<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
During the six months ended May 31, 1995--the first half of the fiscal year for
Vanguard State Tax-Free Portfolios--a fairly substantial decline in long-term
interest rates resulted in higher prices for long-term tax-exempt bonds. These
price increases pushed the six-month total returns (capital change plus income)
of all our Insured Longer-Term Portfolios well into double-digit territory.
While long rates declined during the past six months, shorter-term interest
rates actually increased marginally. In this environment, the yields of our
Money Market Portfolios increased nicely and remained comfortably ahead of the
yields offered by comparable funds.
THE STATE INSURED LONG-TERM PORTFOLIOS
In the wake of repeated interest rate increases by the Federal Reserve during
1994, long-term municipal bond yields peaked in November 1994 at 7.1%. As these
rate hikes seemed to slow the economy's growth, concerns about future inflation
were allayed, and rates began to decline. By the end of May, municipal bond
yields had fallen to 5.8%, a decline of 130 basis points.
In this environment, longer-term municipal bond funds enjoyed
outstanding returns. Indeed, each of Vanguard's Insured Long-Term Portfolios
provided six-month total returns (capital change plus income) in the area of
+14%. This sharp price rally overwhelmed the negative returns of the prior six
months, bringing our total returns for the twelve months strongly into positive
territory. Although fluctuating net asset values are part and parcel of bond
fund investing, the recent swings in market value demonstrate the benefit of
remaining committed to a long-term investment strategy.
The table opposite shows the Longer-Term Portfolios' twelve-month
returns, reflecting a full year's income. To provide some perspective on how
fluctuating interest rates have impacted our Insured Longer-Term Portfolios
over this period, the table breaks down our Portfolios' total returns into
their income and capital components. I would emphasize that the table conceals
the fact that the full period was composed of two vastly different six-month
sub-periods, one in which returns were sharply negative, the other strongly
positive.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Investment Returns
Twelve Months Ended
May 31,1995
----------------------------------------
Insured Longer-Term Portfolio Income Capital Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA INTERMEDIATE-TERM +5.2% +2.2% +7.4%
CALIFORNIA LONG-TERM +6.1 +3.8 +9.9
NEW YORK LONG-TERM +6.0 +3.0 +9.0
PENNSYLVANIA LONG-TERM +6.2 +2.1 +8.3
NEW JERSEY LONG-TERM +6.0 +3.5 +9.5
OHIO LONG-TERM +5.9 +3.2 +9.1
FLORIDA LONG-TERM +5.8 +3.6 +9.4
- -------------------------------------------------------------------------------------------
</TABLE>
The current tax-exempt yields on our Insured Longer-Term Portfolios are
presently in the area of 5.2%, compared with 6.3% six months ago. The yield for
each Portfolio is presented in the table on page 3 of this report, which also
includes per share net asset values, dividends, and total returns over the past
six and twelve months.
THE STATE MONEY MARKET PORTFOLIOS
As noted earlier, the Federal Reserve Board has remained relatively
tight-fisted in its monetary policy during the past six months, bringing some
stability to money market yields. This stability is a stark contrast to fiscal
1994, when the Board raised the Fed funds rate (at which banks borrow from one
another) on fully six separate occasions. It would appear that the Fed's tough
policy is bearing fruit: inflation so far remains quite subdued, and business
activity has slowed to a more normal growth rate.
While rates have been stable in recent months, the table below shows
the impact of the dramatic surge in short-term rates on our annualized yields
over the past year and one-half. You will note that, during this period, the
yields on our Money Market Portfolios have risen by more than 60%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Seven-Day Annualized Yield
------------------------------------------------------------
Money Market May 31, Nov. 30, May 31, Nov. 30,
Portfolio 1995 1994 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA 3.8% 3.4% 2.6% 2.3%
PENNSYLVANIA 3.8 3.5 2.6 2.3
NEW JERSEY 3.7 3.3 2.5 2.2
OHIO 3.9 3.5 2.6 2.4
- -------------------------------------------------------------------------------------------
</TABLE>
(continued)
1
<PAGE> 2
Regardless of future interest rate movements, the yield advantage of our
Vanguard State Money Market Portfolios is virtually certain to remain
attractive relative to other comparable money market funds. The principal
reason for this advantage, as you know, is that our operating expenses are so
much lower than industry norms. Our Portfolios, for example, operate at an
annual expense ratio of about 0.2%, compared with 0.6% for our average
competitor. This advantage of 0.4% carries directly to the bottom line: the
yield you receive. Thus, in a market in which gross yields are, say, 4.0%, our
Portfolios should provide a net yield of 3.8%, compared with 3.4% for other
comparable money market portfolios.
I want to underscore that our higher yields do not arise from the
ownership of lower quality money market instruments. The quality of our
Portfolios is, we believe, as high as any tax-exempt money market fund in the
field. Funds which stinted on quality last year ran the risk that their net
asset values might fall below the $1.00 value that investors have come to take
for granted. Our focus on quality--along with, we acknowledge, some good
luck--spared us the consequences of this risk, and we owned no direct
obligations of Orange County, California, the most troubled credit of the
period. Each of our Money Market Portfolios' net asset values remained at $1.00
per share, which as you know, is our objective, but is not guaranteed.
IN SUMMARY
The recent swings in total returns we have witnessed help to demonstrate that
"staying the course"--even in the face of turbulent markets--will more often
than not lead to a successful long-term investment program. In contrast,
attempting to jump into and out of mutual funds in hopes of timing the
movements of the market is almost certain to result in failure.
Whether rates remain volatile or not, the benefits of investing in
Vanguard State Tax-Free Portfolios endure: high quality, low cost, and
professional management. Along with these advantages, the Portfolios distribute
income that is 100% exempt from both Federal and state income taxes. Together,
these factors should ensure our ability to provide shareholders with efficient
and effective Portfolios in the years to come.
I look forward to reporting to you on our results for the full year in
our 1995 Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- -----------------
John C. Bogle
Chairman of the Board
June 9, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
A FEW WORDS ABOUT POSSIBLE CHANGES IN THE TAX LAW
The uncertainties related to a variety of new tax proposals seem to have
unnerved some participants in the tax-exempt bond market. Of the options which
have been considered, perhaps the most significant to municipal bond investors
is the "flat tax." Indeed, under one proposed version, municipal bond yields
would have no advantage over taxable yields. Because of this uncertainty, the
rise in municipal bond prices has been significantly less than the rise in U.S.
Treasury bond prices over the past few months.
As a result, the current yield on high-quality long-term municipal
bonds is 94% of the yield on taxable U.S. Treasuries giving municipal bonds
their largest after-tax yield advantage in recent years. What this means is
that an investor in the highest marginal tax bracket (40%) would earn an
after-tax yield of about 3.8% on a U.S. Treasury bond (60% of 6.4%). A
high-grade municipal bond, on the other hand, would provide a tax-exempt yield
of 6.0%--fully 58% higher. Thus, it would appear that tax uncertainty has
created unusual yield opportunity.
In any event, the flat tax option is no longer high on the legislative
agenda, and neither of the tax bills adopted by the Senate or the House of
Representatives would disturb the existing tax-exempt status of municipal bond
interest. Until the details of any tax law changes become clearer, we would
caution municipal bond investors to give careful consideration before making
any shifts in their holdings of municipal bonds. In the meantime, we will keep
you abreast of our views on the possible effects of any proposed legislation
that could materially impact the tax status of your holdings in Vanguard
municipal bond funds.
<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, 1995 MATURITY QUALITY* 1994 1995 MONTHS MONTHS MONTHS MONTHS YIELD**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . . $1,114 24 DAYS MIG 1 $ 1.00 $ 1.00 $.019 $.033 + 1.9% +3.3% 3.80%
PENNSYLVANIA . . . 1,148 26 DAYS MIG 1 1.00 1.00 .018 .033 + 1.9 +3.3 3.80
NEW JERSEY . . . . 818 51 DAYS MIG 1 1.00 1.00 .018 .032 + 1.8 +3.2 3.71
OHIO . . . . . . . 166 60 DAYS MIG 1 1.00 1.00 .019 .033 + 1.9 +3.4 3.92
- -----------------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA
INTERMEDIATE-
TERM . . . . . . $ 171 6.6 YEARS Aaa $ 9.64 $10.26 $.253 $.499 + 9.2% +7.4% 4.86%
CALIFORNIA . . . . 936 12.7 YEARS Aaa 9.92 11.06 .301 .606 +14.7 +9.9 5.29
NEW YORK . . . . . 799 11.1 YEARS Aaa 9.70 10.80 .293 .587 +14.5 +9.0 5.18
PENNSYLVANIA . . . 1,482 12.8 YEARS Aaa 10.07 11.08 .308 .625 +13.2 +8.3 5.28
NEW JERSEY . . . . 742 10.5 YEARS Aaa 10.40 11.57 .316 .628 +14.4 +9.5 5.12
OHIO . . . . . . . 175 9.5 YEARS Aaa 10.28 11.43 .307 .611 +14.3 +9.1 5.22
FLORIDA . . . . . 362 13.1 YEARS Aaa 9.61 10.75 .281 .562 +14.9 +9.4 5.27
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* MIG 1 and Aaa are Moody's highest ratings for short-term and long-term
municipal bonds, respectively.
** Money Market Portfolios' yields are 7-day annualized yields; others are
30-day SEC yields.
Note: The shares of each of the Vanguard "single-state" Portfolios are
available for purchase solely by residents of the designated states.
3
<PAGE> 4
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, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
-------------------------------
INCEPTION TOTAL INCOME CAPITAL
DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
-------- ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA INSURED
INTERMEDIATE-TERM 3/4/94 +6.72% -- +5.61% +4.96% +0.65%
CALIFORNIA INSURED LONG-TERM 4/7/86 +8.14 +8.33% +7.75 +6.55 +1.20
CALIFORNIA MONEY MARKET 6/1/87 +3.09 +3.47 +4.18 +4.18 0.00
NEW YORK INSURED TAX-FREE 4/7/86 +7.84 +8.72 +7.30 +6.54 +0.76
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +7.54 +8.73 +8.04 +6.75 +1.29
PENNSYLVANIA MONEY MARKET 6/13/88 +3.04 +3.52 +4.19 +4.19 0.00
NEW JERSEY INSURED LONG-TERM 2/3/88 +8.06 +8.69 +8.57 +6.55 +2.02
NEW JERSEY MONEY MARKET 2/3/88 +2.96 +3.48 +4.17 +4.17 0.00
OHIO INSURED LONG-TERM 6/18/90 +7.57 -- +8.80 +6.08 +2.72
OHIO MONEY MARKET 6/18/90 +3.08 -- +3.44 +3.44 0.00
FLORIDA INSURED TAX-FREE 9/1/92 +8.74 -- +7.68 +5.44 +2.24
</TABLE>
ALL OF 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 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.
4
<PAGE> 5
REPORT FROM THE INVESTMENT ADVISER
Two significant events occurred during the first six months of the fiscal year.
The first was the stunning market rally that drove long-term municipal yields
approximately -1.1 percentage points lower. The second was the turmoil
surrounding the bankruptcy of Orange County, California.
MONEY MARKETS
The aggressive tightening of monetary policy by the Federal Reserve Board in
1994 slowed down dramatically in the first half of fiscal year 1995. The only
intervention occurred on February 1, 1995, when the Federal Reserve Board
increased the discount and Federal funds rates 0.5%. Participants in the
short-term municipal market reacted favorably to this relative stability in
interest rates and 1-year notes rallied roughly +1%. While yields on 1-year
notes declined, yields on shorter-term variable rate instruments moved in the
opposite direction, resulting in what is known as a flattening of the
short-term municipal yield curve. The average weighted maturities of the
Portfolios were positioned at the lower end of their maturity spectrum, and
consequently benefited from this flattening. During the fiscal half, the
average monthly yield on all non-institutional state-specific money funds rose
+0.78%.
In the upcoming months, increased supply of short-term municipal
issuance should present an opportunity for our Money Market Portfolios to
extend their average maturities, but not at the expense of sacrificing quality.
BOND MARKETS
For the first half of the fiscal year, investors pushed long-term interest
rates lower as economic indices pointed increasingly to slower domestic
economic growth. Investors viewed the slowing as beneficially affecting
inflation. Long-term interest rates declined for virtually the entire six
months. For example, the benchmark 30-year U.S. Treasury bond began the fiscal
year yielding 8.0%, and by the end of May, the yield had fallen -1.4% to 6.6%.
Long-term tax-exempt bond yields followed suit, however, not in quite the same
magnitude as the taxable market. The Bond Buyer 20 Municipal Bond Index yield
declined -1.1% (from 6.9% to 5.8%) over the same period.
The Florida, New Jersey, New York, Ohio, California, and Pennsylvania
Insured Long-Term Portfolios performed well over the six-month period. The
Portfolios benefited from an extension in their average weighted maturity that
began in the fourth quarter of the last fiscal year. Additionally, the
Portfolios' structure, with superior protection from early calls, aided in
maintaining the price responsiveness of the Portfolios during the market rally.
Looking ahead there are three main strategies that we expect to pursue
regarding the management of the money invested in the Florida, New Jersey, New
York, Ohio, California, and Pennsylvania Insured Long-Term Portfolios. The
first is a continued focus on improvements in call protection to enhance the
durability of dividends; second is investing to minimize taxable capital gains
distributions when it does not interfere with superior total return potential;
and third is a focus on higher coupon bonds that would position the Portfolios
more defensively should interest rates reverse direction and move higher.
ORANGE COUNTY
During the afternoon of December 1, 1994, reports began to appear in the media
that Orange County, California, had experienced massive losses from its
investment pool in the range of $1.5 billion. Several days later, a news
conference convened by county officials confirmed the losses. On December 6,
acting to prevent creditors from forcing the county to become insolvent, the
officials filed for bankruptcy protection under Chapter 9 of the Federal
Bankruptcy Code. This was the first municipal bankruptcy filing by a major
government since the Great Depression. So far, there have been no major
defaults on bonds by the county or the other 187 government pool participants
(mainly from Orange County). However, if plans for a financial rescue of the
County are not completed before the end of June 1995, a series of defaults
could occur which would rival the $2.5 billion default by the Washington Public
Power Supply System in 1984. Importantly, Vanguard has no direct exposure to
losses stemming from Orange County.
How this debacle happened is still being discussed and investigated.
The County Treasurer used reverse repurchase agreements to leverage the
5
<PAGE> 6
portfolio to roughly three times the value of the underlying investments. He
then invested about a quarter of the pool in exotic derivative securities which
had coupons that reset inversely to changes in interest rates. As rates rose
rapidly during 1994, the portfolio suffered massive unrealized market value
losses. Orange County was not the only jurisdiction to have experienced massive
investment losses in 1994. Highly publicized, but less serious problems
occurred in the investments of the State of Wisconsin, Cuyahoga County (Ohio),
and Odessa (Texas) Junior College District. As a result, state and local
government investments, investment policies, and investment oversight will be
more carefully scrutinized in the future.
Nevertheless, the aftershock of the bankruptcy extended well beyond
the boundaries of California, and consequently, all municipal money market
funds experienced its effects. The immediate reaction in the short-term
municipal market resulted in a rise in yields of +0.75 percentage points on all
general market notes. Orange County Tax and Revenue Anticipation Notes, and any
related credits, faced a much more severe crisis with virtually no bid for
these securities. Since then, liquidity for general market notes has returned,
and yields have rallied through their December levels. However, illiquidity
persists for Orange County investors as bondholders negotiate payment on the
notes that are due in July.
The Orange County bankruptcy underscores the benefit of the additional
layer of credit protection provided by the AAA-rated insurance policies
attached to the bonds that are owned by the State Insured Long-Term Portfolios.
As the bankruptcy story unfolded, most uninsured Orange County investment pool
related bonds were illiquid. In contrast, while insured Orange County related
bonds underperformed other insured bonds by three points, the insured market
was liquid. By late December, much of that underperformance had disappeared,
and at the end of the fiscal half, insured Orange County related bonds were
trading at prices just slightly lower than other insured bonds.
CONCLUSION
The Orange County bankruptcy has reinforced our commitment to rigorous credit
evaluation of the municipal securities in which we invest. This conservative
approach to assessing credit quality combined with Vanguard's low expenses
provides a high-quality investment that is exempt from both Federal and state
income taxes.
Respectfully,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela W. Tynan
Vice President
David E. Hamlin
Assistant Vice President
Reid O. Smith
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Vanguard Fixed Income Group
June 14, 1995
6
<PAGE> 7
FINANCIAL STATEMENTS
(unaudited)
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
- ---------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (99.7%)
- ---------------------------------------------------------------------------
ISSUER INSURED (86.4%)
Allegheny County GO
0.00%, 5/1/03 (2) $12,315 $ 8,196
6.00%, 5/1/10 (2) 3,030 3,112
6.00%, 5/1/12 (2) 3,000 3,071
Allegheny County Hosp.
Development Auth.
(Children's Hosp. of Pittsburgh)
VRDO 3.954%, 6/8/95 (1) 200 200
(Magee Women's Hosp.)
6.00%, 10/1/10 (3) 4,235 4,394
(Mercy Hosp.)
6.75%, 4/1/21 (2) 4,500 4,810
(Presbyterian Univ. Hosp.)
VRDO 3.95%, 6/8/95 (1) 2,400 2,400
6.00%, 11/1/12 (1) 3,000 3,043
7.125%, 7/1/99 (1) (Prere.) 6,835 7,614
7.60%, 3/1/08 (1) 5,000 5,500
Allegheny County Sanitation Auth.
5.50%, 12/1/13 (3) 20,295 20,132
5.50%, 12/1/16 (3) 23,665 23,255
6.25%, 12/1/14 (1) 9,660 10,187
6.50%, 12/1/11 (3) 8,000 8,455
Altoona City Auth.
6.50%, 11/1/19 (3) 20,000 21,555
Beaver County Industrial
Development Auth.
(Ohio Edison)
7.00%, 6/1/21 (3) 22,715 24,948
7.10%, 6/1/18 (3) 5,000 5,479
Berks County GO
0.00%, 11/15/13 (3) 7,250 2,475
0.00%, 11/15/14 (3) 8,615 2,758
0.00%, 11/15/15 (3) 6,250 1,876
5.75%, 11/15/12 (3) 15,500 15,677
Berks County Hosp. Rev.
(Reading Hosp.)
5.70%, 10/1/14 (1) 4,500 4,510
6.10%, 10/1/23 (1) 16,500 16,802
Blair County Hosp. Auth.
(Altoona Hosp.)
6.50%, 7/1/22 (2) 8,500 8,983
Boyertown Area School Dist.
6.10%, 3/1/15 (2) 6,000 6,140
Bucks County Water &
Sewer Auth.
9.10%, 12/1/95 (3) (Prere.) 1,200 1,231
9.20%, 12/1/95 (3) (Prere.) 1,200 1,231
Butler County GO
6.00%, 7/15/12 (3) 5,185 5,287
Center City Philadelphia
Business Improvement
5.50%, 12/1/15 (2) 6,955 6,821
Center Township Sewer Auth.
5.50%, 4/15/11 (2) 2,375 2,367
Central Dauphin County
School Dist. GO
0.00%, 6/1/04 (2) 4,800 3,006
Central Greene School Dist.
6.50%, 2/15/24 (1) 5,500 5,842
Chester County Hosp. Auth.
(Chester County Hosp.)
7.00%, 7/1/16 (1) 11,000 11,292
Cornwall Lebanon Suburban Joint
School Dist.
5.875%, 3/1/14 (3) 5,635 5,698
5.90%, 3/1/11 (3) 3,270 3,350
Corry Area School Dist. GO
5.50%, 12/15/10 (1) 4,600 4,595
Dauphin County General Auth.
(West Pennsylvania Hosp.)
5.50%, 7/1/13 (1) 5,000 4,904
Dauphin County Hosp. Auth.
(Harrisburg Hosp.)
8.125%, 7/1/07 (1) 3,000 3,265
Delaware County Auth.
College Rev.
(Haverford College)
5.40%, 11/15/13 (1) 1,750 1,704
Delaware County Hosp. Auth.
(Crozer Chester Medical Center)
5.30%, 12/15/11 (1) 4,660 4,486
(Delaware County Memorial Hosp.)
7.125%, 8/15/09 (1) 5,160 5,644
7.20%, 8/15/19 (1) 8,000 8,774
Delaware River Joint Toll
Bridge Comm.
6.00%, 7/1/18 (3) 3,040 3,098
Delaware River Port Auth.
6.50%, 1/1/09 (2) 4,500 4,751
7.375%, 1/1/07 (2) 13,500 14,897
Erie County GO 5.25%,
9/1/12 (3) 2,875 2,777
Erie County Hosp. Auth. (St.
Vincent Health Care)
6.125%, 7/1/13 (1) 3,900 4,008
Fort LeBoeuf School Dist. GO
5.80%, 1/1/13 (1) 5,500 5,558
Garnet Valley School Dist. GO
5.70%, 4/1/11 (2) 3,000 3,027
Greensburg Salem School Dist. GO
6.45%, 9/15/18 (1) 7,500 7,863
Hampden Township Sewer Auth.
8.875%, 10/1/05 (1) 500 507
9.00%, 4/1/11 (1) 500 507
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------------
<S> <C> <C>
Haverford Township School Dist.
6.25%, 6/1/19 (3) $11,500 $ 11,900
Hazleton Area School Dist.
5.75%, 3/1/13 (3) 11,875 12,051
Lancaster Higher Education Auth.
(Franklin & Marshall College)
6.60%, 4/15/10 (1) 4,940 5,294
6.70%, 4/15/12 (1) 4,000 4,283
Lehigh County GO 6.00%,
10/15/99 (2) (Prere.) 1,000 1,059
7.00%, 7/1/16 (1) 4,415 5,180
Lewisburg Area School Dist. GO
6.20%, 6/1/12 (1) 3,500 3,614
6.25%, 6/1/15 (1) 3,685 3,811
Ligonier Valley School Dist. GO
6.00%, 3/1/19 (1) 6,000 6,101
Lycoming County College Auth. GO
5.40%, 11/1/08 (2) 6,000 5,988
Lycoming County Hosp. Auth.
(Williamsport Hosp.)
6.875%, 11/1/04 (2) 4,450 4,669
7.00%, 11/1/15 (2) 3,000 3,156
Manheim Central School Dist. GO
6.85%, 3/1/08 (3) 2,705 2,965
Mars Area School Dist. GO
6.25%, 9/1/19 (3) 4,000 4,156
Montgomery County Higher
Education & Health Auth.
(Abington Memorial Hosp.)
6.00%, 6/1/22 (2) 10,160 10,244
6.10%, 6/1/12 (2) 5,000 5,090
Montgomery County Industrial
Development Auth. PCR (PECO)
6.70%, 12/1/21 (1) 12,000 12,933
Mount Lebanon Hosp. Development
Auth. (St. Clair Memorial Hosp.)
6.25%, 7/1/06 (3) 9,250 10,027
Neshaminy School Dist. GO
6.30%, 2/15/13 (3) 10,000 10,415
North Penn Water Auth.
5.75%, 11/1/24 (3) 19,460 19,295
6.125%, 11/1/10 (3) 5,140 5,343
7.00%, 11/1/24 (3) 4,500 5,143
North Wales Water Auth.
(Montgomery County)
6.125%, 11/1/12 (3) 3,000 3,085
6.125%, 11/1/22 (3) 8,300 8,480
6.25%, 11/1/14 (3) 2,300 2,393
7.00%, 11/1/20 (3) 7,000 7,956
Northampton County Higher
Education Auth. (Lehigh Univ.)
7.10%, 11/15/09 (1) 7,035 7,776
Northampton County Hosp. Auth.
(Easton Hosp.)
6.25%, 1/1/19 (1) 10,000 10,314
7.875%, 1/1/19 (6) 285 318
Northumberland County Commonwealth Lease
6.25%, 10/15/01 (1) (Prere.) 13,600 14,328
Penn Hills GO
5.80%, 12/1/13 (2) 11,735 11,859
Penn Trafford School Dist. GO
5.85%, 5/1/14 (1) 2,435 2,472
Pennsbury School Dist. GO
6.70%, 8/15/10 (3) 1,925 2,113
6.80%, 8/15/14 (3) 3,800 4,167
Pennsylvania Convention Center
Auth.
0.00%, 9/1/04 (3) 5,000 3,090
6.00%, 9/1/19 (3) 12,600 13,245
6.25%, 9/1/95 (3) 3,000 3,017
6.70%, 9/1/16 (3) 19,150 21,720
Pennsylvania GO
5.00%, 4/15/09 (2) 9,985 9,598
Pennsylvania Higher Education
Auth. (College and
Univ. Rev.)
7.20%, 1/1/04 (2) 2,500 2,530
(Drexel Univ.)
5.625%, 5/1/14 (1) 11,755 11,693
(State System)
4.00%, 6/15/95 (2) 1,250 1,250
5.375%, 6/15/18 (2) 8,845 8,489
(Temple Univ.)
5.75%, 4/1/31 (1) 23,580 23,225
6.50%, 4/1/21 (1) 6,000 6,328
Pennsylvania Intergovernment
Cooperation Auth.
6.75%, 6/15/21 (3) 23,050 25,175
7.00%, 6/15/14 (3) 2,250 2,519
Pennsylvania Turnpike
Comm.
5.50%, 12/1/17 (3) 29,000 28,365
5.75%, 12/1/12 (2) 10,000 10,091
6.00%, 6/1/15 (1) 28,800 29,238
6.25%, 6/1/11 (2) 10,000 10,428
Pennsylvania Turnpike Comm.
Oil Franchise Tax Rev.
6.00%, 12/1/19 (2) 7,450 7,599
Philadelphia Airport Rev.
9.875%, 6/15/06 (1) 2,215 2,247
Philadelphia Gas Works
6.00%, 5/15/12 (2) 14,250 14,476
6.75%, 1/1/15 (2) 13,930 14,784
7.25%, 1/1/10 (2) 10,085 11,088
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------------
<S> <C> <C>
Philadelphia GO
6.00%, 11/15/10 (3) $ 2,810 $ 2,897
6.00%, 11/15/11 (3) 3,025 3,124
6.00%, 11/15/12 (3) 3,355 3,453
6.00%, 11/15/13 (3) 1,885 1,932
Philadelphia Municipal Auth.
Rev. 5.55%, 11/15/08 (3) 3,040 3,071
5.60%, 11/15/09 (3) 2,100 2,113
5.60%, 11/15/10 (3) 6,755 6,734
5.625%, 11/15/18 (3) 8,750 8,577
7.10%, 11/15/05 (1) 3,000 3,379
Philadelphia Parking Auth. Rev.
7.375%, 9/1/18 (2) 12,065 13,246
Philadelphia School Dist. GO
0.00%, 7/1/01 (2) 11,750 8,654
4.25%, 7/1/95 (1) 5,380 5,381
5.85%, 7/1/09 (1) 1,500 1,545
Philadelphia Water & Waste Water Rev.
5.50%, 6/15/07 (1) 1,000 1,016
5.50%, 8/1/14 (1) 10,400 10,182
6.25%, 8/1/11 (1) 2,750 2,966
7.00%, 6/15/10 (3) 33,865 39,016
7.00%, 6/15/11 (3) 35,685 41,256
Pittsburgh GO
5.20%, 9/1/06 (2) 1,175 1,174
5.30%, 9/1/07 (2) 1,000 999
5.50%, 9/1/14 (2) 9,500 9,410
6.00%, 3/1/14 (2) 3,515 3,516
6.25%, 9/1/16 (1) 11,030 11,387
7.00%, 3/1/07 (3) 2,135 2,259
7.00%, 3/1/06 (3) 18,265 19,318
Pittsburgh Public Parking Auth.
5.875%, 12/1/12 (3) 8,200 8,322
Pittsburgh School Dist. GO
6.75%, 8/1/01 (2) (Prere.) 3,250 3,610
Pittsburgh Water & Sewer System
7.25%, 9/1/14 (3) (ETM) 25,175 29,706
7.625%, 9/1/04 (3) (ETM) 5,370 6,430
Pocono Mountain School Dist. GO
5.75%, 10/1/09 (2) 6,000 6,115
Reading GO (Berks County)
5.875%, 11/15/12 (2) 18,000 18,320
6.00%, 11/15/22 (2) 4,350 4,412
St. Mary's Hosp. Auth.
(Franciscan Health System)
7.00%, 7/1/09 (6) 1,000 1,086
7.00%, 7/1/13 (6) 5,050 5,486
7.00%, 6/15/15 (6) 1,770 1,922
9.40%, 7/1/14 (6) 2,125 2,177
Sayre Health Care Facilities Auth.
VRDO
3.55%, 6/7/95 (2) 16,600 16,600
(Guthrie Health Care System)
6.00%, 3/1/21 (2) 10,710 10,792
7.00%, 3/1/11 (2) 2,000 2,201
Seneca Valley School Dist. GO
5.50%, 7/1/14 (3) 9,965 9,820
5.75%, 7/1/10 (3) 4,000 4,055
Souderton Area School Dist. GO
7.00%, 9/1/12 (2) 2,200 2,352
South Fork Hosp. Auth.
(Conemaugh Valley Hosp.)
5.625%, 7/1/10 (7) 2,300 2,294
5.75%, 7/1/18 (7) 7,000 6,877
Spring-Ford Area School Dist. GO
6.50%, 2/1/18 (2) 8,260 8,849
Univ. of Pittsburgh
6.125%, 6/1/21 (1) 21,400 21,913
Washington County Auth.
5.625%, 6/1/22 (3) 2,650 2,594
Washington County Hosp. Auth.
(Shadyside Hosp.)
5.875%, 12/15/09 (2) 22,000 22,556
(Washington Hosp.)
6.75%, 7/1/12 (2) 10,000 10,731
Wayne County Hosp. & Health Facility
7.125%, 7/1/96 (1) (Prere.) 1,500 1,549
West Allegheny School Dist.
6.25%, 8/1/14 (2) 6,155 6,351
West Jefferson Hills School Dist. GO
5.90%, 8/1/10 (3) 3,160 3,224
5.95%, 8/1/14 (3) 7,180 7,258
Westmoreland County Auth.
6.125%, 7/1/17 (1) (ETM) 8,205 8,790
Westview Municipal Auth. Water
Rev. 7.50%, 11/15/17 (3) 2,860 2,941
York County Southwestern School Dist.
GO 6.40%, 6/15/12 (3) 3,825 4,057
---------
GROUP TOTAL 1,280,230
---------
- ----------------------------------------------------------------------------
PORTFOLIO INSURED (.9%)
Allegheny County Hosp.
Development Auth. (Mercy Hosp.)
7.375%, 4/1/15 3,650 3,782
(St. Margaret's Hosp.)
9.80%, 7/1/10 1,500 1,539
Pennsylvania Hosp. & Higher
Education Facilities Auth.
(Pennsylvania Hosp.)
7.25%, 7/1/14 8,535 8,710
---------
GROUP TOTAL 14,031
---------
- ----------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
SECONDARY MARKET INSURED (.1%)
Allegheny County Hosp.
Development Auth. (Mercy Hosp.)
7.375%, 4/1/15 (1) $ 1,350 $ 1,409
-----------
- ----------------------------------------------------------------------------
NON-INSURED (12.3%)
Allegheny County Hosp.
Development Auth. VRDO
(Allegheny Health System)
3.45%, 6/7/95 (LOC) 14,600 14,600
(South Hills Health System)
3.40%, 6/7/95 (LOC) 4,100 4,100
Cambria County Hosp. Auth.
(Conemaugh Valley Hosp.)
10.125%, 7/1/95 (Prere.) 2,000 2,050
Delaware County Industrial Development
Auth. PCR VRDO (PECO)
3.80%, 6/7/95 (LOC) 1,200 1,200
Delaware County Industrial
Development Auth. Airport
Facilities Rev. VRDO
(United Parcel Service)
4.15%, 6/2/95 16,200 16,200
Emmaus General Auth. Local
Govt. Rev. VRDO
3.95%, 6/7/95 13,600 13,600
Geisinger Health System Auth.
VRDO 4.40%, 6/2/95 5,200 5,200
Pennsylvania GO
4.70%, 7/1/96 4,225 4,254
Pennsylvania Higher Education
Facilities Auth.
(Carnegie Mellon Univ.)
VRDO 3.65%, 6/7/95 22,500 22,500
(Temple Univ.) VRDO
4.40%, 6/2/95 (LOC) 8,500 8,500
(Univ. of Pennsylvania)
9.125%, 6/1/95 (Prere.) 6,725 6,725
Pennsylvania Housing Single Family
Mortgage Finance Agency
6.90%, 4/1/17 7,500 7,931
7.55%, 4/1/16 9,670 10,412
Pennsylvania Infrastructure
Investment Auth. VRDO
(Pennvest Loan Pool Proj.)
3.45%, 6/7/95 400 400
Pennsylvania State Univ.
9.00%, 9/1/95 (Prere.) 1,000 1,032
Philadelphia Auth. for
Industrial Development VRDO
(Institute for Cancer Research)
4.40%, 6/2/95 (LOC) 300 300
Philadelphia GO CP
4.15%, 6/8/95 (LOC) 14,290 14,290
4.20%, 7/11/95 (LOC) 15,100 15,100
4.30%, 7/18/95 (LOC) 2,500 2,501
Philadelphia Hosp. & Higher
Education Facilities Auth. VRDO
(Children's Hosp.)
4.40%, 6/2/95 (LOC) 5,200 5,200
Philadelphia TRAN
4.75%, 6/15/95 (LOC) 18,500 18,500
Swarthmore Borough Auth.
College Rev.
7.375%, 9/15/18 2,200 2,388
Univ. of Pittsburgh VRDO
3.853%, 6/8/95 (LOC) 4,400 4,400
OUTSIDE PENNSYLVANIA:
Puerto Rico Govt. Development
Bank VRDO
3.45%, 6/7/95 (LOC) 900 900
-------
GROUP TOTAL 182,283
-------
- ----------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $1,403,671) 1,477,953
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.3%)
- ----------------------------------------------------------------------------
Other Assets--Note B 28,296
Liabilities (24,171)
--------
4,125
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 133,702,065 outstanding
shares of beneficial interest
(unlimited authorization--
no par value) $1,482,078
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.08
============================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 12.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AT MAY 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Amount Per
(000) Share
---------- --------
<S> <C> <C>
Paid in Capital $1,404,419 $10.50
Undistributed Net
Investment Income -- --
Accumulated Net Realized
Gains 4,750 .03
Unrealized Appreciation of
Investments--Note D 72,909 .55
- ----------------------------------------------------------------------------
NET ASSETS $1,482,078 $11.08
- ----------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (99.9%)
- ----------------------------------------------------------------------------
Allegheny County GO VRDO
3.95%, 6/8/95 $31,200 $ 31,200
Allegheny County Higher
Education Auth. VRDO
(Univ. of Pittsburgh)
3.853%-4.157%,
6/8/95 (LOC) 38,830 38,830
Allegheny County Hosp.
Development Auth.
(Allegheny Health System) VRDO
2.65%-3.45%, 6/7/95 (LOC) 38,250 38,250
(Children's Hosp.-Pittsburgh)
VRDO 3.954%, 6/8/95 (1) 25,300 25,300
(Health Center Development)
CP 4.25%,
6/8/95-8/15/95 (LOC) 20,200 20,200
(Presbyterian Univ. Health)
VRDO 3.95%, 6/8/95 (1) 6,875 6,875
(South Hills Health System) VRDO
3.40%, 6/7/95 (LOC) 6,550 6,550
Allegheny County PCR CP
(Duquesne Light Co.)
4.40%, 12/7/95 (LOC) 5,000 5,000
Beaver County Industrial Development
Auth. PCR CP (Duquesne Light Co.)
4.15%-4.50%,
7/13/95-10/10/95 (LOC) 22,420 22,420
Berks County TRAN
5.20%, 12/31/95 2,800 2,800
Chester County GO CP
4.10%-4.15%,
6/12/95-7/13/95 13,000 13,000
TRAN 5.50%, 7/3/95 7,400 7,405
Dauphin County General Auth. Hosp.
Rev. VRDO (Reading Hosp. &
Medical Center)
3.625%, 6/7/95 8,000 8,000
Delaware County Industrial Development
Auth. PCR (PECO) CP
3.95%-4.20%,
7/12/95-8/22/95 16,900 16,900
VRDO 3.80%, 6/7/95 (LOC) 22,725 22,725
Delaware County Industrial
Development Auth. Airport
Facilities Rev. VRDO (United
Parcel Service)
4.15%, 6/2/95 24,700 24,700
Emmaus General Auth. Local Govt.
Rev. VRDO
3.95%, 6/7/95 72,500 72,500
4.00%, 6/7/95 (LOC) 10,000 10,000
Geisinger Health System Auth. VRDO
4.40%, 6/2/95 22,000 22,000
Lancaster Higher Education Auth. VRDO
(Franklin & Marshall)
4.10%, 6/7/95 2,250 2,250
Lehigh County General Purpose
Auth. CP (Hosp. Central Services)
4.00%-4.20%,
6/13/95-7/14/95 (1) 24,825 24,825
Montgomery County Industrial
Development Auth. PCR CP (PECO)
4.10%-4.15%,
7/17/95-8/17/95 (LOC) 6,900 6,900
Northeastern Pennsylvania Hosp. &
Education Auth. VRDO
(Wyoming Valley Auth.)
3.55%, 6/7/95 (2) 41,800 41,800
Northeastern Pennsylvania Hosp.
Auth. CP (Hosp. Central
Services) 4.15%-4.20%,
7/13/95-8/10/95 (1) 35,400 35,400
Pennsylvania COP
4.20%, 6/1/95 (2) 2,960 2,960
Pennsylvania GO
4.75%-6.00%, 6/15/95-9/15/95 24,690 24,708
Pennsylvania GO TOB VRDO
4.056%, 6/1/95 (2) 9,125 9,125
Pennsylvania TAN
5.00%, 6/30/95 24,500 24,520
Pennsylvania Higher Education
Assistance Agency Student
Loan Rev. VRDO
4.00%, 6/7/95 (LOC) 31,700 31,700
Pennsylvania Higher Education
Facilities Auth. (Carnegie Mellon)
VRDO 3.65%, 6/7/95 39,100 39,100
(Temple Univ.) VRDO
4.40%, 6/2/95 (LOC) 6,000 6,000
(Thomas Jefferson Univ.)
3.90%, 6/1/96* 10,000 10,000
(Univ. of Pennsylvania Health
Services) VRDO
3.90%, 6/7/95 74,000 74,000
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
Pennsylvania Infrastructure
Investment Auth. VRDO
(Pennvest Loan Pool Proj.)
3.45%-3.60%, 6/7/95 $64,600 $ 64,600
Pennsylvania Turnpike Rev. TOB
VRDO 4.00%, 6/1/95 (Prere.) 12,000 12,000
Philadelphia TRAN
4.75%, 6/15/95 (LOC) 31,500 31,511
Philadelphia Auth. for Industrial
Development VRDO
(Franklin Institute)
4.30%, 6/8/95 (LOC) 14,095 14,095
(Institute for Cancer
Research) 4.40%, 6/2/95 (LOC) 4,200 4,200
Philadelphia Hosp. & Higher Education
Facilities Auth.
(Children's Hosp.) VRDO
4.40%, 6/2/95 (LOC) 31,250 31,250
(Pennsylvania Hosp.) VRDO
3.70%, 6/7/95 (3) 30,000 30,000
3.75%, 7/1/95* (3) 21,715 21,715
Philadelphia School Dist. TRAN
4.75%, 6/30/95 10,000 10,004
Philadelphia Water & Sewer
8.90%-9.10%,
10/1/95-12/1/95 (Prere.) 13,900 14,417
Red Lion Area School Dist. TRAN
4.75%, 6/30/95 2,900 2,902
St. Mary's Hosp. Auth. Langhorne
VRDO (Franciscan Health
System)
4.15%, 6/2/95 (LOC) 18,230 18,230
Sayre Health Care Facilities Auth.
VRDO 3.55%, 6/7/95 (2) 87,970 87,970
Scranton-Lackawanna Health & Welfare
Auth. (Univ. of Scranton)
4.30%, 11/1/95* 5,235 5,235
Temple Univ. Notes
5.00%, 5/22/96 24,000 24,157
Univ. of Pittsburgh VRDO
3.853%, 6/8/95 (LOC) 30,500 30,500
York County Industrial Development
Auth. VRDO (PECO)
3.80%, 6/7/95 (LOC) 15,440 15,440
OUTSIDE PENNSYLVANIA:
Puerto Rico Govt. Development
Bank VRDO 3.45%, 6/7/95 (LOC) 800 800
- ----------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $1,146,969) 1,146,969
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
- ----------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (.1%)
- ----------------------------------------------------------------------------
Other Assets--Note B 16,545
Liabilities (15,477)
-------
1,068
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 1,148,082,629 outstanding shares
of beneficial interest
(unlimited authorization--
no par value) $1,148,037
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
============================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AT MAY 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Amount Per
(000) Share
---------- -------
<S> <C> <C>
Paid in Capital $1,148,082 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (45) --
Unrealized Appreciation
of Investments -- --
- ----------------------------------------------------------------------------
NET ASSETS $1,148,037 $1.00
- ----------------------------------------------------------------------------
</TABLE>
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.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(5) CGI (Capital Guaranty Insurance)
(6) BIGI (Bond Investors Guaranty Insurance)
(7) Connie Lee Inc.
(8) FHA (Federal Housing Authority)
The insurance does not guarantee the market value of the
municipal bonds.
(LOC)=Scheduled principal and interest payments are guaranteed by
bank letter of credit.
12
<PAGE> 13
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED LONG-TERM MONEY MARKET
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
May 31, 1995 May 31, 1995
(000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . $ 41,352 $21,928
- ------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . 41,352 21,928
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . $ 88 $ 72
Management and Administrative . . . . . . . 1,228 951
Marketing and Distribution . . . . . . . . . . 142 1,458 155 1,178
-------- ------
Insurance Expense . . . . . . . . . . . . . . . 22 --
Auditing Fees . . . . . . . . . . . . . . . . . 4 4
Shareholders' Reports . . . . . . . . . . . . . 22 15
Annual Meeting and Proxy Costs . . . . . . . . 3 2
Trustees' Fees and Expenses . . . . . . . . . . 2 2
- ------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . 1,511 1,201
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . 39,841 20,727
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . 5,187 (6)
Futures Contracts . . . . . . . . . . . . . . . (364) --
- ------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . 4,823 (6)
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . 125,659 --
Futures Contracts . . . . . . . . . . . . . . . 1,207 --
- ------------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . . . 126,866 --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . $171,530 $20,721
========================================================================================================================
</TABLE>
13
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED LONG-TERM MONEY MARKET
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
MAY 31, November 30, MAY 31, November 30,
1995 1994 1995 1994
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . $ 39,841 $ 82,880 $ 20,727 $ 26,215
Realized Net Gain (Loss) . . . . . . . . . . . . . 4,823 4,100 (6) (22)
Change in Unrealized Appreciation . . . . . . . .
(Depreciation) . . . . . . . . . . . . . . . . 126,866 (167,668) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . 171,530 (80,688) 20,721 26,193
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . (39,841) (82,880) (20,727) (26,215)
Realized Net Gain . . . . . . . . . . . . . . . . . -- (10,361) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (39,841) (93,241) (20,727) (26,215)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . 89,549 234,511 566,723 928,054
-- In Lieu of Cash Distributions . . . 27,656 66,482 19,289 24,394
-- Exchange . . . . . . . . . . . . . . 96,128 100,416 162,101 333,652
Redeemed -- Regular. . . . . . . . . . . . . . . (76,826) (208,799) (530,620) (820,445)
-- Exchange . . . . . . . . . . . . . . (84,973) (216,183) (174,431) (295,925)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . . . 51,534 (23,573) 43,062 169,730
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . 183,223 (197,502) 43,056 169,708
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . 1,298,855 1,496,357 1,104,981 935,273
- ----------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . $1,482,078 $1,298,855 $1,148,037 $ 1,104,981
============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . $.308 $.625 $.018 $.025
Realized Net Gain . . . . . . . . . . . . . . -- $.079 -- --
- ----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed Issued . . . . . . 17,443 30,537 728,824 1,261,706
Issued in Lieu of Cash
Distributions . . . . . . . . . . . . . . . . 2,574 6,106 19,289 24,394
Redeemed . . . . . . . . . . . . . . . . . . (15,321) (39,341) (705,051) (1,116,370)
- ----------------------------------------------------------------------------------------------------------------------------
4,696 (2,698) 43,062 169,730
- ----------------------------------------------------------------------------------------------------------------------------
</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, 1995 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . $10.07 $11.36 $10.96 $10.47 $10.19 $10.16
------ ------ ------ ------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . .308 .625 .631 .664 .667 .679
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . 1.010 (1.211) .624 .520 .286 .030
------ ------ ------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . 1.318 (.586) 1.255 1.184 .953 .709
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.308) (.625) (.631) (.664) (.667) (.679)
Distributions from Realized Capital Gains . . -- (.079) (.224) (.030) (.006) --
------ ------ ------ ------ ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . (.308) (.704) (.855) (.694) (.673) (.679)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $11.08 $10.07 $11.36 $10.96 $10.47 $10.19
==================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +13.23% -5.44% +11.90% +11.65% +9.65% +7.27%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,482 $1,299 $1,496 $1,130 $828 $556
Ratio of Expenses to Average Net Assets . . . . . .22%* .20% .20% .24%+ .25%+ .25%+
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 5.74%* 5.76% 5.61% 6.17% 6.46% 6.77%
Portfolio Turnover Rate . . . . . . . . . . . . . 16%* 16% 14% 17% 2% 9%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+Insurance expense represents .01%, .01%, and .02%.
*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, 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <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 . . . . . . . . . . . .018 .025 .024 .029 .045 .057
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . -- -- -- -- -- --
------- ------ ------ ----- ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . .018 .025 .024 .029 .045 .057
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.018) (.025) (.024) (.029) (.045) (.057)
Distributions from Realized Capital Gains . . -- -- -- -- -- --
------- ------ ------ ----- ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.018) (.025) (.024) (.029) (.045) (.057)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +1.86% +2.57% +2.38% +2.96% +4.59% +5.85%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $1,148 $1,105 $935 $782 $818 $730
Ratio of Expenses to Average Net Assets . . . . . .22%* .20% .20% .24% .24% .23%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 3.69%* 2.55% 2.35% 2.93% 4.48% 5.68%
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 Municipal Bond Index,
U.S. Treasury Bond, and U.S. Treasury Note futures contracts to a limited
extent, with the objectives of enhancing returns, managing interest rate
risk, maintaining liquidity, diversifying credit risk and minimizing
transaction costs. The Portfolio may purchase futures contracts instead of
municipal bonds when futures contracts are believed to be priced more
attractively than municipal bonds. The Portfolio may also seek to take
advantage of price differences among bond market sectors by simultaneously
buying futures (or bonds) of one market sector and selling futures (or
bonds) of another sector. Futures contracts may also be used to simulate a
fully invested position in the underlying bonds while maintaining a cash
balance for liquidity.
The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of bonds held by the
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 values 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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. At May 31, 1995, the Fund had contributed capital
aggregating $361,000 to Vanguard (included in Other Assets), representing 1.8%
of Vanguard's capitalization. The Fund's officers and trustees are also
officers and directors of Vanguard.
C. During the six months ended May 31, 1995, the Insured Long-Term Portfolio
made purchases of $98,986,000 and sales of $102,037,000 of investment
securities other than temporary cash investments.
At November 30, 1994, the Insured Long-Term Portfolio had available a capital
loss carryforward of $970,000 to offset future net capital gains through
November 30, 2002.
D. At May 31, 1995, unrealized appreciation of investment securities of the
Insured Long-Term Portfolio for financial reporting and Federal income tax
purposes aggregated $74,282,000 of which $74,735,000 related to appreciated
securities and $453,000 related to depreciated securities.
At May 31, 1995, the Insured Long-Term Portfolio had short positions in
Municipal Bond Index and U.S. Treasury Bond futures contracts expiring through
September 1995, with an aggregate settlement value and net unrealized
depreciation of $42,568,000 and $1,373,000, respectively. The market value of
securities deposited as initial margin for open futures contracts was
$3,905,000.
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 of Rhone-Poulenc Rorer, Inc.; Director of Sun
Company, Inc.
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., The Jeffrey Co., and Southern New England
Communications Company.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company,
Reliance Electric 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
ROBERT A. DISTEFANO IAN A. MACKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
19
<PAGE> 20
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
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 Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
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
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 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.
Q772-5/95
[VANGUARD PENNSYLVANIA TAX-FREE FUND LOGO]
SEMI-ANNUAL REPORT
MAY 31, 1995
