<PAGE> 1
VANGUARD
NEW YORK INSURED TAX FREE FUND
ANNUAL REPORT 1993
[PHOTO]
<PAGE> 2
A BRAVE NEW WORLD FOR INVESTING
With the clarity of hindsight, we can now see that the past two decades
composed one of the great cycles in the history of the financial markets, as
reflected in the chart below.
* During the 1973-1982 decade, the nominal total returns (capital change plus
income) of stocks and bonds averaged only about +6% per year; cash reserves
averaged more than +8% annually. However, high inflation rates, averaging
8.7% annually, devastated these nominal results. Real returns (nominal
returns less the inflation rate) for each of these three major asset
classes were actually negative.
* During the 1983-1992 decade, quite the opposite situation prevailed. Nominal
returns for stocks and bonds were close to their highest levels in history
and forged well into double-digit territory. To make a good investment
environment even better, inflation was tame (averaging 3.8% annually), and
real returns were solidly positive.
[A TALE OF TWO DECADES CHART -- SEE EDGAR APPENDIX]
This sharp contrast provides us with perspective for the decade that will end
in the year 2002. Some investors will fear a recurrence of the returns of the
first decade, while others will hope for a recurrence of the second; most will
likely anticipate something in between. Whatever the case, there are two
essential elements involved in considering your investment program in the light
of today's circumstances.
First, the yield of each investment class at the start of a decade has
had an important relationship to its future return. Yields were low when 1973
began, high when 1983 began, and are again low today. In fact, current income
yields are remarkably close to the levels of 20 years ago, as shown in the
following table.
<TABLE>
<CAPTION>
INCOME YIELDS (January 1)
------------------------------------------
1973 1983 1993 (11/30)
- ------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS 2.7% 4.9% 2.7%
BONDS 5.8 10.7 6.0
RESERVES 3.8 10.5 3.1
- ------------------------------------------------------------------
</TABLE>
But there is a second important element to consider: inflation. It got
progressively worse during most of the first decade, but got progressively
better in the second.
<TABLE>
<CAPTION> ------------------------------------------
1973 1981 1993 (11/30)
- ------------------------------------------------------------------
<S> <C> <C> <C>
INFLATION 3.4% 12.4% 2.7%
- ------------------------------------------------------------------
</TABLE>
Today's low yield levels suggest that more modest nominal returns are in
prospect for the coming decade than in the 1980s; indeed, returns could
gravitate
(Please turn to inside back cover)
VANGUARD NEW YORK INSURED TAX-FREE FUND SEEKS A HIGH LEVEL OF INCOME THAT IS
EXEMPT FROM FEDERAL AS WELL AS NEW YORK STATE PERSONAL INCOME TAXES, BY
INVESTING PRIMARILY IN INSURED LONG-TERM MUNICIPAL BONDS ISSUED BY NEW YORK
STATE AND LOCAL MUNICIPALITIES. THE FUND ALSO INVESTS IN BONDS FOR WHICH
VANGUARD OBTAINS INSURANCE COVERAGE, A FEATURE WHICH REDUCES CREDIT RISK AND
HELPS TO ASSURE THE TIMELY PAYMENTS OF PRINCIPAL AND INTEREST.
<PAGE> 3
CHAIRMAN'S LETTER
[PHOTO]
DEAR SHAREHOLDER:
The decline in interest rates continued--and indeed accelerated--during the
twelve months ended November 30, 1993, the eighth fiscal year of the Vanguard
State Tax-Free Funds. Lower yields pushed the prices of long-term tax-exempt
bonds higher, and the net asset values of our Insured Long-Term Portfolios
benefited accordingly. As rates fell, however, interest income was reduced,
with the most immediate impact felt in our Money Market Portfolios.
Reflecting the low-interest-rate environment that prevailed over the past
twelve months, our Money Market Portfolios provided returns that were modest in
an absolute sense, albeit comfortably above the returns of their respective
competitive benchmarks. The total returns (capital change plus income) of our
Insured Long-Term Portfolios were exemplary, surpassing even the excellent
results that we achieved in our prior fiscal year. It is difficult to imagine a
more beneficial two-year stretch for investors in long-term bonds. In any
event, here are the Portfolio highlights for the past twelve months:
* THE STATE MONEY MARKET PORTFOLIOS--provided total returns of about
+2.4% . . . with declining money market rates for yet another year,
Portfolio yields ended the period at lower levels than where they began,
hovering in the area of 2.3% . . . net asset values, of course, remained at
$1.00 per share.
* THE STATE INSURED LONG-TERM PORTFOLIOS--enjoyed another outstanding year
"across the board," as each Portfolio turned in a double-digit return
ranging from +12% to +13% . . . current yields are at their lowest levels in
our Funds' (admittedly rather short) history.
The detailed results for each of our State Tax-Free Portfolios, including
per share net asset values, dividends and capital gains distributions for the
fiscal year, as well as current yields are presented at the end of this letter.
The following table summarizes the returns for our State Insured Long-Term
Portfolios:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Investment Returns
Twelve Months Ended
November 30, 1993 % of Total
Insured Long-Term -------------------------- Return From
Portfolio Income Capital Total Capital
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA +5.8% +5.7% +11.5% 49%
NEW YORK +6.0 +6.4 +12.4 52
PENNSYLVANIA +6.1 +5.8 +11.9 49
NEW JERSEY +5.9 +6.6 +12.5 52
OHIO +5.7 +6.3 +12.0 52
FLORIDA +5.5 +6.9 +12.4 56
- ---------------------------------------------------------------
</TABLE>
In last year's Annual Report, I called special attention to the substantial
capital component (appreciation in net asset value per share) of the total
returns on our State Insured Long-Term Portfolios. My purpose in doing so at
that time was to advise investors that it seemed unreasonable to expect a
recurrence of these capital returns in fiscal 1993. As shown in the table, this
year the role of capital appreciation in our Portfolios' results turned out to
be even more dramatic, accounting on balance for some 50% of our total returns.
(continued)
1
<PAGE> 4
[MONTH-END YIELDS 1990-1993 GRAPH -- SEE EDGAR APPENDIX]
Although my cautionary words one year ago could hardly have been further
off the mark, I nonetheless would remind shareholders that capital returns of
the magnitude shown in the preceding table simply cannot be taken for granted.
Indeed, with long-term interest rates at their lowest levels in nearly two
decades, now is a perfect opportunity to remind investors that, should rates
reverse direction and move higher, "capital reward" will inevitably translate
to "capital penalty" for each of our six Insured Long-Term Portfolios.
The excellent absolute returns for all of our Insured Long-Term Portfolios
in fiscal 1993 come on top of the double-digit returns earned in the prior
fiscal year. The chart at the top of the facing page illustrates the results of
the New York Insured Tax-Free Fund since its inception in April 1986, compared
with the results of the two most appropriate available benchmarks: the
unmanaged Lehman Municipal Bond Index and the average New York insured
municipal fund. You can see that our long-term results have exceeded nicely
those of the average competitor, with both standards falling short of the
unmanaged Index.
* THE FISCAL YEAR IN REVIEW
Our 1993 fiscal year was the sixth consecutive year of favorable markets--and
the third consecutive year of double-digit returns--for long-term bonds. Lower
yields drove up the prices of municipal, corporate, and U.S. Treasury bonds
alike. Treasury bonds, registered the largest rate declines and garnered the
greatest price appreciation, gaining some +17% for the year. Over the same
period, yields on high-grade, long-term, tax-exempt bonds fell 0.70% (70 "basis
points"), from 6.2% to 5.5%, resulting in a price increase of +10%.
Compared to the sharp decline in long-term rates over the past twelve
months, the drop in short-term tax-exempt rates was fairly muted. From the
2.7% level at the outset of the fiscal year, yields on high-grade (MIG 1)
municipal notes fell to 2.0% in January 1993, climbed to 2.6% at the end of
July, and closed the year at 2.4%.
The consensus holds that the rate decline is based on two fundamental
factors. First, the U.S. economy remains sluggish, unable to provide the
typical post-recession snapback that investors have come to expect. Second, and
perhaps more importantly, there is continuing evidence that inflation remains
well under control. The U.S. consumer price index (CPI) increased 2.7% over the
past twelve months, compared to 3.0% during the prior twelve-month period. As a
result, despite the sharp decline in interest rates, "real" yields (nominal
yields less the inflation rate) on long-term bonds remain at healthy levels.
The chart to the left provides a striking illustration of how precipitous
the decline in interest rates has been over the past four years, with nearly
all of the decline coming during the final three years. The yield on
high-grade, long-term municipal bonds
2
<PAGE> 5
[CUMULATIVE PERFORMANCE -- SEE EDGAR APPENDIX]
fell from 7.0% on November 30, 1989, to 5.5% on November 30, 1993. For
short-term tax-exempt rates, the decline during the same period was more
pronounced, with the yield on high-grade notes falling on balance from 5.9% to
2.4%. As a result of this disparity in rate declines, the "spread" of the long
rate over the short rate has widened from 110 basis points at the beginning of
the period to 310 basis points at the end. This widening reflects a very
"steep" yield curve, allowing fixed-income investors to earn a substantial
income premium by extending the maturity of their bond holdings. It should go
without saying that each step out in length of maturity brings with it
additional price volatility.
* THE ADVANTAGE OF TAX-EXEMPT INCOME
In each year's Annual Report, we present our customary table illustrating the
advantage of tax-exempt investments versus taxable investments, after adjusting
for the effect of Federal taxes at the maximum marginal rate on income
payments. Here are the results of the comparison at the end of fiscal 1993:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Illustration of Income on
Hypothetical $100,000 Investment
---------------------------------
Long-Term Short-Term
- ---------------------------------------------------------------
<S> <C> <C>
TAXABLE GROSS INCOME $6,300 $3,200
LESS TAXES (39.6%) (2,500) (1,300)
- ---------------------------------------------------------------
NET AFTER-TAX INCOME $3,800 $1,900
TAX-EXEMPT INCOME 5,500 2,400
- ---------------------------------------------------------------
TAX-EXEMPT ADVANTAGE $1,700 $ 500
- ---------------------------------------------------------------
</TABLE>
Table assumes current yields (as of November 30, 1993) of 6.3% for U.S.
Treasury bonds, 3.2% for Treasury bills, 5.5% for long-term municipals, and
2.4% for short-term municipals. The illustration is not intended to represent
future results.
The advantage spelled out in the table--a 45% increase in after-tax income for
the long-term investor and a 26% increase for the short-term investor--strongly
suggests that investors who are
3
<PAGE> 6
taxed at the highest marginal rates should consider tax-exempt alternatives for
the fixed-income portion of their overall investment portfolio. (I should add
that both the interest earned on our State Tax-Free Portfolios and the interest
earned on U.S. Treasury obligations are exempt from taxes at the state level.)
As I noted earlier, the decline in yields on U.S. Treasury bonds has been
significantly larger than that on tax-exempt bonds. This divergence is
paradoxical considering that it comes just as the maximum marginal federal tax
rate has been raised from 31% to 39.6%--the highest rate since 1986. This
should mean that the spread between taxable and tax-exempt rates would widen;
instead, it has narrowed for long- term investors and remained about the same
for short-term investors.
To be sure, even the highest quality insured state municipal bond cannot
quite match the creditworthiness of a U.S. Treasury bond, and long-term
municipal bonds are usually callable after 10 years, a disadvantage not shared
by Treasury securities. So, the yield comparison has a moderate structural bias
in favor of municipals. But the yield differential illustrated in the table is
hardly "moderate"--it is more like "day and night." Suffice it to say that the
ability of top-tax-bracket investors to earn substantially more after-tax
income with only a marginal sacrifice in quality is unlikely to persist
indefinitely. It is probably fair to say that relative values in tax-exempt
bonds are as great on a sustained basis as they have been for two decades.
* A PERSPECTIVE ON TODAY'S INTEREST RATE ENVIRONMENT
The aggregate assets of all municipal bond mutual funds now total some $350
billion, and the funds are now among the largest buyers and holders of
tax-exempt securities. While, like all mutual funds, our State Insured Tax-Free
Portfolios promise "liquidity on demand" to shareholders, it must be clear that
providing this liquidity depends to a degree on an orderly liquidation pattern
by investors. With the exception of the industry's experience during 1987's
sharp dip in long-term bond prices, resulting from the upward spikes in
interest rates in April and May of that year, the industry's handling of
redemptions has been flawless, and daily liquidity has been maintained without
impacting the marketplace. (Given the very short maturities of money market
instruments, liquidity is much less of a concern in our State Money Market
Portfolios.)
And yet, with rates having come down so far and so fast, there is always
the risk of a sharp rebound. When that happens, investors who have purchased
municipal bond funds for the long term should not be concerned. However, there
appears to be an active body of short-term speculators who move their money
from long-term to short-term bonds at the proverbial drop of a hat. You should
know that at Vanguard we do our best to exclude these speculators from our
funds, by rigorously limiting the frequency of inter-fund exchanges and by
refusing to accept business from known "market timers."
If you are an investor who likes to speculate on interest rate changes, I
urge you to move your assets to one of our many competent competitors. If you
are an investor who will respond with fright to any kind of reversal of the
past five year's rise in bond prices, I urge you to shorten your maturity
profile by, for example, moving a portion of your assets from the more volatile
Insured Long-Term Portfolio for your state to our corresponding Money Market
Portfolio (available in all states but New York and Florida, in which case the
Money Market Portfolio of Vanguard Municipal Bond Fund might be selected). If
you are a long-term investor--content that your needs for capital stability
(with commensurate income volatility) in our Money Market Portfolios and for
income stability (with commensurate capital volatility) in our Insured
Long-Term Portfolios are being met--I urge you, once again, to "stay the
course."
* IN SUMMARY
As I write this letter, the combined assets of the ten Vanguard State Tax-Free
Portfolios are approaching the $8 billion mark, up some 30% in just one year.
4
<PAGE> 7
This staggering growth is a testament, we believe, to an ever-increasing
understanding among investors that, all else being equal, costs will "carry the
day." With the yield on the average state tax-exempt bond fund at 4.3%, and
with 102 of 137 state tax-exempt money market funds now yielding less than
2.0%, costs will be an even more critical determinant of the top-performing
funds.
This is precisely the kind of environment in which the Vanguard State
Tax-Free Portfolios should thrive. While the average competitive state tax-free
portfolio charges annual fees at the rate of 0.68% of average net assets, the
expense ratio for our Portfolios, at 0.21%, is just a fraction of this amount.
For a money market portfolio with a gross yield of 2.0%, the expenses of the
average competitor would consume nearly 35% of its interest income; Vanguard's
expenses would consume but 11%. It is hard to imagine that intelligent
investors could be attracted to a fund with such a built-in yield disadvantage.
In closing, we believe that, whatever the future course of interest rates,
our State Tax-Free Portfolios will provide returns that generally exceed those
of their respective competitors.
Sincerely,
/s/ JOHN C. BOGLE
- ---------------------
John C. Bogle
Chairman of the Board
December 13, 1993
Note: Mutual fund data from Lipper Analytical Services, Inc.
A WORD ABOUT CAPITAL GAINS DISTRIBUTIONS
You may recall that, during the rising bond markets of each of the past three
years, some of our Insured Long-Term Portfolios realized modest capital gains.
And, it will probably not surprise you to know that each Portfolio realized
capital gains in 1993. These amounts must, under Federal tax regulations, be
distributed to shareholders of our Portfolios as taxable capital gains.
I want to emphasize that it is not our objective to realize capital gains;
rather, these gains are a by-product of a number of factors, including, most
importantly, sharply rising municipal bond prices, bonds that are called or
refunded, and limited portfolio strategy shifts to capitalize on the relative
valuations of different market sectors.
5
<PAGE> 8
PORTFOLIO HIGHLIGHTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value
Total Per Share
Net Assets ----------------- Twelve Months
(millions) Average Average Nov. 30, Nov. 30, ------------------------ Current
Portfolio Nov. 30, 1993 Maturity Quality* 1992 1993 Dividends Total Return Yield**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . . $1,006 73 days MIG 1 $ 1.00 $ 1.00 $.024 + 2.4% 2.32%
PENNSYLVANIA . . . 935 71 days MIG 1 1.00 1.00 .024 + 2.4 2.25
NEW JERSEY . . . . 724 58 days MIG 1 1.00 1.00 .023 + 2.3 2.23
OHIO . . . . . . . 132 74 days MIG 1 1.00 1.00 .023 + 2.4 2.36
- -----------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA . . . . $1,074 11.3 years Aaa $10.89 $11.30 $.803 +11.5% 4.89%
NEW YORK . . . . . 807 9.9 years Aaa 10.45 10.97 .739 +12.4 4.73
PENNSYLVANIA . . . 1,496 8.4 years Aaa 10.96 11.36 .855 +11.9 4.83
NEW JERSEY . . . . 748 9.5 years Aaa 11.18 11.77 .772 +12.5 4.76
OHIO . . . . . . . 166 8.9 years Aaa 11.07 11.61 .753 +12.0 4.77
FLORIDA . . . . . 269 10.7 years Aaa 10.16 10.86 .537 +12.4 4.88
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* MIG 1 and Aaa are Moody's highest ratings for, respectively, short-term and
long-term municipal bonds.
** Money Market Portfolios' yields are 7-day annualized yields; others are
30-day SEC yields.
+ Include capital gains distributions of $.199 for California, $.145 for New
York, $.224 for Pennsylvania, $.135 for New Jersey, and $.145 for Ohio.
The shares of each of the Vanguard "single state" Portfolios are available
for purchase solely by residents of the designated states.
6
<PAGE> 9
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS NOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN ACCORDANCE
WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS
(PERIODS ENDED SEPTEMBER 30, 1993) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
PORTFOLIO (INCEPTION DATE) 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
CALIFORNIA INSURED LONG-TERM (4/7/86) +14.53% +10.62% + 8.97%
CALIFORNIA MONEY MARKET (6/1/87) + 2.42 + 4.42 + 4.49
NEW YORK INSURED TAX-FREE (4/7/86) +14.83 +10.78 + 8.41
PENNSYLVANIA INSURED LONG-TERM (4/7/86) +14.32 +10.91 + 9.23
PENNSYLVANIA MONEY MARKET (6/13/88) + 2.41 + 4.53 + 4.58
NEW JERSEY INSURED LONG-TERM (2/3/88) +15.16 +10.78 +10.39
NEW JERSEY MONEY MARKET (2/3/88) + 2.37 + 4.50 + 4.56
OHIO INSURED LONG-TERM (6/18/90) +14.76 -- +12.12
OHIO MONEY MARKET (6/18/90) + 2.38 -- + 3.72
FLORIDA INSURED TAX-FREE (9/1/92) +15.18 -- +15.03
</TABLE>
THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE NOTE THAT AN INVESTMENT IN A MONEY MARKET FUND, SUCH AS THE MONEY MARKET
PORTFOLIOS OF THE VANGUARD STATE TAX-FREE FUNDS, IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
7
<PAGE> 10
REPORT FROM THE INVESTMENT ADVISER
STATE INSURED LONG-TERM PORTFOLIOS
* TIME FOR CHANGE?
Just one year ago, President Clinton was elected on a platform of change. Since
that time, the restrictive economic impact of higher taxes has overshadowed the
relatively quiet role played by Federal Reserve policy, and long-term interest
rates have declined precipitously. For the fiscal year ended November 30, 1993,
the yield on the 30-year U.S. Treasury Bond fell 1.2 percentage points (from
7.5% to 6.3%). During the same period, high-grade, long-term municipal yields
fell nearly three-quarters of a percentage point, from 6.2% to 5.5%.
The net result was another year of good performance both for the State
Insured Long-Term Portfolios and the bond market as a whole. In light of the
many successive years of above-average returns by longer-maturity fixed-income
investments, one has to wonder how much longer the rally can last.
* MUNICIPAL BONDS ARE ATTRACTIVE VERSUS TAXABLE BONDS
While municipal bond prices have risen sharply, taxable bond prices have
rallied even more. High-grade tax-exempt bonds currently provide 86% of the
yield on the 30-year U.S. Treasury bond, up from 82% at the beginning of the
year. This "cheapening" has been due primarily to a huge increase in the pace
of municipal bond issuance. Indeed, 1993 municipal supply set an all-time
record of some $290 billion--fully 25% above the previous record set just last
year, and easily twice the volume of a typical year's issuance.
Municipalities of all types have flooded the marketplace to refinance
higher cost debt at today's lower yield levels. We believe this process has run
full course, and suggest that municipal bonds are extremely attractive when
compared to their taxable brethren. The case for municipal bonds is even more
compelling in light of recently increased marginal tax rates.
* INVESTMENT STRATEGY
Given the current environment, the State Insured Long-Term Bond Portfolios are
pursuing the following investment strategies:
* CALL PROTECTION. We continue to emphasize call protection in all of our
longer bond portfolios. This strategy has produced greater price appreciation
as yields have declined. Importantly, it also will insulate future dividends
from an abrupt decline due to bond calls.
* MUNICIPAL VERSUS TREASURY. We have positioned the Portfolios to take
advantage of the exceptionally cheap relationship of municipal bonds versus
Treasury bonds. This positioning has been accomplished by simultaneously
establishing long positions in municipal bond futures contracts and short
positions in Treasury bond futures contracts. Although this strategy has
slightly detracted from annual performance thus far, we believe it will
produce positive results in 1994.
* "LONG AND RIGHT." Over the past few years, the State Insured Long-Term
Portfolios have maintained a longer maturity structure and consequently a
higher sensitivity to changes in interest rates than our competitors. This
strategy has served us well and produced good longer-term results in a
substantial bull market for fixed-income securities. During the course of the
past year, we reduced somewhat our longer maturity structure to match that of
our competitors, thereby "locking in" gains earned to date.
In conclusion, the past twelve months has been an exciting period for bond
fund shareholders. Plummeting interest rates have translated into attractive
performance returns on long-term, tax-exempt, fixed-income investments. To be
sure, this will be a tough standard to surpass.
8
<PAGE> 11
STATE MONEY MARKET PORTFOLIOS
Over the past twelve months, moderate economic expansion and low inflation
enabled the Federal Reserve Board to hold key interest rates steady. The last
policy action taken by the Fed occurred in early September 1992, when it
lowered the Federal funds rate to 3%.
Despite the overall stability in short-term rates, yields on tax-exempt
money market funds continued to decline. Plagued by a combination of sporadic
supply and strong investor demand, yields on state-specific money funds
deteriorated 30 basis points, from 2.2% to 1.9%. Notwithstanding this yield
decline, assets grew at a robust 14% rate. Strong performance versus the
competition, due primarily to Vanguard's expense ratio advantage, enabled our
money market funds to capture a large percentage of these assets.
The volume of new issue supply differed greatly among the various
state-specific funds. Recessionary and fiscal stress, which has persisted in
California, forced many of its municipalities to finance their cash needs with
short-term debt. As a result, July and August brought a flood of supply in
California tax-exempt paper. At the opposite end of the spectrum was New
Jersey, where diminished supply was attributable primarily to relatively low
long-term interest rates. The many municipalities that previously issued
short-term notes took advantage of these low rates by issuing long-term bonds
instead.
Looking forward, net new issuance in the first quarter of fiscal year 1994
is expected to remain light. Poised for this anticipated drought in supply, the
Vanguard State Tax-Free Money Market Portfolios are currently targeting a
minimum average weighted maturity of 75 days. Beyond the first quarter we will
proceed with caution, as any signs of increased inflation may prompt the
Federal Reserve Board to raise short-term interest rates.
Sincerely,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela E. Wisehaupt
Vice President
David E. Hamlin
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Reid O. Smith
Assistant Vice President
Vanguard Fixed Income Group
December 7, 1993
9
<PAGE> 12
STATEMENT OF NET ASSETS FINANCIAL STATEMENT
November 30, 1993
<TABLE>
<CAPTION>
Face Market
Amount Value
MUNICIPAL BONDS (97.6%) (000) (000)+
- -------------------------------------------------------------
<S> <C> <C>
ISSUER INSURED (77.9%)
Albany County GO
7.05%, 10/1/99 (3) (Prere.) $ 1,270 $ 1,479
7.0%, 1/15/05 (2) 1,250 1,424
5.0%, 10/1/05 (3) 2,000 2,019
5.0%, 10/1/06 (3) 3,150 3,159
5.0%, 10/1/12 (3) 4,400 4,274
Albany County Civic Center GO
6.6%, 6/1/96 (3) (Prere.) 1,360 1,484
6.7%, 6/1/96 (3) (Prere.) 3,700 4,045
Albany Municipal Water Finance Auth.
7.5%, 12/1/98 (1) (Prere.) 5,420 6,310
7.5%, 12/1/17 (1) 2,080 2,381
5.5%, 12/1/22 (3) 4,500 4,531
Babylon Waste Water Facilities
9.0%, 8/1/08 (3) 4,900 6,831
9.0%, 8/1/09 (3) 2,800 3,934
9.0%, 8/1/10 (3) 4,900 6,931
Battery Park City Auth.
7.25%, 11/1/16 (1) 2,000 2,138
Buffalo General Improvement
6.75%, 3/1/06 (1) 1,815 2,039
6.75%, 3/1/07 (1) 390 438
6.75%, 3/1/09 (1) 410 459
6.75%, 3/1/10 (1) 380 426
6.75%, 3/1/11 (1) 385 429
Buffalo GO
3.25%, 4/1/95 (1) 2,750 2,730
Buffalo Municipal Water
Finance Auth.
5.75%, 7/1/19 (4) 7,450 7,652
Buffalo Sewer System Rev.
7.625%, 7/1/96 (2) (Prere.) 1,000 1,126
5.25%, 7/1/08 (3) 3,500 3,533
5.0%, 7/1/12 (3) 2,400 2,310
Clifton Park Water Auth.
6.375%, 10/1/26 (3) 3,500 4,032
Duchess County Resource Recovery
7.5%, 1/1/09 (3) 2,000 2,318
Erie County GO
10.0%, 2/1/95 (3) 4,445 4,788
6.1%, 1/15/06 (3) 1,865 2,053
6.125%, 1/15/07 (3) 1,660 1,825
6.125%, 1/15/09 (3) 735 808
6.125%, 1/15/10 (3) 735 812
6.125%, 1/15/11 (3) 735 815
6.125%, 1/15/12 (3) 735 814
Erie County Water Auth.
VRDO 2.15%, 12/1/93 (2) 1,900 1,900
5.0%, 12/1/04 (2) 5,920 5,982
0.0%, 12/1/05 (2) 3,000 1,590
0.0%, 12/1/06 (2) 6,915 3,459
6.0%, 12/1/08 (2) 1,600 1,717
Huntington GO
6.7%, 2/1/10 (3) $ 375 $ 440
6.7%, 2/1/11 (3) 310 363
5.5%, 4/1/13 (3) 3,400 3,443
City of Jamestown GO
7.5%, 5/15/02 (2) 110 133
7.5%, 5/15/06 (2) 250 311
Metropolitan Transit Auth. of New York
(Commuter Facilities Rev.)
6.1%, 7/1/09 (1) 6,035 6,630
5.5%, 7/1/17 (1) 2,500 2,502
(Transportation Facilities Rev.)
5.4%, 7/1/07 (3) 17,330 17,791
7.0%, 7/1/09 (2) 5,650 6,727
6.375%, 7/1/10 (3) 6,100 6,615
6.0%, 7/1/11 (2) 2,000 2,053
Monroe County GO
(Rochester Water Dist.)
5.6%, 6/1/04 (3) 1,235 1,320
5.7%, 6/1/05 (3) 1,350 1,448
5.8%, 6/1/06 (3) 1,340 1,436
5.9%, 2/1/07 (3) 550 593
Montgomery, Ostego, Scholoharie
Counties Solid Waste
7.25%, 1/1/00 (1) (Prere.) 6,745 7,932
5.25%, 1/1/14 (1) 1,640 1,624
Mount Sinai Union Free
School Dist.
6.2%, 2/15/14 (2) 1,050 1,180
6.2%, 2/15/15 (2) 540 606
Nassau County GO
TOB VRDO 2.3%, 12/1/93 (1) 205 205
TOB VRDO 2.3%, 1/1/94 (1) 4,020 4,020
5.5%, 7/15/07 (1) 1,270 1,318
5.5%, 7/15/08 (1) 1,300 1,338
5.5%, 7/15/09 (1) 1,325 1,361
5.75%, 5/15/10 (3) 670 696
5.5%, 7/15/10 (1) 1,345 1,396
5.75%, 8/1/10 (3) 845 878
5.75%, 2/1/11 (1) 1,100 1,139
5.5%, 7/15/11 (1) 1,370 1,428
Nassau County Combined
Sewer Dist. GO
4.7%, 10/1/04 (3) 1,805 1,790
4.8%, 10/1/05 (3) 1,760 1,744
4.9%, 10/1/06 (3) 1,740 1,728
6.2%, 5/15/07 (1) 840 912
5.0%, 10/1/07 (3) 1,715 1,703
6.2%, 5/15/08 (1) 835 904
5.35%, 7/1/08 (1) 4,730 4,826
5.0%, 10/1/08 (3) 1,695 1,670
5.35%, 1/15/09 (1) 3,505 3,548
6.25%, 5/15/09 (1) 825 892
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------
<S> <C> <C>
5.35%, 7/1/09 (1) $ 4,635 $ 4,694
6.25%, 5/15/10 (1) 820 888
5.875%, 8/1/12 (3) 825 864
New York City GO
5.75%, 8/1/09 (3) 4,250 4,397
6.625%, 8/1/13 (1) 13,500 14,838
New York City Cultural Resources
(American Museum of
Natural History)
6.9%, 4/1/21 (1) 4,000 4,480
(Museum of Modern Art)
5.4%, 1/1/06 (2) 805 831
5.5%, 1/1/07 (2) 840 867
5.4%, 1/1/12 (2) 1,400 1,412
New York City Health &
Hosp. Corp.
5.625%, 2/15/13 (2) 23,400 23,699
New York City Water &
Sewer Auth.
5.875%, 6/15/12 (2) 20,000 21,347
5.875%, 6/15/13 (2) 20,000 21,313
6.75%, 6/15/14 (3) 5,000 5,471
New York State Dormitory Auth.
(City Univ. of New York)
6.5%, 7/1/08 (3) 5,545 6,300
5.75%, 7/1/11 (3) 5,950 6,260
7.0%, 7/1/14 (3) 20,700 23,610
(Colgate Univ.)
6.5%, 7/1/21 (1) 1,350 1,474
(Fashion Institute Student
Housing Corp.)
7.1%, 7/1/03 (1) 590 630
7.2%, 7/1/05 (1) 1,705 1,818
7.2%, 7/1/06 (1) 1,855 2,032
(Fordham Univ.)
7.2%, 7/1/15 (2) 4,500 5,169
(Foundling Charities Corp.)
6.5%, 7/1/12 (1) 6,530 6,995
(Iona College)
7.625%, 7/1/09 (1) 5,000 5,702
(Ithaca College)
6.25%, 7/1/21 (1) 7,500 8,059
(Mt. Sinai School of Medicine)
8.375%, 7/1/95 (3) (Prere.) 650 714
6.75%, 7/1/15 (1) 7,245 8,039
(New York Public Library)
0.0%, 7/1/06 (1) 910 465
0.0%, 7/1/07 (1) 1,000 480
0.0%, 7/1/08 (1) 910 408
0.0%, 7/1/09 (1) 910 385
0.0%, 7/1/10 (1) 500 199
0.0%, 7/1/11 (1) 500 187
(New York Univ.)
6.7%, 7/1/11 (1) $ 1,250 $ 1,343
6.0%, 7/1/15 (3) 32,165 33,912
(Rensselaer Polytech. Inst.)
6.5%, 7/1/06 (3) 3,000 3,296
(Siena College)
6.0%, 7/1/11 (1) 1,500 1,590
(Special Act)
6.0%, 7/1/15 (3) 2,675 2,767
(Union College)
5.75%, 7/1/10 (3) 1,800 1,866
New York State Energy
Research & Development
Auth. PCR
(Niagara Mohawk)
6.625%, 10/1/13 (3) 10,000 11,006
New York State Medical Care Facility
Finance Agency
(Beth Israel Medical Center)
5.0%, 11/1/13 (1) 4,750 4,633
(Columbia Presbyterian Hosp.)
9.75%, 1/15/95 (8) (Prere.) 8,400 9,192
(Mental Health Services)
7.4%, 8/15/07 (1) 2,550 2,914
5.5%, 8/15/21 (3) 8,000 7,988
(St. Mary's Hosp.)
8.375%, 11/1/14 (2) 2,200 2,430
(Sisters of Charity--Buffalo)
6.625%, 11/1/18 (2) 5,500 6,061
New York State Power Auth.
7.3%, 1/1/96 (3) (Prere.) 3,405 3,731
New York State Thruway Auth.
3.4%, 1/1/95 (3) 2,000 2,006
3.4%, 3/1/95 (3) 4,000 4,014
5.5%, 1/1/23 (3) 6,800 6,808
New York State Urban
Development Corp.
5.375%, 1/1/12 (1) 14,000 14,028
Niagara Falls Bridge Comm.
5.25%, 10/1/15 (3) 5,000 4,993
6.25%, 10/1/20 (3) 8,685 9,858
6.25%, 10/1/21 (3) 9,230 10,498
North Hempstead GO
6.3%, 4/1/08 (3) 2,055 2,306
6.4%, 4/1/10 (3) 1,500 1,716
6.4%, 4/1/11 (3) 2,075 2,357
Oyster Bay Public Improvement
3.3%, 2/15/94 (1) 1,100 1,102
5.4%, 2/15/03 (1) 1,475 1,556
5.6%, 2/15/05 (1) 1,000 1,070
5.7%, 2/15/07 (1) 805 860
5.7%, 2/15/09 (1) 980 1,034
5.7%, 2/15/11 (1) 300 318
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------
<S> <C> <C>
Rochester GO
5.7%, 8/15/02 (2) $ 2,340 $ 2,554
5.7%, 8/15/03 (2) 2,330 2,542
5.7%, 8/15/04 (2) 2,180 2,375
Smithtown
5.25%, 4/1/06 (1) 1,000 1,032
5.45%, 4/1/08 (1) 400 415
Suffolk County GO
5.0%, 4/1/06 (1) 2,255 2,267
5.0%, 7/15/06 (3) 1,000 1,006
5.1%, 7/15/07 (3) 1,280 1,292
5.2%, 7/15/08 (3) 1,100 1,103
Suffolk County Southwest
Sewer Dist. GO
6.4%, 2/1/03 (3) 1,190 1,244
Suffolk County Water Auth.
5.1%, 6/1/07 (1) 7,110 7,235
5.25%, 6/1/10 (2) (ETM) 3,790 3,878
5.25%, 6/1/11 (2) (ETM) 2,380 2,440
5.25%, 6/1/12 (2) (ETM) 4,290 4,372
5.75%, 6/1/13 (2) 8,440 8,674
5.25%, 6/1/17 (2) 23,000 22,640
Triborough Bridge & Tunnel Auth.
5.5%, 1/1/17 (2) 18,485 18,544
OUTSIDE NEW YORK:
Puerto Rico Public
Building Auth.
0.0%, 7/1/03 (3) 4,000 2,527
--------
GROUP TOTAL 629,058
--------
- -------------------------------------------------------------
PORTFOLIO INSURED (1.2%)
New York State Dormitory Auth.
(Cornell Univ.)
6.875%, 7/1/14 6,825 7,376
New York State Energy
Resources Auth.
(Niagara Mohawk Power Corp.)
8.875%, 11/1/25 1,100 1,221
Port Auth. of New York &
New Jersey
8.7%, 7/15/20 750 825
--------
GROUP TOTAL 9,422
--------
- -------------------------------------------------------------
SECONDARY MARKET INSURED (9.4%)
Municipal Assistance Corp. for
New York City
6.0%, 7/1/08 (3) 22,350 23,372
New York City Water & Sewer
Auth. Rev.
5.0%, 6/15/17 (3) 4,000 3,743
New York State Dormitory Auth.
(City Univ. of New York)
5.75%, 7/1/09 (3) 5,000 5,258
(Cornell Univ.)
7.25%, 7/1/12 (1) $ 1,175 $ 1,357
(State Univ.)
7.25%, 5/15/00 (2) (Prere.) 5,000 5,866
7.25%, 5/15/00 (3) (Prere.) 1,500 1,760
6.0%, 5/15/17 (2) 5,600 5,793
New York State Urban
Development Corp.
7.0%, 1/1/17 (3) 4,500 5,077
Port Auth. of New York &
New Jersey
6.5%, 1/15/26 (1) 1,500 1,627
Triborough Bridge & Tunnel Auth.
6.75%, 1/1/09 (2) 3,000 3,475
6.875%, 1/1/15 (3) 7,000 7,784
5.0%, 1/1/17 (2) 3,500 3,339
5.0%, 1/1/17 (3) 3,395 3,238
5.5%, 1/1/19 (2) 4,000 4,001
-------
GROUP TOTAL 75,690
-------
- -------------------------------------------------------------
NON-INSURED (9.1%)
Municipal Assistance Corp.
for New York City
4.25%, 1/15/94 3,000 3,006
9.0%, 7/1/95 (Prere.) 2,350 2,607
New York City Trust for Cultural
Resources VRDO (Carnegie Hall)
2.35%, 12/1/93 500 500
New York Environmental
Facilities PCR
5.2%, 5/15/14 1,500 1,483
New York State Dormitory Auth.
(Columbia Univ.)
5.75%, 7/1/15 11,965 12,348
New York State Energy Research
& Development Auth. PCR
(New York State Electric & Gas)
3.0%, 12/1/93* 5,000 5,000
2.5%, 3/15/94* 2,000 2,001
New York Local Govt.
Assistance Corp. VRDO
2.0%, 12/1/93 2,400 2,400
New York State Power Auth.
7.0%, 1/1/09 6,000 6,633
Onondaga County Public
Improvements
5.875%, 2/15/06 1,580 1,684
5.875%, 2/15/08 2,475 2,631
Port Auth. of New York &
New Jersey Rev.
2.7%, 10/1/94 11,500 11,499
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------
<S> <C> <C>
Triborough Bridge & Tunnel Auth.
TOB VRDO 2.4%, 1/1/94 $ 3,200 $ 3,200
7.0%, 7/1/95 (Prere.) 2,000 2,116
6.0%, 1/1/12 7,805 8,313
Westchester County GO
6.7%, 11/1/08 3,250 3,785
6.7%, 11/1/09 3,645 4,267
OUTSIDE NEW YORK:
Puerto Rico Govt.
Development Bank VRDO
2.25%, 12/1/93 100 100
-------
GROUP TOTAL 73,573
-------
- -------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $726,570) 787,743
- -------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.4%)
- -------------------------------------------------------------
Other Assets--Note B 24,419
Liabilities (4,795)
-------
19,624
- -------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------
Applicable to 73,611,311 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $807,367
- -------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.97
=============================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
AT NOVEMBER 30, 1993, NET ASSETS
CONSISTED OF:
- -------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $745,548 $10.13
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 361 .01
Unrealized Appreciation
of Investments 61,458 .83
- -------------------------------------------------------------
NET ASSETS $807,367 $10.97
- -------------------------------------------------------------
</TABLE>
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(5) CGI (Capital Guaranty Insurance)
(6) BIGI (Bond Investors Guaranty Insurance)
(7) Connie Lee Inc.
(8) FHA (Federal Housing Authority)
BAN--Bond Anticipation Note
COP--Certificate of Participation
CP--Commercial Paper
GO--General Obligation
IDR--Industrial Development Revenue
PCR--Pollution Control Revenue
RAN--Revenue Anticipation Note
TAN--Tax Anticipation Note
TOB--Tender Option Bond
TRAN--Tax Revenue Anticipation Note
VRDO--Variable Rate Demand Obligation
(ETM)--Escrowed to Maturity
(Prere.)--Prerefunded
*Put Option Obligation.
13
<PAGE> 16
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
November 30, 1993
(000)
- ----------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . $40,812
- ----------------------------------------------------------------------
Total Income . . . . . . . . . . . 40,812
- ----------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services. . . . . $ 65
Management and Administrative . . . . 1,016
Marketing and Distribution. . . . . . 191 1,272
--------
Insurance Expense. . . . . . . . . . . . 29
Auditing Fees. . . . . . . . . . . . . . 8
Shareholders' Reports. . . . . . . . . . 45
Annual Meeting and Proxy Costs . . . . . 5
Trustees' Fees and Expenses. . . . . . . 2
- ----------------------------------------------------------------------
Total Expenses. . . . . . . . . . . 1,361
- ----------------------------------------------------------------------
Net Investment Income . . . . . . 39,451
- ----------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note C
Investment Securities Sold . . . . . . . 6,093
Futures Contracts. . . . . . . . . . . . (4,672)
- ----------------------------------------------------------------------
Realized Net Gain . . . . . . . . 1,421
- ----------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Notes C and D
Investment Securities . . . . . . . . . 39,261
Futures Contracts . . . . . . . . . . . (774)
- ----------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . 38,487
- ----------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . $79,359
======================================================================
</TABLE>
14
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED Year Ended
NOVEMBER 30, 1993 November 30, 1993
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . $ 39,451 $ 30,336
Realized Net Gain--Note C . . . . . . . . 1,421 8,882
Change in Unrealized Appreciation
(Depreciation)--Notes C and D . . . . . . 38,487 9,241
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . 79,359 48,459
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . (39,451) (30,336)
Realized Net Gain . . . . . . . . . . . . (8,055) --
- --------------------------------------------------------------------------------
Total Distributions . . . . . . . . (47,506) (30,336)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . 270,638 211,291
-- In Lieu of Cash Distributions 36,903 23,099
-- Exchange . . . . . . . . . . 65,532 56,160
Redeemed -- Regular . . . . . . . . . . . (96,649) (71,432)
-- Exchange . . . . . . . . . . (74,611) (71,723)
- --------------------------------------------------------------------------------
Net Increase
from Capital Share Transactions . . 201,813 147,395
- --------------------------------------------------------------------------------
Total Increase . . . . . . . . . . 233,666 165,518
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Year . . . . . . . . . . . . 573,701 408,183
- --------------------------------------------------------------------------------
End of Year . . . . . . . . . . . . . . . $807,367 $573,701
================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $ .594 $ .631
Realized Net Gain . . . . . . . . . . . $ .145 --
- --------------------------------------------------------------------------------
(2) Shares Issued and Redeemed Issued . . . 31,063 25,945
Issued in Lieu of Cash Distributions. . 3,424 2,239
Redeemed . . . . . . . . . . . . . . . (15,771) (13,925)
- --------------------------------------------------------------------------------
18,716 14,259
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------------------------------------
For a Share Outstanding Throughout Each Year 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . $10.45 $10.04 $9.66 $9.73 $9.26
------ ------ ------- ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .594 .631 .639 .629 .635
Net Realized and Unrealized Gain . . . . . . . .
(Loss) on Investments . . . . . . . . . . . .665 .410 .380 (.070) .470
------ ------ ------- ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . 1.259 1.041 1.019 .559 1.105
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.594) (.631) (.639) (.629) (.635)
Distributions from Realized Capital Gains . . . . (.145) -- -- -- --
------ ------ ------- ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . (.739) (.631) (.639) (.629) (.635)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . $10.97 $10.45 $10.04 $9.66 $9.73
==================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +12.42% +10.63% +10.87% +5.99% +12.25%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) . . . . . . . . . $807 $574 $408 $241 $167
Ratio of Expenses to Average Net Assets . . . . . . . .19% .23% .27% .31% .34%
Ratio of Net Investment Income to Average Net Assets 5.47% 6.11% 6.48% 6.60% 6.64%
Portfolio Turnover Rate . . . . . . . . . . . . . . . 10% 28% 19% 17% 10%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Insurance expenses represent .01%, .01%, .02%, and .04%.
16
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
Vanguard New York Insured Tax-Free Fund is registered under the Investment
Company Act of 1940 as an open-end investment company. The Fund invests in
securities of municipal issuers whose ability to meet their obligations may be
affected by economic and political developments in the State of New York.
* A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Municipal bonds are valued utilizing primarily the
latest bid prices or, if bid prices are not available, on the basis of
valuations based on a matrix system (which considers such factors as
security prices, yields, maturities, and ratings), both as furnished by
an independent pricing service.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
3. FUTURES: The Fund may utilize futures contracts to a limited extent. The
primary risks associated with the use of futures contracts are imperfect
correlation between the change in market value of the bonds held by the
Fund and the prices of futures contracts, and the possibility of an
illiquid market. Futures contracts are valued based upon their quoted
daily settlement prices. Fluctuations in the value of futures contracts
are recorded as unrealized appreciation (depreciation) until terminated
at which time realized gains (losses) are recognized. Unrealized
appreciation (depreciation) related to open futures contracts is
required to be treated as realized gain (loss) for Federal income tax
purposes.
4. DISTRIBUTIONS: Distributions from net investment income are declared on
a daily basis payable on the first business day of the following month.
Annual distributions from realized gains, if any, are recorded on the
ex-dividend date. Capital gain distributions are determined on a tax
basis and may differ from realized capital gains for financial reporting
purposes due to differences in the timing of realization of gains.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized
gains and losses on the sale of investment securities are those of
specific securities sold. Premiums and original issue discounts are
amortized and accreted, respectively, to interest income over the lives
of the respective securities.
* B. The Vanguard Group, Inc. furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Trustees. The Fund has contributed capital of $135,000 to Vanguard (included in
Other Assets), representing .7% of Vanguard's capitalization. The Fund's
officers and trustees are also officers and directors of Vanguard.
* C. During the year ended November 30, 1993, the Fund made purchases of
$246,667,000 and sales of $69,344,000 of investment securities other than
temporary cash investments.
At November 30, 1993, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes aggregated $61,173,000 of
which $61,599,000 related to appreciated securities and $426,000 related to
depreciated securities.
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (continued)
* D. At November 30, 1993, the Fund had long positions in Municipal Bond Index
futures contracts expiring through March 1994, with an aggregate settlement
value and net unrealized depreciation of $34,163,000 and $560,000,
respectively. The aggregate settlement value and net unrealized appreciation
related to short positions in U.S. Treasury Bond and U.S. Treasury Note futures
contracts expiring through March 1994, were $87,616,000 and $845,000,
respectively. The market value of securities deposited as initial margin for
open futures contracts was $1,534,000.
18
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
Vanguard New York Insured Tax-Free Fund
In our opinion, the accompanying statement 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
Vanguard New York Insured Tax-Free Fund (the "Fund") at November 30, 1993, the
results of its operations, the changes in its net assets and the financial
highlights for each of the respective periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 27, 1993
19
<PAGE> 22
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc Rorer
Inc.; Director of Sun Company, Inc. and Immune Response Corporation; Trustee of
the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., and The Southern New England Telephone
Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Director of Rohm & Haas Company; Director of
Cummins Engine Company; Trustee of Vanderbilt University and the Culver
Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
20
<PAGE> 23
(Continued from inside front cover)
toward those of the 1970s. However, the current level of inflation suggests
that future real returns may prove to be satisfactory. Looking forward, the
main risks to the investor are two: (1) that yields on financial assets will
rise sharply, reducing the prices of stocks and bonds alike; and (2) that
inflation, presently at moderate levels, will accelerate.
SOME COURSES OF ACTION
What, if any, present action should be taken by investors to deal with these
two major risks? Should your allocation of assets among stock funds, bond
funds, and money market funds be adjusted? Here are some reasonable courses of
action to consider:
* For long-term investors who have built a substantial balanced portfolio of
stock, bond, and money market funds, stay the course. Even if withdrawing
from the stock market proves to be justified, the next decision--when to
return--will one day be required. "Being right twice" is no mean challenge.
* For long-term investors gradually accumulating assets for, say, retirement,
stay your present course. Continue to invest regularly. By doing so, you buy
more shares of a mutual fund when its price falls, and fewer shares when its
price rises, virtually assuring a reasonable average cost.
* For risk-averse investors who are highly confident that stock prices are "too
high," make only marginal--not "all or nothing"--changes in your portfolio
balance. Given the perils of predicting the future, any changes should be
limited to, say, 15 percentage points. That is, if your normal portfolio
allocation is 60% in stock funds, it might be reduced to 45%; if 85%, to 70%.
* For investors who simply must have more income, never lose sight of the added
principal risk involved in shifting from money market funds to bond funds.
Long-term bond funds provide a generous and durable income stream, but their
prices are highly volatile. Short-term and intermediate-term bond funds offer
a "middle way" of increasing income with more modest risk to principal.
* For investors who are tempted to find an "easy way" to higher returns, never
forget that risk and reward go hand in hand. Precipitously replacing
certificates of deposit with broad-based common stock funds verges on the
irrational. Funds investing in other securities markets-- emerging nations,
international stocks and bonds, and small U.S. companies--carry their own
special risks. Generally, limit such alternative investments to, say, 20% of
your total portfolio.
For all investors, be prepared for sharp interim swings in stock and bond
prices. The central tenet of investing is "prices fluctuate," and sensible
long-term investors simply must take such fluctuations in their stride.
Successful investing is as much a function of your own discipline and
equanimity as it is of the returns available in the securities markets.
THREE ESSENTIAL PRINCIPLES
As we confront the brave new world of investing that may well lie ahead in the
coming decade--and it is important to think in decade-length terms--we would
underscore three caveats:
1. Have "rational expectations" for future returns. At prices prevailing today,
it seems highly unlikely that the returns enjoyed by investors in the past
decade will be repeated in the coming decade.
2. Maintain a balanced portfolio consisting of stock, bond, and money market
funds. Each asset class has its own risk and reward characteristics. By
allocating your resources among the three asset classes according to your
own requirements, you can build a portfolio providing appropriate elements
of capital appreciation, capital conservation, and current income.
3. In balancing risk against reward, be sure to consider cost. Many mutual
funds carry hefty sales charges or high expense ratios, or both. Other
factors held equal, expenses reduce returns, dollar for dollar. Put another
way, high-cost funds must select investments with higher prospective gross
returns--which entail higher risks--to match the net returns earned by
low-cost funds.
This brief Annual Report essay can provide only an elementary look at the
challenges investors face today. History can give us perspective, but it cannot
give us performance. Famed British economist Lord Keynes had it right when he
said, "the inevitable never happens. It is the unexpected always."
<PAGE> 24
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Long-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Small Capitalization Stock Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
THE VANGUARD GROUP OF INVESTMENT COMPANIES
Vanguard Financial Center * Valley Forge, Pennsylvania 19482
New Account Information 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders
and may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q760-11/93
<PAGE> 25
EDGAR Appendix
This appendix describes components of the printed version of this
report that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features the flags of
The United States of America and Vanguard flying from a halyard.
A bar chart called "A Tale of Two Decades" appears on the inside front
cover. This chart illustrates Average Annual Total Return, in nominal and real
terms, of Stocks, Bonds and Reserves (U.S. Treasury bills) for the two decades
since 1973.
A running head featuring the Vanguard flag logo appears at the top of
pages one through 20.
A photograph of John C. Bogle appears at the upper-right of page one.
A line chart of the Month-End Yields (30-Year Prime Municipal Bond
and 90-Day MIG 1 Note) of the New York Insured Tax-Free Fund
for the Fiscal Years 1990 through 1993 appears at the upper-left of page two.
Line charts illustrating cumulative performance of the Vanguard
NY Insured Tax-Free Fund compared to (i) the Lehman Municipal Bond Index and
(ii) the Average NY Insured Municipal Fund for the Fiscal Years 1986 through
1993.
