<PAGE> 1
A MESSAGE TO SHAREHOLDERS
DEAR SHAREHOLDER:
The declining interest rate environment that prevailed for most of fiscal 1995
reversed course during the first six months of our current fiscal year.
Short-term tax-exempt yields, after falling through late February, stabilized
and then abruptly rose to end the six-month period slightly higher than where
they began. Long-term tax-exempt yields also moved lower at the outset of the
period, before creeping higher to end above their starting point. This overall
increase in interest rates resulted in lower prices for municipal bonds.
During the past twelve months, the net asset values of our Insured
Longer-Term Portfolios were negatively impacted by rising rates, but each
Portfolio's income component more than compensated for any decrease in
principal. Our Money Market Portfolios all gave good accounts of themselves,
providing returns that fully reflect the current level of interest rates. The
table at the bottom of page 3 of this Report provides detailed results for each
of our State Tax-Free Portfolios, including per share net asset values,
dividend and capital gains distributions, and total returns over the past six
and twelve months, as well as current yields. In summary form, here are the
Portfolio highlights:
THE STATE MONEY MARKET PORTFOLIOS--provided total returns ranging from +3.4% to
+3.6% for the past year. As expected, net asset values remained at $1.00 per
share. As the following table illustrates, current yields are in the area of
3.4%, moderately lower than they were twelve months ago:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SEVEN-DAY
ANNUALIZED YIELD
------------------------------------
MONEY MARKET MAY 31, NOV. 30, MAY 31,
PORTFOLIO 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA 3.39% 3.61% 3.80%
PENNSYLVANIA 3.44 3.64 3.80
NEW JERSEY 3.30 3.57 3.71
OHIO 3.43 3.71 3.92
- --------------------------------------------------------------------------------
</TABLE>
THE STATE INSURED LONGER-TERM PORTFOLIOS--earned sufficient income to offset
the modest decrease in long-term municipal bond prices, providing total returns
(capital change plus reinvested dividends) ranging from +3.4% to +5.0% for the
twelve months. Despite the swings in interest rates during the period, the
current yields on the Insured Longer-Term Portfolios (roughly 5.2%) are nearly
identical to their levels of twelve months ago.
To provide some perspective on how our Insured Longer-Term Portfolios
performed during the past year, the table below breaks out the two components
of total return--income return and capital return. As you can see, the positive
contribution of each Portfolio's income return was marginally reduced by its
negative capital return.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INVESTMENT RETURNS
---------------------------------
TWELVE MONTHS ENDED
MAY 31, 1996
---------------------------------
INSURED LONGER-TERM
PORTFOLIO INCOME CAPITAL TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA
INTERMEDIATE-TERM +5.1% -0.1% +5.0%
CALIFORNIA LONG-TERM +5.5 -1.7 +3.8
NEW YORK +5.4 -1.6 +3.8
PENNSYLVANIA +5.6 -1.3 +4.3
NEW JERSEY +5.3 -1.9 +3.4
OHIO +5.4 -1.6 +3.8
FLORIDA +5.2 -1.4 +3.8
- --------------------------------------------------------------------------------
</TABLE>
FIXED-INCOME MARKET REVIEW
Although the Federal Reserve lowered short-term interest rates in December and
January, the bond market fretted over the apparent strength of the U.S. economy
and the possibility of an increase in inflation. During the past six months,
the yield on the long-term U.S. Treasury bond, the benchmark for the bond
market, rose from 6.1% to 6.9%, engendering a price decline of approximately
- -10% (excluding interest income).
The long-term municipal bond market fared much better. On balance for
the six-month period, yields on high-grade municipal bonds increased less
dramatically (5.5% to 5.9%), resulting in a price
1
<PAGE> 2
decline of only -6%. Yields on top-grade (MIG 1) municipal notes remained
essentially unchanged on balance at 3.7%.
Although the future direction of interest rate movements is virtually
impossible to predict with any level of accuracy and consistency, the relative
performance of bond funds with comparable quality and maturity guidelines is
surprisingly predictable. That is to say, bond funds holding similar types of
securities--say, high-quality, long-term municipal bonds--should, on average,
earn roughly equivalent gross returns. What that absolute return will be,
however, is anyone's guess. On the other hand, what can be predicted with some
semblance of accuracy is the relative performance differential due to the
expense ratios of the funds. The average Vanguard Insured Longer-Term
Portfolio, for example, operates with an annual expense ratio of 0.2%, compared
to 0.9% for our average competitor. Therefore, holding all other factors equal,
a typical Vanguard Insured Longer-Term Portfolio begins with an annual income
advantage of +0.7% over a comparable municipal bond fund.
IN SUMMARY
As you may know, one of the benefits of Vanguard's Insured Longer-Term
Portfolios is their municipal bond insurance, which guarantees the timely
payment of principal and interest. These insurance provisions provide
protection against deteriorating creditworthiness within the various
municipalities and add an important level of enhanced safety.
There are, of course, "costs" associated with insuring our Portfolios
against potential default. First, bonds that are issued with insurance
typically offer slightly lower yields than non-insured bonds. A second cost is
the explicit expense of purchasing insurance on non-insured bonds. Despite
these costs, however, our top-quality Portfolios continue to benefit from our
expense ratio advantage and provide yields that are fully competitive with
those of uninsured municipal bond portfolios.
Over time, given our high-quality, low-cost advantage, Vanguard State
Tax-Free Portfolios should remain attractive relative to our competitors'
funds. We look forward to reporting to you in further detail in our 1996 Annual
Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- ---------------------
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
- ---------------------
John J. Brennan
President
June 8, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS QUOTED IN THE MESSAGE TO SHAREHOLDERS ARE CALCULATED IN
ACCORDANCE WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED MARCH 31, 1996) 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 +7.60% -- +6.56% +5.08% +1.48%
CALIFORNIA INSURED LONG-TERM 4/7/86 +7.73 +8.17% +7.75 +6.47 +1.28
CALIFORNIA MONEY MARKET 6/1/87 +3.57 +3.12 +4.11 +4.11 0.00
NEW YORK INSURED TAX-FREE 4/7/86 +7.50 +8.37 +7.32 +6.44 +0.88
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +7.15 +8.41 +7.95 +6.64 +1.31
PENNSYLVANIA MONEY MARKET 6/13/88 +3.62 +3.12 +4.11 +4.11 0.00
NEW JERSEY INSURED LONG-TERM 2/3/88 +7.13 +8.10 +8.39 +6.43 +1.96
NEW JERSEY MONEY MARKET 2/3/88 +3.50 +3.08 +4.09 +4.09 0.00
OHIO INSURED LONG-TERM 6/18/90 +7.13 +8.08 +8.50 +5.97 +2.53
OHIO MONEY MARKET 6/18/90 +3.72 +3.17 +3.49 +3.49 0.00
FLORIDA INSURED TAX-FREE 9/1/92 +7.50 -- +7.62 +5.43 +2.19
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Income
Total Per Share Dividends Total Return
Net Assets ------------------ -------------- ----------------
(millions) Average Average Nov. 30, May 31, Six Twelve Six Twelve Current
Portfolio May 31, 1996 Maturity Quality* 1995 1996 Months Months Months Months Yield**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . . . . $1,276 42 DAYS MIG 1 $ 1.00 $ 1.00 $.017 $.034 +1.7% +3.5% 3.39%
PENNSYLVANIA . . . . . 1,306 32 DAYS MIG 1 1.00 1.00 .017 .035 +1.7 +3.5 3.44
NEW JERSEY . . . . . . 888 57 DAYS MIG 1 1.00 1.00 .016 .033 +1.6 +3.4 3.30
OHIO . . . . . . . . . 199 60 DAYS MIG 1 1.00 1.00 .017 .035 +1.7 +3.6 3.43
- ------------------------------------------------------------------------------------------------------------------------------------
INSURED INTERMEDIATE-TERM
CALIFORNIA . . . . . . $ 264 7.4 years Aaa $ 10.44 $10.25 $.254 $.512 +0.6% +5.0% 4.77%
INSURED LONG-TERM
CALIFORNIA . . . . . . 978 14.1 years Aaa 11.27 10.87 .299 .600 -0.9 +3.8 5.33
NEW YORK . . . . . . . 879 11.7 years Aaa 11.01 10.57 .286 .574 -0.8+ +3.8+ 5.23
PENNSYLVANIA . . . . . 1,565 11.4 years Aaa 11.28 10.90 .304 .608 -0.4+ +4.3+ 5.28
New Jersey . . . . . . 796 11.9 years Aaa 11.78 11.29 .310 .617 -1.1+ +3.4+ 5.23
OHIO . . . . . . . . . 203 10.9 years Aaa 11.63 11.25 .302 .605 -0.7 +3.8 5.29
FLORIDA . . . . . . . 453 14.2 years Aaa 10.94 10.60 .275 .554 -0.6 +3.8 5.22
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
+Includes capital gains distributions of $.065 for New York, $.037 for
Pennsylvania, and $.058 for New Jersey. 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
REPORT FROM THE INVESTMENT ADVISER
The two major factors affecting the Longer-Term Insured Portfolios over the last
six months were the sharp rise in interest rates and the relatively better
performance of municipal bonds versus their taxable counterparts. The yield on
the 30-year U.S. Treasury bond increased 0.8 percentage points (from 6.1% to
6.9%). This was a decidedly unpleasant turn of events for bondholders and their
total returns. The increase in interest rates was prompted by signs of an
improving economy and investor concerns about inflation. During the same period,
the yield on high-grade, long-term municipal bonds rose 0.4 percentage points
(from 5.5% to 5.9%). The question of tax reform first raised by Senator Armey
(R-TX) and later championed by Steve Forbes in the Republican Presidential
primaries seemed to have been, at least in part, answered. The reduced intensity
of the rhetoric around the question of tax reform was a contributing factor in
explaining why the municipal market performed better than the Treasury market.
The Federal Reserve Board's last action on January 31, 1996, was to
reduce the Federal funds rate and the discount rate by 0.25 percentage points.
At that time, the economy appeared to be struggling, a situation further
exacerbated by the severity of the winter. Unfortunately for bond investors,
the release of February's economic statistics showed a much stronger than
anticipated economy. Concurrently, an increase in the prices of oil, gasoline,
wheat, and corn prodded some investors to become concerned about the specter of
higher inflation. The combined effects caused the yield on the 30-year U.S.
Treasury bond to increase sharply. The beginning of the Presidential primary
season added an extra degree of uncertainty to the market.
While bear markets are never pleasant, they often offer investment
opportunities that can be exploited to the shareholders' eventual benefit.
First, the Portfolios' dividend distribution can be positively impacted by
swapping bonds with lower yields to maturity for bonds with higher yields to
maturity. Second, capital gains distributions can usually be reduced by
realizing offsetting capital losses. Finally, bear markets are generally the
best time to buy bonds that have superior protection from early redemption. As
interest rates rise, bonds which are noncallable or have long periods before
they are callable are often available at close to the same price as bonds with
less desirable characteristics. When the time comes for interest rates to
reverse course and fall, these bonds will furnish excellent capital returns
while providing a more stable dividend.
The past six months have been a very volatile period of time. The
future remains unknown, but the State Insured Longer-Term Portfolios will
continue to focus on their objectives. It is through this commitment to
high-quality Federal and state tax-exempt municipal bonds and low-cost, prudent
management that superior and durable investment results can be achieved.
MONEY MARKETS
The volatility experienced in the Treasury market over the past six months has
had little impact on yields in the short-term municipal bond market. Yields on
one-year municipal notes ended the period very close to where they began,
despite a 0.3% rise in yields on one-year Treasury bills. Nevertheless, there
were two issues which had a substantial impact on the short-term market.
First, seasonal supply constraints that typically plague the short-term
municipal market in the spring dampened the average weighted maturities of
money market funds. Second, and most notably, the Securities and Exchange
Commission (SEC) announced changes in the regulations governing money market
funds which became effective June 3, 1996.
In April, the SEC adopted amendments to rule 2a-7 under the Investment
Company Act of 1940. Section 2a-7 contains regulations that protect the quality
and safety of money market funds. For the most part, the changes emphasize
higher quality and increased diversification. The new guidelines were designed
to tighten the regulations imposed on tax-exempt money market funds and improve
the likelihood that the funds maintain a stable net asset value. Compliance
with the amendments may prove challenging for the industry. Many of our
competitors operate under somewhat lower quality standards and, as a result,
may be forced to significantly restructure their funds in order to meet the
standards. In contrast, our Money Market Portfolios have
4
<PAGE> 5
always been managed quite conservatively with credit quality our most important
consideration. Consequently, we expect the impact of the changes on Vanguard's
State Tax-Free Money Market Portfolios to be minimal.
The scarcity of new issue supply in the short-term municipal market
contributed to the relative stability in yields over the period. The supply of
short-term municipals tends to be quite seasonal, the timing of which depends
upon an issuer's fiscal year. The vast majority of issuers have fiscal years
beginning July 1 and ending June 30, causing new issue supply to decline in the
months leading up to June and increase dramatically in July. Looking forward,
the glut of new issue supply should provide ample opportunities for us to
extend our average maturities, increase our diversification, and further
enhance our overall quality.
In conclusion, the months ahead should be challenging for the
industry, with tighter regulations governing tax-free money market funds coming
at a time when short-term issuance is at its peak. Hopefully, the new
amendments adopted by the SEC will "level the playing field," bringing
competitors closer to Vanguard's already conservative style of management,
thereby further enhancing the performance advantage that arises from our "rock
bottom" expense ratios.
Sincerely,
Ian A. MacKinnon David E. Hamlin
Senior Vice President Principal
Pamela W. Tynan Danine A. Mueller
Principal Principal
Reid O. Smith Jerome J. Jacobs
Principal Principal
Vanguard Fixed Income Group
June 18, 1996
5
<PAGE> 6
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
May 31, 1996
<TABLE>
<CAPTION>
Face Market
INSURED Amount Value
LONG-TERM PORTFOLIO (000) (000)+
- -----------------------------------------------------------------------
MUNICIPAL BONDS (98.2%)
- -----------------------------------------------------------------------
<S> <C> <C>
ISSUER INSURED (89.5%)
Adams County OH School Dist. GO
5.55%, 12/1/09 (1) $1,000 $ 1,002
Akron Bath & Copley OH
Joint Township
(Children's Hosp. Medical Center)
5.50%, 1/1/08 (2) 1,000 998
Aurora County OH School Dist.
5.80%, 12/1/16 (3) 3,000 2,933
Bedford Heights OH GO
5.65%, 12/1/14 (2) 500 490
Big Walnut OH School Dist. GO
5.70%, 6/1/14 (2) 1,000 982
Butler County OH Sewer System Rev.
6.25%, 12/1/12 (2) 2,925 3,031
Butler County OH Water Works
5.125%, 12/1/21 (2) 500 449
City of Canton OH GO
5.375%, 12/1/07 (2) 1,000 1,003
(Waterworks System)
5.75%, 12/1/10 (2) 1,000 1,008
5.85%, 12/1/15 (2) 1,000 991
Chillicothe OH GO
6.05%, 12/1/12 (2) 675 691
Clermont County OH
(Mercy Health System)
5.40%, 9/1/05 (2) 2,500 2,538
5.50%, 9/1/06 (2) 2,500 2,532
Cleveland OH Airport System Rev.
0.00%, 1/1/05 (1) 3,975 2,546
7.25%, 1/1/20 (1) 750 811
Cleveland OH GO
5.30%, 9/1/08 (2) 4,500 4,464
5.375%, 9/1/09 (2) 2,000 1,979
5.375%, 9/1/10 (2) 1,000 981
5.375%, 9/1/12 (2) 1,000 969
6.25%, 10/1/11 (1) 2,500 2,596
Cleveland OH Public Power
System Rev.
7.00%, 11/15/24 (1) 2,500 2,747
Cleveland OH School Dist. GO
0.00%, 12/1/05 (3) 700 432
0.00%, 12/1/06 (3) 700 405
0.00%, 12/1/07 (3) 500 271
0.00%, 12/1/08 (3) 400 203
5.875%, 12/1/11 (3) 1,500 1,507
Cleveland OH Water Works Rev.
5.50%, 1/1/13 (1) 3,125 3,058
5.50%, 1/1/21 (1) 1,500 1,424
6.25%, 1/1/15 (2) 4,500 4,589
Columbus City OH School Dist. GO
7.00%, 12/1/00 (3) (Prere.) 1,750 1,941
Cuyahoga County OH Hosp. Rev.
(Metro Health System)
6.00%, 2/15/19 (1) 1,000 989
(Univ. Hosp. Health System)
5.50%, 1/15/19 (1) 7,545 7,107
6.875%, 1/15/19 (6) 1,825 1,966
Dayton OH Water System Rev.
6.75%, 12/1/10 (1) 1,000 1,050
Delaware City OH School Dist. GO
5.20%, 12/1/16 (3) 1,500 1,381
Delaware OH Sewer System Rev.
5.95%, 11/15/12 (2) 1,500 1,518
Dublin OH School Dist. GO
0.00%, 12/1/05 (3) 1,220 753
0.00%, 12/1/06 (3) 1,220 705
Fairfield County OH Hosp. Rev. GO
5.375%, 6/15/15 (1) 3,000 2,811
Franklin County OH Convention
Center Rev.
0.00%, 12/1/07 (1) 4,355 2,360
7.00%, 12/1/00 (1) (Prere.) 675 749
Franklin County OH Hosp.
Facilities Rev.
(Riverside United Methodist)
7.25%, 5/15/20 (1) 750 815
Hamilton County OH
(Children's Hosp.)
5.20%, 5/15/09 (1) 2,000 1,932
Hamilton County OH Sewer
System Rev.
5.25%, 12/1/16 (3) 2,000 1,860
5.40%, 12/1/08 (3) 5,700 5,719
5.45%, 12/1/09 (3) 3,250 3,246
Hamilton OH Water System Rev.
6.30%, 10/15/21 (1) 2,000 2,046
Hilliard County OH School Dist. GO
5.00%, 12/1/20 (3) 1,150 1,017
5.75%, 12/1/19 (3) 2,000 1,955
6.55%, 12/1/05 (3) 500 550
Kettering City OH School Dist. GO
5.30%, 12/1/14 (3) 1,350 1,267
Lima OH Sewer Rev.
6.30%, 12/1/12 (2) 5,000 5,217
Lima OH Water Rev.
6.30%, 12/1/12 (2) 3,400 3,548
Lisbon OH School Dist.
6.25%, 12/1/17 (2) 1,000 1,024
Lucas County OH GO
6.95%, 12/1/11 (1) 1,800 1,939
Mahoning County OH Hosp. Rev.
Improvement Project (YHA Inc.)
6.50%, 10/15/14 (1) 2,500 2,592
Marietta City OH School Dist.
5.75%, 12/1/07 (2) 1,500 1,536
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------
<S> <C> <C>
Marysville OH GO
5.55%, 12/1/13 (2) $1,400 $ 1,377
Marysville OH Water System Rev.
7.05%, 12/1/01 (1) (Prere.) 1,250 1,395
Medina City OH School Dist. GO
6.20%, 12/1/18 (3) 2,100 2,140
Montgomery County OH Sewer
System Rev.
5.60%, 9/1/11 (3) 1,000 995
Mount Vernon OH Sewer
System Rev.
6.00%, 12/1/12 (2) 750 766
New Philadelphia City OH
School Dist.
6.25%, 12/1/17 (2) 2,300 2,350
North Canton OH GO
5.90%, 12/1/14 (2) 2,000 1,993
Northeast OH Sewer Dist. Rev.
5.60%, 11/15/13 (2) 1,880 1,839
5.60%, 11/15/14 (2) 1,500 1,463
6.50%, 11/15/16 (2) 2,500 2,721
Ohio Air Quality Development Auth.
(Ohio Edison)
7.10%, 6/1/18 (3) 1,000 1,082
7.45%, 3/1/16 (3) 500 546
Ohio Building Auth.
(Adult Correctional Facilities)
5.95%, 10/1/13 (1) 3,000 3,050
(Transportation Facilities)
7.00%, 9/1/07 (1) 850 926
Ohio Higher Education Facilities Rev.
(Univ. of Dayton)
5.80%, 12/1/14 (3) 1,000 986
6.60%, 12/1/17 (3) 1,000 1,064
6.75%, 12/1/15 (3) 1,000 1,074
Ohio Public Facilities Comm.
5.00%, 11/1/97 (1) 8,800 8,948
(Community Mental Health)
4.50%, 12/1/97 (1) 2,000 2,021
Ohio Univ. General Receipts
5.00%, 12/1/13 (3) 2,000 1,781
Ohio Water Development Auth.
5.50%, 12/1/11 (2) 1,000 980
5.50%, 12/1/14 (1) 1,595 1,532
Olmsted Falls City OH School
Dist. GO
5.85%, 12/15/17 (3) 2,000 1,976
6.85%, 12/15/11 (3) 565 625
Ottowa County OH GO
7.00%, 9/1/11 (2) 500 549
Pickerington OH GO
5.80%, 12/1/09 (3) 500 513
Revere OH School Dist. GO
6.00%, 12/1/16 (2) 3,850 3,872
Reynoldsburg OH School Dist. GO
6.55%, 12/1/17 (3) 1,600 1,697
Richland County OH GO
5.40%, 12/1/15 (2) 1,120 1,063
6.95%, 12/1/11 (2) 450 499
Springboro Community City OH
School Dist. GO
5.25%, 12/1/16 (2) 4,000 3,711
Springfield OH GO
6.875%, 9/1/10 (2) 1,000 1,082
Summit County OH GO
6.90%, 8/1/02 (2) (Prere.) 85 94
6.90%, 8/1/03 (2) (Prere.) 1,155 1,289
6.90%, 8/1/12 (2) 1,260 1,343
Sylvania City OH School Dist. GO
5.80%, 12/1/15 (3) 2,000 1,968
Trumbull County OH GO
5.30%, 12/1/14 (2) 1,500 1,404
Trumbull County OH Rev.
(Trumbull Memorial Hosp.)
6.25%, 11/15/12 (3) 2,000 2,065
Univ. of Toledo OH
5.75%, 12/1/12 (3) 1,000 999
Wood County OH Justice Center GO
5.95%, 12/1/07 (2) 1,750 1,823
Woodridge OH School Dist. GO
6.00%, 12/1/19 (2) 1,000 1,002
6.80%, 12/1/14 (2) 2,000 2,228
Wooster City OH School Dist. GO
6.50%, 12/1/17 (2) 2,500 2,608
OUTSIDE OHIO:
Puerto Rico Public Building
Auth. Rev.
0.00%, 7/1/01 (3) 850 673
-----------
GROUP TOTAL 181,335
-----------
- -----------------------------------------------------------------------
SECONDARY MARKET INSURED (1.0%)
Franklin OH (Mount Carmel Health)
6.75%, 6/1/19 (1) 2,000 2,122
-----------
- -----------------------------------------------------------------------
NON-INSURED (7.7%)
Cincinnati OH Student Loan
Funding Corp. VRDO
3.95%, 6/5/96 LOC 500 500
Columbus OH Electric System Rev.
VRDO 3.55%, 7/1/96 LOC 600 600
Columbus OH GO
VRDO 3.35%, 6/6/96 700 700
4.00%, 6/15/97 1,645 1,651
Columbus OH Sewer Rev. VRDO
3.50%, 6/6/96 400 400
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS
(continued)
<TABLE>
<CAPTION>
Face Market
INSURED LONG-TERM Amount Value
PORTFOLIO (continued) (000) (000)+
- -----------------------------------------------------------------------
<S> <C> <C>
Hamilton County OH GO BAN
4.50%, 12/31/97 $1,375 $ 1,385
Ohio Air Quality Development Auth.
(Cincinnati Gas & Electric)
VRDO 3.80%, 6/4/96 LOC 500 500
Ohio GO
7.625%, 8/1/10 3,510 4,237
Ohio Higher Education
Facilities Auth. Rev.
(Case Western Reserve Univ.)
6.50%, 10/1/20 250 270
(Oberlin College)
5.375%, 10/1/15 1,500 1,418
Ohio Public Facilities Comm.
(Mental Health Facilities)
4.25%, 6/1/96 3,000 3,000
Ohio Water Development
Auth. VRDO (Mead Corp.)
3.60%, 6/4/96 LOC 900 900
----------
GROUP TOTAL 15,561
----------
- -----------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $195,212) 199,018
- -----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
- -----------------------------------------------------------------------
Other Assets--Note B 4,255
Liabilities (660)
----------
3,595
- -----------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------
Applicable to 18,016,724 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $ 202,613
- -----------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.25
=======================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 10.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- ------
<S> <C> <C>
PAID IN CAPITAL $199,112 $11.05
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (258) (.01)
UNREALIZED APPRECIATION
(DEPRECIATION)--NOTE E
INVESTMENT SECURITIES 3,806 .21
FUTURES CONTRACTS (47) --
- -----------------------------------------------------------------------
NET ASSETS $202,613 $11.25
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
MONEY MARKET Amount Value
PORTFOLIO (000) (000)+
- -----------------------------------------------------------------------
MUNICIPAL BONDS (98.2%)
- -----------------------------------------------------------------------
<S> <C> <C>
Akron OH Sewer System VRDO
3.65%, 6/5/96 LOC $ 300 $ 300
Avon OH GO BAN
4.14%, 7/3/96 870 870
Avon OH School Dist. BAN
3.94%, 7/11/96 1,000 1,001
Bay Village OH GO BAN
3.98%, 7/3/96 1,000 1,000
Beaver Creek OH School Dist. BAN
4.03%, 7/18/96 5,800 5,804
Berea City OH BAN
4.07%, 10/24/96 1,500 1,501
Brecksville--Broadview OH School
Dist. GO BAN
3.90%, 1/17/97 3,500 3,507
Cincinnati OH GO
4.60%, 12/1/96 1,000 1,005
Cleveland--Cuyahoga County OH
Port Auth. VRDO
(Rock & Roll Hall of Fame)
3.65%, 6/5/96 LOC 5,000 5,000
Cleveland OH Waterworks
Improvement TOB VRDO
3.60%, 6/6/96 (1) 9,560 9,560
Columbus OH Electric System Rev.
VRDO 3.55%, 7/1/96 LOC 400 400
Columbus OH GO VRDO
3.35%, 6/6/96 9,000 9,000
Columbus OH Library Rev. Refunding
Improvement
4.60%, 10/1/96 2,500 2,507
Columbus OH Sewer Improvement
9.00%, 9/15/96 5,065 5,141
Columbus OH Sewer Rev. VRDO
3.50%, 6/6/96 1,200 1,200
Cuyahoga County OH Hosp. Rev.
Improvement
(St. Luke's Hosp.)
VRDO 3.60%, 6/5/96 LOC 9,900 9,900
(Univ. Hosp. Health System)
5.00%, 1/15/97 (1) 1,985 2,002
Dublin City OH BAN
(Franklin County)
3.375%, 9/19/96 7,225 7,229
Franklin County OH Hosp. Rev.
(Holy Cross Health System)
VRDO 3.60%, 6/6/96 6,900 6,900
Franklin County OH Solid Waste BAN
4.10%, 8/23/96 8,000 8,007
Hamilton County OH BAN
4.00%, 4/10/97 4,540 4,559
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------
<S> <C> <C>
Hamilton County OH Hosp.
Facilities Rev. VRDO
(Bethesda Hosp.)
3.65%, 6/6/96 LOC $10,900 $ 10,900
Hancock County OH GO BAN
3.81%, 11/22/96 1,155 1,158
Lake County OH BAN
4.07%, 10/10/96 1,680 1,681
Mason City OH BAN
4.25%, 7/2/96 3,300 3,301
Middleburg Heights OH BAN
4.05%, 5/29/97 585 586
Montgomery County OH Rev.
(Sisters of Charity)
VRDO 3.55%, 6/6/96 1,400 1,400
Montgomery County OH Sewer
Improvement
4.00%, 10/25/96 2,000 2,004
Ohio Air Quality Development
Auth. VRDO
(Cincinnati Gas & Electric)
3.70%-3.80%, 6/4/96 LOC 16,400 16,400
(Mead Corp.)
3.60%, 6/4/96 LOC 5,400 5,400
Ohio Building Auth. (Adult
Correctional Building Project)
5.00%, 4/1/97 (2) 2,660 2,691
Ohio GO
4.30%, 8/1/96 900 901
Ohio Higher Education Facilities
TOB VRDO 3.60%, 6/6/96 (2) 6,000 6,000
(Mount Union College Project)
3.65%, 6/6/96 LOC 1,750 1,750
(Ohio Public Facilities Comm.)
5.30%, 12/1/96 5,000 5,038
Ohio PCR VRDO
(British Petroleum)
3.60%, 6/4/96 2,500 2,500
Ohio School Dist. COP RAN
4.52%, 6/28/96 5,000 5,002
Ohio State Univ. VRDO
3.40%, 6/6/96 4,900 4,900
Ohio Water Development
Auth. VRDO (Mead Corp.)
3.60%, 6/4/96 LOC 2,020 2,020
(Pure Water)
TOB 3.60%, 6/6/96 (2) 5,000 5,000
(Timpken Co. Project)
3.60%, 6/5/96 LOC 5,000 5,000
Richland County OH GO
3.80%, 12/1/96 (2) 305 305
Ross County OH Hosp. Rev. VRDO
(Medical Center Hosp. Project)
3.65%, 6/6/96 1,250 1,250
Scioto County OH Marine Term
Facility Rev. VRDO
(Norfolk Southern Corp.)
3.60%, 6/5/96 12,000 12,000
Strongsville OH BAN
3.90%, 12/26/96 800 801
Univ. of Cincinnati OH GO BAN
3.75%-4.25%, 8/28/96-3/20/97 7,400 7,415
Warren County OH BAN
(Waterstone Development)
4.58%, 9/5/96 1,000 1,002
Wyoming OH BAN
4.00%, 9/12/96 2,603 2,608
- -----------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $ 195,406) 195,406
- -----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
Other Assets--Note B 4,131
Liabilities (523)
--------
- -----------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------
Applicable to 199,017,926 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $199,014
- -----------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
=======================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 10.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- -----
<S> <C> <C>
PAID IN CAPITAL $199,022 $1.00
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (8) --
UNREALIZED APPRECIATION
OF INVESTMENTS -- --
- -----------------------------------------------------------------------
NET ASSETS $199,014 $1.00
- -----------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS
(continued)
BAN=Bond Anticipation Note
COP=Certificate of Participation
GO=General Obligation
PCR=Pollution Control Revenue
RAN=Revenue Anticipation Note
Rev.=Revenue Bond
TOB=Tender Option Bond
VRDO=Variable Rate Demand Obligation
(Prere.)=Prerefunded
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(5) 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.
10
<PAGE> 11
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED LONG-TERM MONEY MARKET
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------
Six Months Ended Six Months Ended
May 31, 1996 May 31, 1996
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . $ 5,499 $3,488
- --------------------------------------------------------------------------------
Total Income . . . . . . . . . . . 5,499 3,488
- --------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . $ 12 $ 11
Management and Administrative . . . . 165 151
Marketing and Distribution . . . . . 23 200 29 191
Custodian Fees . . . . . . . . . . . . 3 4
Auditing Fees . . . . . . . . . . . . . 3 3
Shareholders' Reports . . . . . . . . . 7 5
Annual Meeting and Proxy Costs . . . . 1 1
Trustees' Fees and Expenses . . . . . -- --
- --------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . 214 204
Expenses Paid Indirectly--Note C . (3) (4)
- --------------------------------------------------------------------------------
Net Expenses . . . . . . . . . 211 200
- --------------------------------------------------------------------------------
Net Investment Income . . . . 5,288 3,288
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . (82) --
Futures Contracts . . . . . . . . . . . 133 --
- --------------------------------------------------------------------------------
Realized Net Gain . . . . . . 51 --
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . (7,095) --
Futures Contracts . . . . . . . . . . . 100 --
- --------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . (6,995) --
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . $(1,656) $3,288
================================================================================
</TABLE>
11
<PAGE> 12
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,
1996 1995 1996 1995
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . $ 5,288 $ 9,407 $ 3,288 $ 6,087
Realized Net Gain (Loss) . . . . . . . 51 (489) -- --
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . (6,995) 20,709 -- --
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . (1,656) 29,627 3,288 6,087
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . (5,288) (9,407) (3,288) (6,087)
Realized Net Gain . . . . . . . . . . . -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (5,288) (9,407) (3,288) (6,087)
- ---------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . 26,106 54,297 116,277 184,523
Issued in Lieu of Cash Distributions . 3,820 6,817 3,034 5,640
Redeemed . . . . . . . . . . . . . . . (17,325) (32,898) (97,881) (159,838)
- ---------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . 12,601 28,216 21,430 30,325
- ---------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . 5,657 48,436 21,430 30,325
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . 196,956 148,520 177,584 147,259
- ---------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . $202,613 $196,956 $199,014 $ 177,584
=========================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 2,265 4,867 116,277 184,523
Issued in Lieu of Cash Distributions 332 608 3,034 5,640
Redeemed . . . . . . . . . . . . . (1,511) (2,987) (97,881) (159,838)
- ---------------------------------------------------------------------------------------------------------
1,086 2,488 21,430 30,325
- ---------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED ----------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $11.63 $10.28 $11.61 $11.07 $10.60 $10.30
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . .302 .610 .599 .608 .630 .650
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (.380) 1.350 (1.298) .685 .474 .300
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . (.078) 1.960 (.699) 1.293 1.104 .950
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.302) (.610) (.599) (.608) (.630) (.650)
Distributions from Realized Capital Gains . . -- -- (.032) (.145) (.004) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.302) (.610) (.631) (.753) (.634) (.650)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $11.25 $11.63 $10.28 $11.61 $11.07 $10.60
====================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . -0.70% +19.45% - 6.29% +12.03% +10.69% + 9.50%
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $203 $ 197 $ 149 $ 166 $ 101 $ 61
Ratio of Total Expenses to Average Net Assets . . .21%* .21% .23% .21% .31% .27%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 5.24%* 5.45% 5.38% 5.29% 5.77% 6.20%
Portfolio Turnover Rate . . . . . . . . . . . . . 6%* 7% 16% 10% 27% 20%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
(continued)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED -----------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<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 . . . . . . . . . . . .017 .037 .026 .023 .030 .045
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . .017 .037 .026 .023 .030 .045
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS . . . . . . . . . . . . . . . . .
Dividends from Net Investment Income . . . . (.017) (.037) (.026) (.023) (.030) (.045)
Distributions from Realized Capital Gains . . -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . (.017) (.037) (.026) (.023) (.030) (.045)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +1.74% +3.78% +2.58% +2.37% +3.01% +4.64%
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $199 $178 $147 $132 $92 $79
Ratio of Total Expenses to Average Net Assets . . .21%* .21% .23% .21% .31% .26%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 3.43%* 3.71% 2.56% 2.34% 2.95% 4.45%
Portfolio Turnover Rate . . . . . . . . . . . . . N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
................................................................................
NOTES TO FINANCIAL STATEMENTS
Vanguard Ohio 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 State of Ohio.
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 valued
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
14
<PAGE> 15
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.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Trustees. At May 31, 1996, the Fund had contributed capital of $41,000 to
Vanguard (included in Other Assets), representing .2% of Vanguard's
capitalization. The Fund's officers and trustees are also officers and
directors of Vanguard.
C. The Fund's custodian bank has agreed to reduce its fees when the Fund
maintains cash on deposit in the non-interest bearing custodian account. For
the six months ended May 31, 1996, custodian fee offset arrangements reduced
expenses of the Insured Long-Term and Money Market Portfolios by $3,000 and
$4,000, respectively.
D. During the six months ended May 31, 1996, the Insured Long-Term Portfolio
made purchases of $19,522,000 and sales of $6,096,000 of investment securities
other than temporary cash investments.
At November 30, 1995, the Insured Long-Term Portfolio had available a capital
loss carryforward of $58,000 to offset future net capital gains through
November 30, 2002.
E. At May 31, 1996, unrealized appreciation of investment securities of the
Insured Long-Term Portfolio for financial reporting and Federal income tax
purposes aggregated $3,806,000, of which $5,635,000 related to appreciated
securities and $1,829,000 related to depreciated securities.
At May 31, 1996, the Insured Long-Term Portfolio had long positions in U.S.
Treasury Bond futures contracts expiring in September 1996, with an aggregate
settlement value and net unrealized depreciation of $3,011,000 and $47,000,
respectively. The market value of securities deposited as initial margin for
open futures contracts was $541,000.
15
<PAGE> 16
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 Selected Value Portfolio
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 Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressove Growth Portfolio
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.
Q962-5/96
VANGUARD
OHIO
TAX-FREE FUND
SEMI-ANNUAL REPORT
MAY 31, 1996
