<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
The six months ended May 31, the first half of the 1994 fiscal year for the
eleven Portfolios of the Vanguard State Tax-Free Fund, witnessed something that
we have not seen much of since 1987: rising interest rates. As a result, the
prices of long-term municipal bonds declined during the period, while the
income from money market instruments received a nice boost. This environment,
of course, negatively impacted the net asset values of each of our Insured
Long-Term Portfolios, as reflected in the table on page 2. (The net asset
values of our Money Market Portfolios, as you would expect, remained constant,
at $1.00 per share.) While fluctuating asset values are part and parcel of bond
investing, our Long-Term Portfolios exceeded the total returns (capital change
plus income) achieved by competitive state tax-free bond funds. What is more,
all of our Portfolios remain virtually peerless in the mutual fund field with
respect to their investment quality, as shown in the third column of the table
on page 2. In summary form, here are the Portfolio highlights over the past
twelve months:
* THE STATE MONEY MARKET PORTFOLIOS--provided total returns ranging from
+2.2% to +2.3% . . . current yields are in the area of 2.6%, about the
same as they were twelve months ago but nicely above their level at
the outset of the fiscal half year . . . net asset values remained at
$1.00 per share.
* THE STATE INSURED LONG-TERM PORTFOLIOS--reflecting the rebound in
interest rates, turned in modest total returns ranging from +1.9% to
+3.3% . . . current income yields are running about 5.4%, some 40
basis points (0.40%) higher than they were twelve months ago.
The detailed results for each of our State Tax-Free
Portfolios--including per share net asset values, dividends, and capital gains
distributions, as well as current yields--are presented on the following page.
To provide some perspective on how our Insured Long-Term Portfolios fared in
the face of rising interest rates, the table that follows summarizes the income
returns and the capital returns for each Portfolio:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Investment Returns
Twelve Months Ended
May 31, 1994
Insured Long-Term -----------------------------------------
Portfolio* Income Capital Total
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA +5.4% -3.5% +1.9%
NEW YORK +5.4 -3.2 +2.2
PENNSYLVANIA +5.6 -2.3 +3.3
NEW JERSEY +5.3 -3.4 +1.9
OHIO +5.2 -2.8 +2.4
FLORIDA +5.1 -2.2 +2.9
- - -----------------------------------------------------------------------------------------------
</TABLE>
* On March 4, 1994, the California Insured Intermediate-Term Portfolio
was introduced. Since its inception, the Portfolio has achieved an
income return of +1.0%, a capital return of +0.4%, and a total return
of +1.4%.
* FIXED-INCOME MARKET REVIEW
The basic benchmark for the bond market is the long-term U.S. Treasury bond.
During the past six months, its yield rose from 6.3% at the start of the period
to 7.4% at its conclusion. This yield change engendered a decline of about -13%
in the Treasury bond's price. I am happy to report that the tax-exempt bond
market fared a good bit better, with the yield on long-term high-grade
municipal bonds rising from 5.5% to 6.1%, resulting in a price decline of some
- - -8%. However painful this decline may be for investors in long-term bonds, it
is worth noting that interest rates had been dropping steadily for some seven
years, and the retracement during the past six months has merely returned rates
to the level prevailing at the end of 1992.
A primary cause of the interest rate rise was investor fears about a
resurgence of inflation. So far, at least, there is little evidence of it. The
U.S. Consumer Price Index has risen just 2.3% over the past twelve months,
although more sensitive indicators--such as commodity prices--have been rising
at a much higher rate. In an effort to quell these inflationary fears, the
Federal reserve acted to "tighten" the money supply and slow economic growth
and potential future inflation, raising the
1
<PAGE> 2
Federal funds rate (at which banks borrow from one another) four times--in
February, March, April, and again in May--from 3.00% to 4.25%.
These increases in short-term rates are often seen by market
participants as a restraint on potential inflation, and thus cause long-term
rates to fall. This time around, quite the reverse has been true. In any event,
proving that "it is an ill wind (indeed) that blows no good," the rate increase
has added to the income received by investors in our Money Market Portfolios.
And, because of the "lag" from the date interest rates rise until they are
fully manifested in money market fund yields, further dividend increases in our
Money Market Portfolios likely lie in prospect.
* IN SUMMARY
In my Chairman's letter to you one year ago, I noted that "it is hard to
imagine that the steady trend toward ever-lower interest rates can go much
further." I went on to caution that if rates did reverse their decline in
response to a strengthening economy, the capital rewards enjoyed by our
longer-term Portfolios would turn to capital penalties. While I do not presume
any forecasting ability whatsoever, these observations have proved prescient.
Nonetheless, provided that you own the Vanguard Portfolio (or combination of
Portfolios) that meets your long-term risk-reward objectives, I would urge you
to "stay the course" and avoid the temptation to make precipitate changes in
your fund holdings.
I look forward to reporting on our results for the full 1994 fiscal
year six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- - -----------------
John C. Bogle
Chairman of the Board
June 17, 1994
<TABLE>
<CAPTION>
Net Asset Value
Total Per Share Dividends Total Return
Net Assets -------------------- ----------------- ----------------
(millions) Average Average Nov. 30, May 31, Six Twelve Six Twelve Current
Portfolio May 31, 1994 Maturity Quality* 1993 1994 Months Months Months Months Yield**
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . . . . . . $1,126 35 DAYS MIG 1 $ 1.00 $ 1.00 $.011 $.023 +1.1% +2.3% 2.55%
PENNSYLVANIA . . . . . . . 1,041 37 DAYS MIG 1 1.00 1.00 .011 .023 +1.1 +2.3 2.60
NEW JERSEY . . . . . . . . 803 41 DAYS MIG 1 1.00 1.00 .011 .022 +1.1 +2.2 2.46
OHIO . . . . . . . . . . . 139 47 DAYS MIG 1 1.00 1.00 .011 .023 +1.2 +2.3 2.57
- - -----------------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA . . . . . . . . $ 929 12.9 YEARS Aaa $11.30 $10.66 $ .451+ $.753+ -1.8% +1.9% 5.58%
CALIFORNIA INTERMEDIATE-
TERM . . . . . . . . . . . 57 5.3 YEARS Aaa -- 10.04 .101++ -- +1.4++ -- 4.82
NEW YORK . . . . . . . . . 760 11.8 YEARS Aaa 10.97 10.49 .306+ .602+ -1.6 +2.2 5.41
PENNSYLVANIA . . . . . . . 1,430 11.7 YEARS Aaa 11.36 10.85 .388+ .703+ -1.1 +3.3 5.47
NEW JERSEY . . . . . . . . 700 11.5 YEARS Aaa 11.77 11.18 .374+ .690+ -1.9 +1.9 5.41
OHIO . . . . . . . . . . . 162 9.7 YEARS Aaa 11.61 11.08 .327+ .630+ -1.8 +2.4 5.48
FLORIDA . . . . . . . . . . 292 12.1 YEARS Aaa 10.86 10.38 .339+ .611+ -1.3 +2.9 5.39
- - -----------------------------------------------------------------------------------------------------------------------------------
</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 $.152 for California, $.012 for
New York, $.079 for Pennsylvania, $.063 for New Jersey, $.032 for
Ohio, and $.070 for Florida.
++ Since inception, March 4, 1994.
The shares of each of the Vanguard "single state" Portfolios are
available for purchase solely by residents of the designated states.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS NOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN ACCORDANCE
WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS
(PERIODS ENDED MARCH 31, 1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
INCEPTION SINCE
PORTFOLIO DATE 1 YEAR 5 YEARS INCEPTION
- - ----------------------------------------- ---- ------ ------- ---------
<S> <C> <C> <C> <C>
CALIFORNIA INSURED LONG-TERM 4/7/86 +1.77% +8.56% +7.70%
CALIFORNIA INSURED INTERMEDIATE-TERM 3/4/94 -- -- -0.64
CALIFORNIA MONEY MARKET 6/1/87 +2.34 +4.05 +4.34
NEW YORK INSURED TAX-FREE 4/7/86 +2.37 +8.97 +7.23
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +3.14 +9.22 +8.11
PENNSYLVANIA MONEY MARKET 6/13/88 +2.31 +4.15 +4.39
NEW JERSEY INSURED LONG-TERM 2/3/88 +2.44 +8.87 +8.65
NEW JERSEY MONEY MARKET 2/3/88 +2.24 +4.12 +4.37
OHIO INSURED LONG-TERM 6/18/90 +2.70 -- +9.12
OHIO MONEY MARKET 6/18/90 +2.31 -- +3.54
FLORIDA INSURED TAX-FREE 9/1/92 +2.56 -- +7.01
</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 A MONEY MARKET
PORTFOLIO 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.
3
<PAGE> 4
REPORT FROM THE INVESTMENT ADVISER
STATE INSURED
LONG-TERM PORTFOLIOS
Over the past six months, the pace of domestic economic activity accelerated
sharply. Strong improvements in the rate of growth in Gross Domestic Product
(GDP), and a host of related statistics such as home sales, automobile sales,
and consumer confidence, provided ample evidence of renewed vigor. Bond markets
seldom react well to strong economic signals and this period was no exception.
The yield on the 30-year Treasury bond rose 1.1 percentage points (from 6.3% to
7.4%). During the same period, municipal bonds performed slightly better, with
the yield on long-term high-grades rising 0.6% (from 5.5% to 6.1%), producing
an 8.3% loss of value.
As one would expect, the sharp rise in interest rates negatively
impacted the share price of the State Insured Long-Term Portfolios. To be sure,
a decline of this nature can be disconcerting to even the most resolute
long-term investor. However, following more than a decade of exceptional
returns of longer-term fixed-income assets, the poor six-month period
represents only a partial "give back" of previous prosperity. Looking beyond
the short-term share price volatility, a shareholder of the State Insured
Long-Term Portfolios can expect to receive an attractive, consistent, and
durable stream of tax-exempt dividend income.
* SUCCESSFUL STRATEGIES . . .
For the recent period, two of several core strategies stand out for enhancing
the relative returns of the State Insured Long-Term Portfolios. First, a
reduction in average maturity over the past year improved relative market
performance and moderated some of the "sting" of a bear market. Some of this
was accomplished by focusing on municipals maturing in 15 to 20 years, rather
than the slightly higher yielding but more volatile 30-year maturities. This
modest reduction in average maturity effectively "locked-in" a portion of the
gains in share price achieved in the previous bull market.
Second, the prudent maintenance of reserve positions of about 10% of
fund assets added to our relative stability. What is more, these reserves
provided a liquidity cushion to meet shareholder redemptions. In good times,
reserves (which normally yield less than longer-term assets) forego a small
amount of yield potential. In difficult market conditions, such as prevailed
during the past six months, the additional reserves allow the portfolio to
meet redemption requests without the inopportune (and sometimes "distressed")
sale of securities.
* LOOKING FORWARD . . .
The issuance of new municipal bonds has fallen dramatically. Issuance for the
first six months in fiscal 1994 was 26% below the pace of a year earlier. Early
indications show forward supply even lower compared to the "mad dash" of 1993.
Municipalities appear to have completed the process of refinancing older,
higher coupon debt of the 1980's and early 1990's. At the same time, a record
number of previously mentioned high coupon bonds are approaching their call
dates, and a huge amount of principal will be returned to owners of individual
bonds. All things being equal, this should continue to provide more attractive
returns for municipal bonds than their taxable brethren.
In conclusion, it would be reassuring to believe that the recent
increase in interest rates is sufficient to "rein in" the rapidly expanding
U.S. economy and dampen any inflationary expectations. Yet, that observation
might be premature. If history serves as any guide, the process may take longer
than the recent six months of "pain." If so, there could be more share price
unpleasantness ahead before the markets resume their positive return pattern of
the past decade. However, attempting to "time" the turnaround--getting out at
the highs and then getting back in at the lows--tends to be equally futile for
the institutional and individual investor alike. The best advice we know is to
endure the swings and allow the powerful tax exempt compounding of interest to
continue.
4
<PAGE> 5
STATE MONEY MARKET PORTFOLIOS
The past six months ushered in a change in the Federal Reserve Board's
previously accommodative monetary policy. Since February 4, 1994, market
participants watched anxiously as the Federal Reserve Board, in four separate
instances, pushed the Federal funds rate up 125 basis points (1.25%) to 4.25%
and tightened the discount rate 50 basis points (0.50%) to 3.50%. This series
of moves by the Fed has signaled the end of stimulative policy (maintained
throughout 1993) and the initiation of a policy of "neutrality."
The effect of the tightening on the short-term municipal market was
surprisingly mild. While yields on "first tier" taxable money market funds rose
approximately 70 basis points over the six-month period, yields on
state-specific and general purpose tax- free money funds rose a mere 35 basis
points. The primary contributor to the unresponsive municipal market was the
scarcity of new issue supply. Supply of short-term municipal securities is
quite cyclical, and depends on an issuer's fiscal year, which generally runs
from July 1 to June 30. As a result, supply typically remains light in the
months leading up to June and dramatically increases in the summer months, as
issuers prepare to fund their upcoming budgetary needs in the new fiscal year.
This lack of supply experienced during a period of rising rates in the broader
taxable markets enabled short-term municipal yields to maintain relative
stability. As technical supply factors temporarily have been depressing yields
on short-term municipal securities, we have been targeting a low average
weighted maturity for the tax-exempt money funds of 45 to 60 days. Our
Portfolios should be commensurately more responsive when new issue supply
surges and interest rates rise. We expect the shift from scarcity to abundance
will occur within weeks.
While the market focused on an accelerating economy and the rise in
interest rates, the Securities and Exchange Commission quietly launched its own
initiative to ensure the net asset value safety of tax-exempt money funds,
consistent with those already applicable to taxable money funds. In fact, the
SEC has proposed regulations that coincide with (or in some cases are less
restrictive than) our conservative approach to managing money market funds.
Thus, they will have little impact on the Vanguard Money Market Portfolios. We
believe that the Commission's proposals, if adopted, will be a positive force
in elevating industrywide portfolio standards.
In conclusion, the upcoming months could potentially bring about
significant regulatory and economic changes in our market. While keeping a
watchful eye on the actions of the Federal Reserve Board and maintaining our
conservative investment approach, we look forward to capitalizing on any
opportunities that may result.
Sincerely,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela E. Wisehaupt
Vice President
David E. Hamlin
Assistant Vice President
Reid O. Smith
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Vanguard Fixed Income Group
June 13, 1994
5
<PAGE> 6
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
May 31, 1994
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (98.4%)
- - ----------------------------------------------------------------------
ISSUER INSURED (90.2%)
Allegheny County GO
0.00%, 5/1/03 (2) $12,315 $ 7,480
6.00%, 5/1/10 (2) 3,030 3,039
6.00%, 5/1/12 (2) 3,000 2,997
Allegheny County Hosp.
Development Auth. (Children's Hosp.
Pittsburgh) VRDO 2.75%, 7/1/94 (1) 2,300 2,300
(Magee Women's Hosp.)
6.00%, 10/1/10 (3) 4,235 4,248
(Mercy Hosp.)
6.75%, 4/1/21 (2) 4,500 4,647
(Presbyterian Univ. Hosp.)
7.60%, 3/1/08 (1) 5,000 5,555
6.00%, 11/1/12 (1) 3,000 2,973
7.125%, 7/1/19 (1) 6,835 7,431
Allegheny County Sanitation Auth.
6.50%, 12/1/11 (3) 8,000 8,219
5.50%, 12/1/13 (3) 20,295 18,983
6.25%, 12/1/14 (1) 9,660 9,668
5.50%, 12/1/16 (3) 23,665 21,723
Beaver County Industrial
Development Auth.
(Ohio Edison)
7.10%, 6/1/18 (3) 5,000 5,377
7.00%, 6/1/21 (3) 22,715 24,148
Berks County GO
5.60%, 11/15/08 (3) 2,900 2,838
5.75%, 11/15/12 (3) 15,500 15,003
0.00%, 11/15/13 (3) 7,250 2,096
0.00%, 11/15/14 (3) 8,615 2,323
0.00%, 11/15/15 (3) 6,250 1,584
Berks County Hosp. Rev.
(Reading Hosp.)
5.70%, 10/1/14 (1) 4,500 4,296
Bethlehem Water Rev.
6.00%, 11/15/12 (1) 6,000 6,350
6.25%, 11/15/21 (1) 10,775 11,528
Blair County Hosp. Auth.
(Altoona Hosp.)
6.50%, 7/1/22 (2) 8,500 8,650
Boyertown Area School Dist.
6.10%, 3/1/15 (2) 6,000 5,978
Bucks County Water & Sewer Auth.
9.10%, 12/1/95 (3) (Prere.) 1,200 1,288
9.20%, 12/1/95 (3) (Prere.) 1,200 1,290
Butler County GO
6.00%, 7/15/12 (3) 5,185 5,179
Center Township Sewer Auth.
5.50%, 4/15/11 (2) 2,375 2,269
Central Dauphin County
School Dist. GO
0.00%, 6/1/04 (2) 4,800 2,718
Central Greene School Dist.
6.50%, 2/15/24 (1) 5,500 5,594
Chester County Hosp. Auth.
(Chester County Hosp.)
7.00%, 7/1/16 (1) 13,500 14,078
Coatesville Area School Dist.
7.25%, 5/1/00 (2) (Prere.) 2,200 2,458
Corry Area School Dist. GO
5.50%, 12/15/10 (1) 4,600 4,398
Dauphin County General Auth.
(West Pennsylvania Hosp.)
5.50%, 7/1/13 (1) 5,000 4,675
Dauphin County Hosp. Auth.
(Harrisburg Hosp.)
8.125%, 7/1/07 (1) 3,000 3,336
Delaware County Auth.
College Rev.
(Haverford College)
5.40%, 11/15/13 (1) 1,750 1,595
Delaware County Hosp. Auth.
(Crozer Chester Medical Center)
5.30%, 12/15/11 (1) 4,660 4,276
5.30%, 12/15/20 (1) 3,325 2,895
(Delaware County
Memorial Hosp.)
7.125%, 8/15/09 (1) 5,160 5,573
7.20%, 8/15/19 (1) 8,000 8,667
Delaware River Joint Toll
Bridge Comm.
6.00%, 7/1/18 (3) 3,040 3,013
Delaware River Port Auth.
7.375%, 1/1/07 (2) 13,500 14,821
6.50%, 1/1/09 (2) 4,500 4,609
Erie County GO
5.25%, 9/1/12 (3) 2,875 2,620
Erie County Hosp. Auth.
(St. Vincent Health Care)
6.125%, 7/1/13 (1) 3,900 3,924
Erie County Prison Auth.
Commonwealth Lease
6.25%, 11/1/01 (1) 25,140 26,953
Fort LeBoeuf School Dist. GO
5.80%, 1/1/13 (1) 5,500 5,330
Garnet Valley School Dist. GO
5.70%, 4/1/11 (2) 3,000 2,924
Governor Mifflin School Dist. GO
6.50%, 2/1/02 (2) (Prere.) 7,330 7,916
Greensburg Salem School Dist.
6.45%, 9/15/18 (1) 7,500 7,634
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
Hampden Township Water &
Sewer Auth.
8.875%, 10/1/05 (1) $ 500 $ 530
9.00%, 4/1/11 (1) 500 531
Harrisburg Water Auth.
5.70%, 7/15/08 (3) 3,930 3,881
Hempfield School Dist. GO
6.00%, 8/15/09 (3) 6,000 6,317
Lancaster Higher Education Auth.
(Franklin & Marshall College)
6.60%, 4/15/10 (1) 4,940 5,145
6.70%, 4/15/12 (1) 4,000 4,189
Lehigh County GO
7.25%, 1/1/98 (3) (Prere.) 3,000 3,287
6.00%, 10/15/99 (2) (Prere.) 2,000 2,093
7.00%, 7/1/16 (1) 4,415 4,998
Lewisburg Area School Dist.
6.20%, 6/1/12 (1) 3,500 3,535
6.25%, 6/1/15 (1) 3,685 3,720
Ligonier Valley School Dist.
6.00%, 3/1/19 (1) 6,000 5,893
Lycoming County College Auth.
(Pennsylvania Institute of
Technology)
5.40%, 11/1/08 (2) 6,000 5,796
Lycoming County Hosp. Auth.
(Williamsport Hosp.)
6.875%, 11/1/04 (2) 4,450 4,737
7.00%, 11/1/15 (2) 5,000 5,333
Manheim Central School Dist. GO
6.85%, 3/1/08 (3) 2,705 2,863
Meadville Area Water Auth.
6.00%, 7/1/22 (4) 3,750 3,961
Monroe County Hosp. Auth.
(Pocono Hosp.)
7.00%, 7/1/15 (2) 3,700 3,924
Montgomery County Higher
Education & Health Auth.
(Abington Memorial Hosp.)
6.10%, 6/1/12 (2) 5,000 5,016
6.00%, 6/1/22 (2) 10,160 9,800
Montgomery County Industrial
Development Auth. PCR
(Philadelphia Electric Co.)
6.70%, 12/1/21 (1) 10,000 10,333
Mount Lebanon Hosp.
Development Auth.
(St. Clair Memorial Hosp.)
6.25%, 7/1/06 (3) 9,250 9,640
Neshaminy School Dist. GO
6.30%, 2/15/13 (3) 10,000 10,146
North Penn Water Auth.
6.125%, 11/1/10 (3) 5,140 5,196
North Wales Water Auth.
6.00%, 11/1/10 (3) 2,400 2,414
6.125%, 11/1/12 (3) 3,000 3,030
6.125%, 11/1/22 (3) 8,300 8,283
Northampton County Higher
Education Auth.
(Lehigh Univ.)
7.10%, 11/15/09 (1) 7,035 7,706
Northampton County Hosp. Auth.
(Easton Hosp.)
6.25%, 1/1/19 (1) 10,000 9,999
7.875%, 1/1/19 (6) 285 319
Northumberland County
Commonwealth Lease
6.25%, 10/15/01 (1) (Prere.) 13,600 14,593
Penn Hills GO
5.80%, 12/1/13 (2) 11,735 11,415
Pennsylvania Convention
Center Auth.
6.25%, 9/1/95 (3) 3,000 3,087
0.00%, 9/1/04 (3) 5,000 2,810
6.70%, 9/1/16 (3) 19,150 21,032
6.00%, 9/1/19 (3) 12,600 12,501
Pennsylvania GO
5.00%, 4/15/09 (2) 9,985 9,149
Pennsylvania Higher Education Auth.
(Bryn Mawr College)
6.50%, 12/1/09 (3) 2,930 3,046
(College and Univ. Rev.)
7.20%, 1/1/04 (2) 2,500 2,574
(Drexel Univ.)
5.625%, 5/1/14 (1) 11,755 11,083
(State System)
4.00%, 6/15/95 (2) 1,250 1,252
5.375%, 6/15/18 (2) 8,845 7,929
(Temple Univ.)
6.50%, 4/1/21 (1) 6,000 6,133
5.75%, 4/1/31 (1) 22,580 20,583
Pennsylvania Intergovernmental
Cooperation Auth.
5.00%, 6/15/22 (1) 39,850 33,297
5.625%, 6/15/23 (1) 17,625 16,179
Pennsylvania Turnpike Comm.
5.80%, 12/1/07 (3) 7,500 7,500
6.25%, 6/1/11 (2) 10,000 10,193
5.75%, 12/1/12 (2) 10,000 9,636
6.00%, 6/1/15 (1) 28,800 28,428
5.50%, 12/1/17 (3) 29,000 26,472
6.00%, 12/1/19 (2) 7,450 7,354
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
Philadelphia Airport Rev.
9.875%, 6/15/06 (1) $ 2,215 $ 2,277
Philadelphia Gas Works
6.75%, 1/1/99 (2) 3,570 3,889
7.25%, 1/1/99 (2) 2,625 2,907
7.25%, 1/1/10 (2) 10,075 10,878
6.00%, 5/15/12 (2) 14,250 14,249
6.75%, 1/1/15 (2) 13,930 14,490
Philadelphia GO TOB VRDO
2.95%, 11/15/94 (3) 15,000 15,000
Philadelphia Municipal Auth. Rev.
7.10%, 11/15/05 (1) 3,000 3,332
5.55%, 11/15/08 (3) 3,040 2,990
5.60%, 11/15/09 (3) 2,100 2,051
5.60%, 11/15/10 (3) 6,755 6,550
5.625%, 11/15/18 (3) 8,750 8,131
Philadelphia Parking
Auth. Rev.
7.375%, 9/1/18 (2) 12,065 13,160
Philadelphia School Dist. GO
4.25%, 7/1/95 (2) 5,380 5,383
0.00%, 7/1/01 (2) 11,750 8,012
5.30%, 7/1/04 (2) 3,500 3,446
5.375%, 7/1/05 (2) 7,500 7,362
5.85%, 7/1/09 (1) 1,500 1,494
Philadelphia Water & Sewer
Auth. Rev.
5.50%, 6/15/07 (1) 1,000 986
7.00%, 6/15/10 (3) 33,865 37,618
7.00%, 6/15/11 (3) 35,685 39,621
Pittsburgh GO
7.00%, 3/1/06 (3) 18,265 19,539
5.20%, 9/1/06 (2) 1,175 1,137
7.00%, 3/1/07 (3) 2,135 2,284
5.30%, 9/1/07 (2) 1,000 966
6.00%, 3/1/14 (2) 3,515 3,447
5.50%, 9/1/14 (2) 9,500 8,862
6.25%, 9/1/16 (1) 11,030 11,121
Pittsburgh Public Parking Auth.
5.875%, 12/1/12 (3) 8,200 8,050
Pittsburgh School Dist.
6.75%, 8/1/01 (2) (Prere.) 3,250 3,562
Pittsburgh Water & Sewer System
7.625%, 9/1/04 (3) (ETM) 5,370 6,302
6.50%, 9/1/13 (3) 22,000 23,504
7.25%, 9/1/14 (3) (ETM) 25,175 29,324
Pocono Mountain School Dist. GO
5.75%, 10/1/09 (2) 6,000 5,921
Reading GO
5.875%, 11/15/12 (2) 18,000 17,711
6.00%, 11/15/22 (2) 6,000 5,895
Rose Tree Media School Dist.
5.50%, 2/15/14 (3) 3,000 2,787
St. Mary's Hosp. Auth.
(Franciscan Health System)
7.00%, 7/1/09 (6) 1,000 1,073
7.00%, 7/1/13 (6) 5,050 5,419
7.00%, 7/1/14 (6) 4,000 4,292
9.40%, 7/1/14 (6) 2,125 2,295
7.00%, 6/15/15 (6) 1,770 1,899
Sayre Health Care Facilities Auth.
Pooled Loan VRDO 2.90%, 6/1/94 (2) 24,695 24,695
(Guthrie Health Care System)
7.00%, 3/1/11 (2) 2,000 2,134
6.00%, 3/1/21 (2) 10,710 10,444
Seneca Valley School Dist. GO
5.75%, 7/1/10 (3) 6,000 5,922
5.50%, 7/1/14 (3) 9,965 9,250
Souderton Area School Dist.
7.00%, 9/1/12 (2) 2,200 2,369
South Fork Hosp. Auth.
(Conemaugh Valley Hosp.)
5.625%, 7/1/10 (7) 2,300 2,202
5.75%, 7/1/18 (7) 7,000 6,453
Spring-Ford Area School Dist. GO
6.50%, 2/1/18 (2) 10,760 11,059
Univ. of Pittsburgh
6.125%, 6/1/21 (1) 19,760 19,618
Washington County Auth.
5.625%, 6/1/22 (3) 2,650 2,436
Washington County Hosp. Auth.
(Shadyside Hosp.)
5.875%, 12/15/09 (2) 22,000 21,899
(Washington Hosp.)
6.75%, 7/1/12 (2) 10,000 10,435
Wayne County Hosp. &
Health Facility
7.125%, 7/1/96 (1) (Prere.) 1,500 1,581
West Allegheny School Dist.
6.25%, 8/1/14 (2) 6,155 6,209
West Jefferson Hills School Dist.
5.90%, 8/1/10 (3) 3,160 3,153
5.95%, 8/1/14 (3) 7,180 7,047
Westmoreland County Auth.
6.125%, 7/1/17 (1) 8,205 8,715
Westview Municipal Auth.
Water Rev.
7.50%, 11/15/17 (3) 2,860 3,002
York County Southwestern
School Dist. GO
6.40%, 6/15/12 (3) 3,825 3,964
---------
GROUP TOTAL 1,290,131
---------
- - ----------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
PORTFOLIO INSURED (1.0%)
Allegheny County Hosp.
Development Auth. (Mercy Hosp.)
7.375%, 4/1/15 $ 3,650 $ 3,864
(St. Margaret's Hosp.)
9.80%, 7/1/10 1,500 1,614
Pennsylvania Hosp. & Higher
Education Facilities Auth.
(Pennsylvania Hosp.)
7.25%, 7/1/14 8,535 8,981
--------
GROUP TOTAL 14,459
--------
- - ----------------------------------------------------------------------
SECONDARY MARKET INSURED (.9%)
Allegheny County Hosp.
Development Auth.
(Mercy Hosp.)
7.375%, 4/1/15 (1) 1,350 1,434
Pennsylvania GO TOB VRDO
2.90%, 9/1/94 (3) 6,425 6,425
Pennsylvania State Univ.
5.55%, 8/15/06 (2) 5,245 5,208
--------
GROUP TOTAL 13,067
--------
- - ----------------------------------------------------------------------
NON-INSURED (6.3%)
Allegheny County Higher Education
Auth. VRDO (Univ. of Pittsburgh)
2.65%, 7/1/94 750 750
Allegheny County Hosp.
Development Auth. VRDO
(Allegheny Health System)
2.90%, 6/1/94 2,600 2,600
(Presbyterian Univ. Health)
2.75%, 6/1/94 450 450
Cambria County Hosp. Auth.
(Conemaugh Valley Hosp.)
10.125%, 7/1/95 (Prere.) 2,000 2,166
Delaware County Industrial
Development Auth. VRDO
(United Parcel Service)
2.85%, 6/1/94 22,900 22,900
Pennsylvania COP
3.50%, 6/1/94 5,230 5,230
Pennsylvania GO
3.80%, 4/15/95 13,035 13,054
Pennsylvania Higher Education
Facilities Auth.
(Carnegie Mellon Univ.) VRDO
2.80%, 6/1/94 4,500 4,500
(Univ. of Pennsylvania)
9.125%, 6/1/95 (Prere.) 6,725 7,063
Pennsylvania Housing
Finance Agency
7.55%, 4/1/16 9,670 10,100
6.90%, 4/1/17 7,500 7,698
Pennsylvania Infrastructure
Investment Auth. VRDO
(Pennvest Pooled Loan)
2.70%, 6/1//94 3,000 3,000
Pennsylvania State Univ.
9.00%, 9/1//95 (Prere.) 1,000 1,079
Pennsylvania TAN
3.25%, 6/30/94 2,700 2,700
Philadelphia Auth. for Industrial
Development VRDO
(Institute for Cancer Research)
3.00%, 6/1/94 300 300
Philadelphia Hosp. & Higher
Education Facilities Auth.
(Albert Einstein Medical Center)
10.00%, 4/1/95 (Prere.) 1,000 1,072
(Children's Hosp.) VRDO
3.00%, 6/1/94 1,800 1,800
Swarthmore Borough Auth.
College Rev. (Swarthmore College)
7.375%, 9/15/18 2,200 2,367
OUTSIDE PENNSYLVANIA
Puerto Rico Govt.
Development Bank VRDO
2.60%, 6/1/94 900 900
--------
GROUP TOTAL 89,729
--------
- - ----------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $1,375,543) 1,407,386
- - ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.6%)
- - ----------------------------------------------------------------------
Other Assets--Note B 62,002
Liabilities (38,937)
--------
23,065
- - ----------------------------------------------------------------------
NET ASSETS (100%)
- - ----------------------------------------------------------------------
Applicable to 131,827,512 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $1,430,451
- - ----------------------------------------------------------------------
Net Asset Value per Share $10.85
======================================================================
</TABLE>
+ See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 12.
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - ----------------------------------------------------------------------
Amount Per
(000) Share
----------- --------
<S> <C> <C>
Paid in Capital $1,380,670 $10.47
Undistributed Net
Investment Income -- --
Accumulated Net Realized Gains 15,748 .12
Unrealized Appreciation
of Investments--Note D 34,033 .26
- - ----------------------------------------------------------------------
NET ASSETS $1,430,451 $10.85
- - ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (99.2%)
- - ----------------------------------------------------------------------
Allegheny County GO
VRDO 2.75%, 6/2/94 $31,200 $31,200
7.00%, 2/15/95 1,000 1,043
Allegheny County Higher Education
Building Auth. VRDO
(Univ. of Pittsburgh)
2.687%, 6/2/94 31,870 31,870
2.89%, 6/2/94 6,610 6,610
Allegheny County Hosp.
Development Auth. CP
(Health Center Development)
2.45%, 6/13/94 5,000 5,000
2.55%, 7/11/94 15,600 15,600
Allegheny County Hosp.
Development Auth. VRDO
(Allegheny Health System)
2.90%, 6/1/94 15,400 15,400
(Children's Hosp.-Pittsburgh)
2.788%, 6/2/94 (1) 21,400 21,400
(Magee Women's Hosp.)
TOB 2.95%, 6/2/94 (3) 2,890 2,890
(Presbyterian Univ. Health)
2.75%, 6/2/94 (1) 4,900 4,900
(South Hills Health System)
2.70%, 6/1/94 10,650 10,650
Allegheny County Industrial
Development Auth. PCR CP
(Duquesne Light & Power Co.)
2.75%, 10/20/94 2,000 2,000
2.80%, 10/20/94 8,000 8,000
Allegheny County TRAN
2.75%, 7/21/94 28,600 28,612
Beaver County Industrial
Development Auth. PCR CP
(Duquesne Light & Power Co.)
2.55%, 6/1/94 5,000 5,000
3.20%, 7/19/94 4,700 4,700
Berks County TRAN
2.70%, 12/30/94 2,800 2,800
Dauphin County General Auth. VRDO
(Reading Hosp. & Medical Center)
3.05%, 6/1/94 8,000 8,000
Delaware County GO
6.40%, 12/1/94 1,000 1,019
Delaware County Industrial
Development Auth. VRDO
(Philadelphia Electric Co.)
2.90%, 6/1/94 24,125 24,125
(United Parcel Service)
2.85%, 6/1/94 11,400 11,400
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
Delaware County PCR CP (3)
(Philadelphia Electric Co.)
2.55%, 7/11/94 $ 5,000 $ 5,000
3.20%, 7/19/94 18,000 18,000
3.20%, 7/21/94 4,650 4,650
3.125%, 7/27/94 6,800 6,800
3.20%, 8/11/94 9,500 9,500
(Standard Oil, Inc.)
3.00%, 6/9/94 4,500 4,500
Delaware River Port Auth.
9.375%, 1/1/95 (Prere.) 7,450 7,944
Emmaus General Auth. Pooled
Local Govt. VRDO
3.20%, 6/1/94 15,900 15,900
Erie County GO TOB VRDO
2.663%, 6/2/94 (3) (Prere.) 6,955 6,955
Geisinger Health Systems VRDO
(Montour County)
3.00%, 6/1/94 21,700 21,700
Lehigh County General Purpose
Auth. CP
(Hosp. Central Services)
2.55%, 6/1/94 (1) 3,700 3,700
2.65%, 6/2/94 (1) 3,600 3,600
2.75%, 6/9/94 (1) 10,000 10,000
3.25%, 7/21/94 (1) 7,500 7,500
Northeastern Pennsylvania Hosp.
Auth. CP
(Hosp. Central Services)
2.75%, 6/7/94 (1) 5,500 5,500
2.70%, 6/10/94 (1) 19,950 19,950
2.70%, 6/13/94 (1) 6,060 6,060
3.25%, 7/21/94 (1) 9,700 9,700
Pennsylvania COP
3.25%, 7/1/94 (2) 4,775 4,777
Pennsylvania GO
TOB VRDO 2.89%, 6/7/94 (2) 4,600 4,600
4.40%, 9/1/94 7,460 7,488
6.00%, 11/1/94 (1) 1,000 1,013
5.00%, 11/15/94 (2) 10,000 10,114
Pennsylvania TAN
3.25%, 6/30/94 26,800 26,809
Pennsylvania Higher Education
Assistance Agency Student
Loan Rev. VRDO
2.80%, 6/1/94 25,200 25,200
Pennsylvania Higher Education
Facilities Auth.
(Carnegie Mellon Univ.)
VRDO 2.8%, 6/1/94 60,100 60,100
(Pooled Finance Auth.)
VRDO 3.05%, 6/1/94 21,900 21,900
(Temple Univ.) VRDO
3.00%, 6/1/94 11,500 11,500
(Thomas Jefferson Univ.)
2.70%, 6/1/94* 15,000 15,000
(Univ. of Pennsylvania) VRDO
2.85%, 6/1/94 17,300 17,300
3.00%, 6/1/94 30,200 30,200
(Univ of Pittsburgh)
2.687%, 6/2/94 20,500 20,500
Pennsylvania Infrastructure
Investment Auth. VRDO
(Pennvest Pooled Loan)
2.65%, 6/1/94 35,500 35,500
Pennsylvania State Univ. Rev.
3.00%, 12/5/94 10,000 10,014
4.00%, 5/4/95 8,000 8,036
Pennsylvania Turnpike Auth. TOB
VRDO 2.7%, 6/2/94 (Prere.) 10,200 10,200
3.30%, 6/2/94* (Prere.) 12,000 12,000
Philadelphia Auth. for
Industrial Development VRDO
(Franklin Institute)
3.00%, 6/2/94 11,275 11,275
(Institute for Cancer Research)
3.00%, 6/1/94 4,500 4,500
Philadelphia Gas Works
9.125%, 3/15/95 (Prere.) 5,230 5,584
Philadelphia Hosp. & Higher
Education Facilities Auth.
(Albert Einstein Medical Center)
10.00%, 4/1/95 (Prere.) 6,275 6,730
(Children's Hosp.)
VRDO 3.00%, 6/1/94 24,550 24,550
TOB VRDO 2.95%, 6/2/94 8,200 8,200
(Pennsylvania Hosp.)
VRDO 2.85%, 6/1/94 10,000 10,000
2.70%, 7/1/94* 18,575 18,575
2.75%, 7/1/94* 10,000 10,000
Philadelphia School Dist.
3.00%, 7/1/94 (2) 13,305 13,307
Philadelphia TRAN
3.25%, 6/15/94 25,000 25,005
Pittsburgh Water & Sewer Rev.
3.50%, 9/1/94 (3) 8,495 8,512
Red Lion Area School Dist. TRAN
2.78%, 6/30/94 2,500 2,500
St. Mary's Hosp. Auth. Langhorne
(Franciscan Health System)
VRDO 2.85%, 6/1/94 25,200 25,200
11.75%, 7/1/94 (Prere.) 12,495 12,836
Sayre Health Care Facilities
Auth. Pooled Loan VRDO
2.90%, 6/1/94 (2) 46,050 46,050
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
Scranton Lackawanna Health &
Welfare Auth.
(Univ. of Scranton)
3.30%, 11/1/94 $ 5,340 $ 5,340
Somerset County General
Auth. TOB VRDO
2.80%, 6/2/94 (Prere.) 15,540 15,540
Temple Univ. Notes
4.50%, 5/24/95 19,700 19,830
York County Industrial
Development Auth. PCR VRDO
(Philadelphia Electric Co.)
2.90%, 6/1/94 14,440 14,440
OUTSIDE PENNSYLVANIA
Puerto Rico Govt.
Development Bank VRDO
2.60%, 6/1/94 3,400 3,400
- - ----------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $1,032,803) 1,032,803
- - ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.8%)
- - ----------------------------------------------------------------------
Other Assets--Note B 14,019
Liabilities (6,086)
---------
7,933
- - ----------------------------------------------------------------------
NET ASSETS (100%)
- - ----------------------------------------------------------------------
Applicable to 1,040,769,829 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $1,040,736
- - ----------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
======================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - ----------------------------------------------------------------------
Amount Per
(000) Share
---------- --------
<S> <C> <C>
Paid in Capital $1,040,768 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (32) --
Unrealized Appreciation
of Investments -- --
- - ----------------------------------------------------------------------
NET ASSETS $1,040,736 $1.00
- - ----------------------------------------------------------------------
</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)
CP--Commercial Paper
COP--Certificate of Participation
GO--General Obligation
IDR--Industrial Development Revenue
PCR--Pollution Control Revenue
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.
12
<PAGE> 13
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED LONG-TERM MONEY MARKET
PORTFOLIO PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
May 31, 1994 May 31, 1994
(000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . $ 42,906 $12,363
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . 42,906 12,363
- - -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . $ 80 $ 50
Management and Administrative . . . . . . . . . 1,258 839
Marketing and Distribution . . . . . . . . . . 161 1,499 132 1,021
-------- ------
Insurance Expense . . . . . . . . . . . . . . . . . 22 --
Auditing Fees . . . . . . . . . . . . . . . . . . 4 4
Shareholders' Reports . . . . . . . . . . . . . . . 42 16
Annual Meeting and Proxy Costs . . . . . . . . . . 6 2
Trustees' Fees and Expenses . . . . . . . . . . . . 4 3
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . 1,577 1,046
- - -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . 41,329 11,317
- - -----------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . 9,219 (15)
Futures Contracts . . . . . . . . . . . . . . . . . 10,703 --
- - -----------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . 19,922 (15)
- - -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . (80,044) --
Futures Contracts . . . . . . . . . . . . . . . . . 366 --
- - -----------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . (79,678) --
- - -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . $(18,427) $11,302
===================================================================================================================================
</TABLE>
13
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
SIX MONTHS ENDED November 30, SIX MONTHS ENDED November 30,
MAY 31, 1994 1993 MAY 31, 1994 1993
(000) (000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . $ 41,329 $ 76,083 $ 11,317 $ 19,740
Realized Net Gain (Loss) 19,922 7,978 (15) (1)
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . (79,678) 63,080 -- --
- - -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . (18,427) 147,141 11,302 19,739
- - -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . (41,329) (76,083) (11,317) (19,740)
Realized Net Gain . . . . . . . . . . . . . . . (10,362) (23,306) -- --
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . (51,691) (99,389) (11,317) (19,740)
- - -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . 152,052 395,311 473,006 789,488
-- In Lieu of Cash Distributions . . 37,746 74,696 10,501 18,282
-- Exchange . . . . . . . . . . . . 61,996 157,533 193,913 258,067
Redeemed -- Regular . . . . . . . . . . . . . (121,445) (176,200) (415,322) (674,563)
-- Exchange . . . . . . . . . . . . (126,137) (132,803) (156,620) (238,098)
- - -----------------------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions . . . . . . . . . . . . 4,212 318,537 105,478 153,176
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . (65,906) 366,289 105,463 153,175
- - -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . 1,496,357 1,130,068 935,273 782,098
- - -----------------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . $1,430,451 $1,496,357 $1,040,736 $935,273
===================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . $.309 $.631 $.011 $.024
Realized Net Gain . . . . . . . . . . . . . $.079 $.224 -- --
- - -----------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . 19,126 49,414 666,919 1,047,555
Issued in Lieu of Cash Distributions . . . 3,384 6,721 10,501 18,282
Redeemed . . . . . . . . . . . . . . . . . (22,386) (27,522) (571,942) (912,661)
- - -----------------------------------------------------------------------------------------------------------------------------------
124 28,613 105,478 153,176
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED ----------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1994 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $11.36 $10.96 $10.47 $10.19 $10.16 $9.70
------ ------ ------ ------ ------ -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .309 .631 .664 .667 .679 .687
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . (.431) .624 .520 .286 .030 .460
------ ---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS . . . . . (.122) 1.255 1.184 .953 .709 1.147
- - -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.309) (.631) (.664) (.667) (.679) (.687)
Distributions from Realized Capital Gains . . . (.079) (.224) (.030) (.006) -- --
------ ---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS . . . . . . . . . . . (.388) (.855) (.694) (.673) (.679) (.687)
- - -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.85 $11.36 $10.96 $10.47 $10.19 $10.16
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . -1.11% +11.90% +11.65% +9.65% +7.27% +12.16%
- - -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,430 $1,496 $1,130 $828 $556 $416
Ratio of Expenses to Average Net Assets . . . . . .21%* .20% .24%+ .25%+ .25%+ .26%+
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 5.59%* 5.61% 6.17% 6.46% 6.77% 6.87%
Portfolio Turnover Rate . . . . . . . . . . . . . 19%* 14% 17% 2% 9% 8%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
+Insurance expense represents .01%, .01%, .02%, and .03%.
*Annualized.
15
<PAGE> 16
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED --------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1994 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .011 .024 .029 .045 .057 .062
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . .011 .024 .029 .045 .057 .062
- - -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.011) (.024) (.029) (.045) (.057) (.062)
Distributions from Realized Capital Gains . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . (.011) (.024) (.029) (.045) (.057) (.062)
- - -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +1.14% +2.38% +2.96% +4.59% +5.85% +6.38%
- - -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,041 $935 $782 $818 $730 $448
Ratio of Expenses to Average Net Assets . . . . . .21%* .20% .24% .24% .23% .23%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 2.27%* 2.35% 2.93% 4.48% 5.68% 6.19%
Portfolio Turnover Rate . . . . . . . . . . . . . N/A N/A N/A N/A N/A N/A
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Vanguard Pennsylvania Tax-Free Fund is registered under the Investment Company
Act of 1940 as an open-end investment company and consists of the Insured
Long-Term and Money Market Portfolios. Each Portfolio invests in debt
instruments of municipal issuers whose ability to meet their obligations may be
affected by economic and political developments in the Commonwealth of
Pennsylvania.
*A. The following significant accounting policies are in conformity
with generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Money Market Portfolio: investment securities
are stated at amortized cost which approximates market value.
Insured Long-Term Portfolio: municipal bonds are valued utilizing
primarily the latest bid prices or, if bid prices are not available,
on the basis of valuations based on a matrix system (which considers
such factors as security prices, yields, maturities and ratings),
both as furnished by an independent pricing service.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to
continue to qualify as a regulated investment company and distribute
all of its income. Accordingly, no provision for Federal income
taxes is required in the financial statements.
3. FUTURES: The Insured Long-Term Portfolio utilizes 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 Portfolio 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 aggregating $395,000 to
Vanguard (included in Other Assets), representing 2.0% of Vanguard's
capitalization. The Fund's officers and trustees are also officers and
directors of Vanguard.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (continued)
*C. During the six months ended May 31, 1994, the Insured Long-Term
Portfolio made purchases of $131,748,000 and sales of $143,311,000 of
investment securities other than temporary cash investments.
*D. At May 31, 1994, unrealized appreciation of investment securities
of the Insured Long-Term Portfolio for financial reporting and Federal income
tax purposes aggregated $31,843,000 of which $48,575,000 related to appreciated
securities and $16,732,000 related to depreciated securities.
At May 31, 1994, the Insured Long-Term Portfolio had long positions in
Municipal Bond Index futures contracts expiring in June 1994, with an aggregate
settlement value and net unrealized depreciation of $75,070,000 and $3,049,000,
respectively. The aggregate settlement value and net unrealized appreciation
related to short positions in U.S. Treasury Bond futures contracts expiring
through September 1994 were $187,936,000 and $5,239,000, respectively. The
market value of securities deposited as initial margin for open futures
contracts was $3,604,000.
18
<PAGE> 19
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 Chief Executive Officer of Rohm & Haas
Company; Director of Cummins Engine Company; Trustee of Vanderbilt University
and the Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, CONTROLLER; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
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
19
<PAGE> 20
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 (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (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 Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 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.
Q772-05/94
[VANGUARD PENNSYLVANIA TAX-FREE FUND LOGO]
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
MAY 31, 1994
<PAGE> 21
EDGAR APPENDIX
The back cover of the printed version of this report features the
flags of the United States of America and Vanguard flying from a halyard.
