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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 16
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<PAGE> PAGE 19
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<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2156557
<INVESTMENTS-AT-VALUE> 2198886
<RECEIVABLES> 37583
<ASSETS-OTHER> 556
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2237025
<PAYABLE-FOR-SECURITIES> 69453
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7368
<TOTAL-LIABILITIES> 76821
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2146606
<SHARES-COMMON-STOCK> 184785
<SHARES-COMMON-PRIOR> 175515
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 28,731
<ACCUM-APPREC-OR-DEPREC> 42329
<NET-ASSETS> 2160204
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 122201
<OTHER-INCOME> 0
<EXPENSES-NET> 4122
<NET-INVESTMENT-INCOME> 118079
<REALIZED-GAINS-CURRENT> 10700
<APPREC-INCREASE-CURRENT> (192045)
<NET-CHANGE-FROM-OPS> (63266)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 118079
<DISTRIBUTIONS-OF-GAINS> 12271
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33075
<NUMBER-OF-SHARES-REDEEMED> 30568
<SHARES-REINVESTED> 6763
<NET-CHANGE-IN-ASSETS> (74931)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (27160)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 285
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4213
<AVERAGE-NET-ASSETS> 2268591
<PER-SHARE-NAV-BEGIN> 12.73
<PER-SHARE-NII> 0.644
<PER-SHARE-GAIN-APPREC> (0.971)
<PER-SHARE-DIVIDEND> 0.644
<PER-SHARE-DISTRIBUTIONS> 0.069
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> 0.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000225997
<NAME> VANGUARD MUNICIPAL BOND FUNDS
<SERIES>
<NUMBER> 07
<NAME> VANGUARD LIMITED-TERM TAX-EXEMPT FUND
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2571889
<INVESTMENTS-AT-VALUE> 2555409
<RECEIVABLES> 63700
<ASSETS-OTHER> 686
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2619795
<PAYABLE-FOR-SECURITIES> 34555
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8245
<TOTAL-LIABILITIES> 42800
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2595190
<SHARES-COMMON-STOCK> 243408
<SHARES-COMMON-PRIOR> 215635
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1715)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (16480)
<NET-ASSETS> 2576995
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 111042
<OTHER-INCOME> 0
<EXPENSES-NET> 4548
<NET-INVESTMENT-INCOME> 106494
<REALIZED-GAINS-CURRENT> 149
<APPREC-INCREASE-CURRENT> (63567)
<NET-CHANGE-FROM-OPS> 43076
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 106494
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 98675
<NUMBER-OF-SHARES-REDEEMED> 78694
<SHARES-REINVESTED> 7792
<NET-CHANGE-IN-ASSETS> 236815
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1864)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 310
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4633
<AVERAGE-NET-ASSETS> 2505018
<PER-SHARE-NAV-BEGIN> 10.85
<PER-SHARE-NII> 0.457
<PER-SHARE-GAIN-APPREC> (0.260)
<PER-SHARE-DIVIDEND> 0.457
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.59
<EXPENSE-RATIO> 0.18
</TABLE>
To the Shareholders and
Trustees of Vanguard Municipal Bond Funds
In planning and performing our audit of the financial statements of
Vanguard Munnicipal Bond Funds (the "Fund") for the year ended
October 31, 1999, we considered its internal control, including control
activities for safeguarding securities, in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial
statements and to comply with the requirements of Form N-SAR, not to
provide assurance on internal control.
The management of the Fund is responsible for establishing and
maintaining internal control. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected
benefits and related costs of controls. Generally, controls that are
relevant to an audit pertain to the entity's objective of preparing
financial statements for external purposes that are fairly presented in
conformity with generally accepted accounting principles. Those
controls include the safeguarding of assets against unauthorized
acquisition, use or disposition.
Because of inherent limitations in internal control, errors or fraud may
occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the effectiveness of
the design and operation may deteriorate.
Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under
standards established by the American Institute of Certified Public
Accountants. A material weakness is a condition in which the design or
operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements caused by
error or fraud in amounts that would be material in relation to the
financial statements being audited may occur and not be detected within
a timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving internal
control and its operation, including controls for safeguarding securities,
that we consider to be material weaknesses as defined above as of
October 31, 1999.
This report is intended solely for the information and use of
management and the Board of Trustees of the Fund and the Securities
and Exchange Commission and is not intended to be and should not be
used by anyone other than these specified parties.
PRICEWATERHOUSECOOPERS LLP
November 30, 1999
