured Intermediate-Term, and Insured Long-Term 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 over 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 Intermediate-Term and Insured Long-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, 1997, the Fund had contributed capital aggregating
$242,000 to Vanguard (included in Other Assets), representing 1.2% of Vanguard's
capitalization. The Fund's Trustees and officers are also Directors and officers
of Vanguard.
33
<PAGE> 36
C. The Fund's custodian bank has 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, 1997, custodian fee offset arrangements reduced expenses
by:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
ANNUALIZED
TOTAL EXPENSE
EXPENSE REDUCTION AS A
REDUCTION PERCENT OF AVERAGE
PORTFOLIO (000) NET ASSETS
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market $27 --
Insured Intermediate-Term 9 --
Insured Long-Term 17 --
----------------------------------------------------------------------------------------------------
</TABLE>
D. During the year ended November 30, 1997, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(000)
--------------------------------------
PORTFOLIO PURCHASES SALES
------------------------------------------------------------------------------------------------
<S> <C> <C>
Insured Intermediate-Term $287,673 $ 43,033
Insured Long-Term 294,007 221,064
------------------------------------------------------------------------------------------------
</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, 1997, 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>
Money Market -- $ (65) 2000-2003
Insured Intermediate-Term -- (157) 2005
Insured Long-Term $7,285 -- --
------------------------------------------------------------------------------------------------
</TABLE>
F. At November 30, 1997, 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 Intermediate-Term $20,072 $ (5) $20,067
Insured Long-Term 86,441 (33) 86,408
------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 37
At November 30, 1997, the aggregate settlement value of open futures
contracts expiring in March 1998 and the related unrealized appreciation
(depreciation) were:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(000)
------------------------------------------
AGGREGATE UNREALIZED
NUMBER OF SETTLEMENT APPRECIATION
PORTFOLIO/FUTURES CONTRACTS SHORT CONTRACTS VALUE (DEPRECIATION)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Intermediate-Term/
U.S. Treasury Note 160 $17,820 $ 24
Insured Long-Term/
U.S. Treasury Bond 170 20,235 (44)
------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 38
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
Money Market Portfolio, Insured Intermediate-Term Portfolio, and Insured
Long-Term Portfolio (constituting Vanguard California Tax-Free Fund, hereafter
referred to as the "Fund") at November 30, 1997, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended 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, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
securities purchased had not been settled, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 1998
SPECIAL 1997 TAX INFORMATION (UNAUDITED) FOR VANGUARD CALIFORNIA TAX-FREE FUND
This information for the fiscal year ended November, 30, 1997, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term Portfolio designates $5,404,000 as capital gain
dividends (from net long-term capital gains), which will be distributed in
December 1997.
Each Portfolio designates 100% of its income dividends as
exempt-interest dividends.
36
<PAGE> 39
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.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions,
Inc., Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance
Co., and Ladies Professional Golf Association; Trustee Emerita of Wellesley
College.
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 Telecommunications 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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director 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
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's 500," "S&P 500(R)," "Standard & Poor's(R)," "S&P(R),"
and "500" are trademarks of The McGraw-Hill Companies, Inc.
Frank Russell Company is the owner of trademarks and copyrights relating
to the Russell Indexes. "Wilshire 4500" and "Wilshire 5000"
are trademarks of Wilshire Associates.
<PAGE> 40
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
Global Equity Portfolio
Index Trust
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Small Capitalization Stock
Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
International Growth Portfolio
International Value Portfolio
Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
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BOND FUNDS
Admiral Funds
Intermediate-Term U.S.
Treasury Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term U.S. Treasury
Portfolio
Bond Index Fund
Intermediate-Term Bond
Portfolio
Long-Term Bond Portfolio
Short-Term Bond Portfolio
Total Bond Market Portfolio
Fixed Income Securities Fund
GNMA Portfolio
High Yield Corporate Portfolio
Intermediate-Term Corporate
Portfolio
Intermediate-Term U.S.
Treasury Portfolio
Long-Term Corporate
Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term Corporate
Portfolio
Short-Term Federal Portfolio
Short-Term U.S. Treasury
Portfolio
Municipal Bond Fund
High-Yield Portfolio
Insured Long-Term Portfolio
Intermediate-Term Portfolio
Limited-Term Portfolio
Long-Term Portfolio
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Preferred Stock Fund
State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
MONEY MARKET FUNDS
Admiral Funds
U.S. Treasury Money Market
Portfolio
Money Market Reserves
Federal Portfolio
Prime Portfolio
Municipal Bond Fund
Money Market Portfolio
Treasury Money Market Portfolio
State Tax-Free Funds
(CA, NJ, NY, OH, PA)
Q750-11/97
(C) 1998 Vanguard Marketing
Corporation, Distributor
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
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1-800-662-2739
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www.vanguard.com
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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 you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
