<PAGE> 1
[PHOTO]
VANGUARD
OHIO TAX-FREE
FUND
Annual Report
November 30, 1996
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our course
toward the twenty-first century. Our Report cover reflects that blending of
tradition and innovation, of past, present, and future. The montage includes a
bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's
flagship at The Battle of the Nile); a clock built circa 1816 in Scotland,
featuring a portrait of Nelson (who is also shown, accepting a surrender, in a
detail from a nineteenth-century engraving); and several views of our recently
completed campus, which is steeped in nautical imagery--from our buildings named
after Nelson's warships (Victory, Majestic, and Goliath are three shown), to our
artwork and ornamental compass rose.
<PAGE> 2
[PHOTO]
VANGUARD HAS ALWAYS STRIVED TO BE THE STANDARD-BEARER for mutual fund
disclosure, going well beyond the "letter of the law" in our shareholder
communications. During the past year, we raised the standard once again by
rewriting and reformatting our Fund prospectuses. They are designed to ensure
that prospective investors fully understand, before they make an investment,
each Fund's investment strategies, risks, and costs. In that spirit, we have
redesigned our Annual Reports to shareholders, which provide a comprehensive
discussion and analysis of the year's results in the context of each Fund's
investment objectives and policies. Since Vanguard has long been recognized for
the quality and content of these Fund Reports, our overriding objective was to
maintain the character of the previous Reports, while adding information to
assist shareholders in understanding the investment characteristics of their
Fund.
THE NEW FUND REPORTS INCLUDE A MESSAGE TO SHAREHOLDERS from Chairman John C.
Bogle and President John J. Brennan. This Message continues to provide a candid
assessment of the Fund's performance relative to an appropriate unmanaged market
benchmark and a peer group of mutual funds with similar investment policies. It
also reviews the principal factors contributing to--and detracting from--the
returns earned by the Fund. To help you evaluate your Fund's current-year
performance, the Message includes a discussion of the Fund's long-term
investment results, as well as a look ahead to the prospects for the coming
year. A recap of the financial markets, which had been included as part of the
Chairman's letter, now appears in The Markets In Perspective. This overview
covers the world's financial markets, putting the results of the Fund's strategy
in a global perspective.
THE PORTFOLIO PROFILE REPRESENTS AN ADDITION TO OUR FUND REPORTS. In this day
and age, many investors use detailed statistical information to evaluate their
mutual fund holdings, and our new Portfolio Profile furnishes shareholders with
comprehensive data on key characteristics--sector diversification, volatility,
top-ten holdings, among others--that ultimately define how a Fund is likely to
perform in various market environments. For this information to be used
effectively, we include a brief description of the profiled characteristics. The
Report From The Adviser (for our traditionally managed Funds) now covers
specific topics that we have defined as being the important ones for the adviser
to address--and we do our best to ensure that this Report is written in the same
simple and candid manner that characterizes all Vanguard communications.
Finally, each Adviser's Report will include an inset reminder of the adviser's
basic investment philosophy.
WE TRUST THAT THIS REDESIGNED FUND REPORT will continue to meet your need for a
fair, candid, and clear presentation of your Fund's investment results and a
thorough portfolio review. We welcome any comments that you might have at any
time regarding these Reports.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Report From
The Adviser
6
Performance
Summaries
8
Portfolio
Profiles
10
Financial
Statements
13
Report Of
Independent
Accountants
24
Trustees And
Officers
INSIDE BACK COVER
<PAGE> 3
[PHOTO]
John C. Bogle
[PHOTO]
John J. Brennan
DEAR SHAREHOLDER,
The 1996 fiscal year for Vanguard Ohio Tax-Free Fund, which ended on
November 30, proved notable for one important reason: Relative stability
returned to the municipal bond market for the first time in the past four years.
Interest rates fluctuated in a fairly narrow range during the
year--responding to marked shifts in investor sentiment about the strength of
the U.S. economy and the specter of inflation--but on balance the yield on
long-term U.S. Treasury bonds increased only slightly and the yield available on
long-term tax-exempt bonds was essentially unchanged. In this calmer
environment, the returns of our Insured Long-Term and Money Market Portfolios
exceeded the results of their competitive fund groups. The table at right
presents each Portfolio's twelve-month return as well as its income and capital
components.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
INVESTMENT RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1996
---------------------------------------
PORTFOLIO INCOME CAPITAL TOTAL
- -------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term +5.4% +0.3% +5.7%
Money Market +3.4 0.0 +3.4
- -------------------------------------------------------------
</TABLE>
The total return (capital change plus reinvested dividends) of the Insured
Long-Term Portfolio is based on a change in net asset value from $11.63 per
share on November 30, 1995, to $11.67 per share on November 30, 1996, adjusted
for dividends totaling $0.603 per share from net investment income. As expected,
the Money Market Portfolio's net asset value remained at $1.00 per share. The
Portfolio's yield at the end of the fiscal year stood at 3.4%, down from 3.7% a
year earlier.
FISCAL 1996 PERFORMANCE OVERVIEW
In the taxable bond market, yields experienced some interim variability, but
ended the period just a bit higher than their beginning levels. Yields on
municipal bonds remained unchanged on balance at 5.7%, as investor concerns
about the prospect of a "flat tax" all but disappeared.
This environment of relative stability contrasted starkly with the three
previous years. During 1993, interest rates tumbled and bond prices surged, only
to reverse themselves in the rapidly rising interest-rate environment of 1994.
But in 1995, a remarkable about-face in the course of interest rates sent bond
prices soaring once again. The lesson is clear: While bond (and bond fund)
prices can fluctuate sharply over short periods, these price swings tend to be
offsetting over longer periods.
During fiscal 1996, when most municipal bond funds essentially earned their
coupons, the +5.7% annual total return for the Ohio Insured Long-Term Portfolio
was nicely ahead of the +4.9% annual return for the average Ohio municipal bond
fund, but a hair behind the +5.9% return of the Lehman Municipal Bond Index.
This national Index is a tough standard for all state tax-free funds, existing,
as it does, outside the "real world" of fund operating expenses and transaction
costs.
For Ohio residents, the income earned by our Portfolios is exempt from
state, local, and federal income taxes. Given these tax advantages, investors in
the Ohio Insured
1
<PAGE> 4
Long-Term Portfolio who are taxed at the highest federal and state marginal tax
rates can earn 68% more after-tax income than they could in a comparable
long-term taxable bond fund. For similarly situated investors in our Money
Market Portfolio, the after-tax yield premium of MIG-1 notes over U.S. Treasury
bills was 33% at the end of the twelve-month period. Put another way, for Ohio
investors, a yield of 5.7% on a tax-exempt long-term portfolio would be the
equivalent of a 10.7% taxable yield. (For a tax-exempt short-term yield of 3.6%,
the taxable equivalent would be 6.7%.)
The table at left presents a general comparison of the annual net income
earned on tax-exempt and taxable securities as of November 30, 1996, assuming a
$100,000 investment.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
ILLUSTRATION OF INCOME ON
A HYPOTHETICAL $100,000 INVESTMENT
---------------------------------------
LONG-TERM SHORT-TERM
- -------------------------------------------------------------
<S> <C> <C>
Taxable gross income $6,400 $5,100
Less taxes (46.6%) (3,000) (2,400)
Net after-tax income 3,400 2,700
- -------------------------------------------------------------
Tax-exempt income $5,700 $3,600
- -------------------------------------------------------------
Tax-exempt income advantage $2,300 $ 900
- -------------------------------------------------------------
Percentage advantage 68% 33%
- -------------------------------------------------------------
</TABLE>
Illustration assumes current yields (as of November 30, 1996) of 6.4% for
long-term U.S. Treasury bonds, 5.1% for U.S. Treasury bills, 5.6% for long-term
municipals, and 3.6% for short-term municipals. Tax adjustment assumes federal
tax rate of 39.6% and the top state tax rate of 7.0%; local taxes not
considered. The illustration is not intended to represent future results.
Please note that these examples ignore two important quality distinctions
between state-specific municipal bond funds and U.S. Treasury bond funds: (1)
U.S. Treasury bond funds hold solely Treasury securities, which are backed by
the full faith and credit of the U.S. government; and (2) state-specific
municipal bond funds incur a significant risk by concentrating their assets in
securities from a particular economic region.
For our Insured Long-Term Portfolio, these added risks are substantially
mitigated by private insurance, which, in effect, guarantees the full payment
of annual income and the return of principal at maturity for the municipal bonds
we hold. Portfolio insurance is generally not available for short-term
securities; thus, the task of preserving principal in our Money Market Portfolio
falls to our investment adviser, Vanguard Fixed Income Group. The Group
carefully scrutinizes the credit quality of our holdings and has earned our
Portfolio Moody's Investor Service's highest quality rating (or the equivalent)
for shorter-term securities. That said, we emphasize that money market fund
investments are not guaranteed by the Federal Deposit Insurance Corporation,
which insures bank accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
The table at the top of page 3 compares the longer-term performance of each Ohio
Portfolio with that of its mutual fund peer group. It also illustrates the
"Vanguard Advantage"--the performance edge our Portfolios provided over their
respective competitive standards.
Our expense ratio advantage over our typical competitor plays a key role in
our performance advantage. Our Portfolios maintain expense ratios (expenses as a
percentage of average net assets) of 0.20%, compared with the 1.01% charged by
the average long-term state tax-free fund and 0.59% for the average money market
state tax-free fund. This benefit over our competitors has been available to our
shareholders year after year with no sacrifice in credit quality. Vanguard Fixed
Income Group also plays a key role in our
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<PAGE> 5
success, managing the Portfolios ably and maintaining a level of investment
quality that is, in our judgment, second to none in the field.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
JUN. 18, 1990, TO NOV. 30, 1996
---------------------------------------
AVERAGE
VANGUARD COMPETITIVE VANGUARD
PORTFOLIO FUND FUND ADVANTAGE
- ---------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term +8.6% +7.8% +0.8%
Money Market +3.5 +3.3 +0.2
- ---------------------------------------------------------------
</TABLE>
IN SUMMARY
The past four years have illustrated the range of market environments that bond
fund investors may enjoy--or be forced to endure. Which of these environments is
"normal" for municipal bonds? The answer is probably: all of the above. In the
years ahead, there are sure to be more sharp rises in interest rates, more
sustained declines, and more years of relative tranquility. Indeed, this is part
and parcel of investing in bond funds. In the long run, however, the rate of
interest income--"the coupon"--will be the dominant source of our returns.
Whatever the year-to-year turbulence of the bond market, Vanguard Ohio
Tax-Free Fund will do what it has always done: continue our focus on providing
returns that exceed those of competitive norms, even as we maintain the highest
standards of credit quality. As part of a long-term investment program that
includes stock funds, bond funds, and money market funds, the Ohio State
Tax-Free Portfolios should prove rewarding to investors.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
Chairman of the Board President
December 18, 1996
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE: FISCAL YEAR ENDED NOVEMBER 30, 1996
[PHOTO]
U.S. EQUITY MARKETS
Few investors would have expected the stock market over the past 12 months to
come close to matching the 37.0% return of the prior 12. Yet when the past two
fiscal years are considered cumulatively, the Standard & Poor's 500 Composite
Stock Price Index has risen 75.1%. Not surprisingly, many of the factors that
drove the market higher in 1995 were also in place this year. Once again, steady
economic growth and low inflation were powerful motivators.
The equity markets were decidedly "un-equitable," however, when it came to
size and sectors. Companies with larger market values, such as those that
dominate the S&P 500 Index, prevailed. In fact, even within the Index, it was
the largest companies that turned in the best performance. The 50 biggest
companies in the S&P 500 Index (which account for roughly half its market value)
gained 31.8% in the fiscal year ended November 30, compared with an increase of
27.9% for the entire Index. Looking at the S&P 500 Index's performance by
sector, financial stocks were strongest, closing the year with a 41.9% gain.
Technology stocks were a close second, gaining 39.3%. Utilities, plagued early
in the year by higher interest rates and a rapidly changing competitive
landscape, eked out a 4.4% return, the lowest within the Index.
With the largest companies performing so well, it was difficult for smaller
issues to keep pace. This was evidenced in the considerable difference between
the 27.9% return of the S&P 500 Index and the 16.5% return of the Russell 2000
Small Stock Index. Even for the smaller companies, there was a significant range
of performance among sectors. Energy stocks led the Russell 2000 Index with a
77.0% gain for the year. Here, rising prices, limited exposure to the cyclical
refining business, and a reduced number of competitors created a favorable
environment for the stocks. At the other end of the spectrum were health-care
stocks, which showed a loss of -0.4%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1996
--------------------------------------
1 YEAR 3 YEARS 5 YEARS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Equity
S&P 500 Index 27.9% 21.0% 18.2%
Russell 2000 Index 16.5 14.0 16.8
MSCI-EAFE Index 12.1 11.7 9.9
- ---------------------------------------------------------------------
Fixed-Income
Lehman Aggregate Bond Index 6.1% 6.5% 7.9%
Lehman 10-Year Municipal
Bond Index 5.7 6.2 8.0
Salomon 90-Day U.S.
Treasury Bills 5.3 5.0 4.4
- ---------------------------------------------------------------------
Other
Consumer Price Index 3.2% 2.8% 2.9%
- ---------------------------------------------------------------------
</TABLE>
U.S. FIXED-INCOME MARKETS
As the fiscal year ended, the 30-year U.S. Treasury yield of 6.4% was modestly
higher than its 6.1% level on November 30, 1995. The relatively small difference
in these figures belies the turmoil endured by the fixed-income markets over the
past 12 months.
When the fiscal year began, "Steady as she goes" was the common wisdom.
Modest economic growth and benign inflation were expected to continue, giving
the Federal Re-
4
<PAGE> 7
serve no reason to move interest rates higher. That complacency was shattered by
an exceptionally strong February jobs report, the first of what turned out to be
a succession of signs that in fact the economy was growing at a much faster--and
potentially inflation-inducing--pace. The bond market reacted swiftly to
compensate for the perceived risk: The 30-year Treasury yield jumped from just
below 6.0% in late December to 6.7% in late March. The next several months saw a
consistent pattern in which bond yields rose on the Friday of the jobs-report
release only to fall back by the middle of the month. In reality, there was
little bite to the bark. Inflation, as measured by the Consumer Price Index,
remained near an annualized rate of 3.2%. And, as the fiscal year entered its
final quarter, evidence once again pointed to more "acceptable" levels of
growth. That--plus the market's satisfaction with the national election results
and prospects for budget action--helped bonds finish the fiscal year with a
strong rally.
The rally enabled the longer-maturity sectors of the market to overcome
performance deficits and finish the year with positive returns. Although the
specter of the Federal Reserve Board loomed large during the year, in fact the
Board acted only twice, lowering the federal funds rate by a total of 0.5%.
Corporate bonds, mortgage-backed issues, and municipals were three
relatively bright spots over the past year. The strength in earnings that
benefited stock prices extended to the corporate bond sector as well. These
bonds, especially those of lower credit quality, performed well relative to
Treasuries as there appeared to be little risk of skipped interest payments or
bankruptcy against the good earnings backdrop. The stable-to-rising
interest-rate environment throughout most of the year benefited another large
segment of the bond market--mortgages--as the threat of refinancings receded.
Finally, municipal bonds outpaced their U.S. Treasury counterparts. The sector
was shielded to a certain extent from the inflation wars of the Treasury market,
and demand outstripped supply for much of the year.
INTERNATIONAL EQUITY MARKETS
Concern about U.S. Federal Reserve Board policy appeared to drive global markets
as much as it did those in the United States. In aggregate, the markets rose
17.0%, as measured by the Morgan Stanley Capital International-Europe,
Australasia, Far East Index. A stronger dollar reduced this return to 12.1% for
U.S.-based investors.
Regionally, Europe's 22.9% return overshadowed the 1.4% generated by the
Pacific Basin. Europe's major markets continued to work toward the economic
targets that must be attained by 1999 under the Maastricht Treaty. This ongoing,
albeit bumpy, effort kept the continent's economic growth modest and gave
investors confidence. The Pacific region, of course, was dominated by the
influence of the Japanese market. Despite evidence of a strengthening economy
early in the year, Japan's market was shadowed by lingering problems in the
banking and real estate sectors and by tepid interest on the part of Japanese
investors. The dollar's appreciation against the yen had a significant impact on
returns, turning the year's 7.1% gain in yen into a -4.5% loss in dollars. In
contrast, the returns for a number of other countries in the region were quite
strong: for example, Hong Kong, 38.2%, and Malaysia, 31.8% (in U.S. dollars).
5
<PAGE> 8
REPORT FROM THE ADVISER
[PHOTO]
Yields on tax-exempt securities decreased slightly while yields on
short-term securities ended virtually unchanged in the 12 months ended November
30, 1996, the fiscal year for Vanguard Ohio Tax-Free Fund.
THE INSURED LONG-TERM PORTFOLIO
Over the 12 months, the yield on high-grade, long-term municipal bonds declined
by 8 basis points, or 0.08 percentage point, from 5.74% to 5.66%. By way of
comparison, the yield on the benchmark 30-year U.S. Treasury bond increased by
22 basis points, from 6.13% to 6.35%. However, these relatively small changes
obscure the volatility in both markets during the course of the year.
During the first half, reports of a solid increase in economic activity and
robust employment gains fanned fears of inflation. In reaction, by June the
fixed-income market had driven up the yields on the 30-year Treasury bond and on
long-term, high-grade municipal bonds to 7.19% and 6.22%, respectively. But as
the economy cooled from its earlier torrid pace, investors grew more confident
that the Federal Reserve Board would not have to tighten monetary policy, and
yields fell back nearly to their levels at the start of the year.
For municipal bonds, the issue of tax reform grew in importance in early
1996. Various flat-tax proposals either directly or indirectly threatened the
tax-exempt privilege of municipal securities. In its basic form, a flat tax
would reduce the current hierarchy of income-tax rates to only one lower level
for all earned income. Unearned income (interest, dividends, and capital gains)
would not be taxed at all. Since all interest would be exempt from federal
income tax, municipal bond interest payments would no longer offer a special tax
benefit. Early in the fiscal year, concern about such proposals caused the
prices of municipal bonds to fall relative to those of taxable bonds, enabling
municipal investors to purchase high-grade, tax-exempt bonds with attractive
yields--as high as 94% of comparable U.S. Treasury obligations.
However, as a campaign issue, the complete overhaul of the federal tax
system bombed by early summer. The flat tax suffered a peaceful demise upon the
nomination of Bob Dole and was effectively buried with the reelection of
President Clinton. By the end of the year, with the flat-tax trauma a thing of
the past, the ratio of tax-exempt yields to taxable yields fell to 89%. The
relative outperformance of municipals came despite an increase late in the year
in the supply of new tax-exempt bond issues, which raised the tax-exempt/taxable
yield ratio from a low of 84% in August.
For 1996, the Insured Long-Term Portfolio provided a positive rate of
return, roughly commensurate with the dividends derived from interest income on
the Portfolio. Because market yields changed only slightly over the year, income
was the dominant component of total return. In this environment, Vanguard's low
expense ratio provided a powerful advantage in maximizing the
INVESTMENT PHILOSOPHY
The Fund reflects a belief that it can achieve a high level of current income,
consistent with each Portfolio's stated maturity and stringent quality targets,
that is exempt from federal and Ohio income taxes by investing in insured and
high-quality uninsured securities issued by state, county, and municipal
governments in Ohio.
6
<PAGE> 9
tax-exempt return to shareholders. The lower expense ratio allows more
investment income to flow directly to shareholders, which translates into higher
Portfolio returns. Over time, this has the powerful and enduring effect of
contributing to superior performance.
Looking ahead, we believe that the tax-exempt investment arena will
continue to provide above-average value to shareholders who seek a high-quality
investment with durable and attractive after-tax returns. This is especially
true for our State Tax-Free Portfolios, which offer the extra benefit of income
that is exempt from state, as well as federal, taxes.
THE MONEY MARKET PORTFOLIO
In the money market arena, stable Federal Reserve policy during the second half
of the fiscal year allowed yields on U.S. Treasury bills and municipal notes to
move lower. The yields on one-year municipal notes declined by 15 basis points
during the second half, while yields on one-year U.S. Treasury bills fell 35
basis points. Aside from the Fed's stable policy, two issues had a significant
impact on the short-term securities market.
The first was the onset of the traditional spring/summer municipal
borrowing season. This cyclical deluge of new short-term issues created a
temporary summertime overabundance of municipal notes and bonds in the market.
The excess supply caused a dramatic spike-up in yields during late July and
August (though in late September yields commenced a steady downward movement).
We took advantage of the opportunity to extend the average maturities of the
Money Market Portfolio, thereby locking in higher yields. Additionally, we
further diversified the Portfolio, enhancing its overall credit quality.
The second big influence on the market was the Securities and Exchange
Commission's decision to postpone the effective date for changes to Rule 2a-7
under the Investment Company Act of 1940. This rule governs money market funds.
Under the proposed changes, regulations would be tightened on tax-exempt money
market funds so as to increase the likelihood of their maintaining a stable net
asset value. The changes were expected to take effect on June 3, 1996, but the
mutual fund industry made the SEC aware of the need for numerous technical
amendments, and the deadline was therefore postponed. We anticipate that new
regulations will be completed and made mandatory by the second quarter of 1997.
Competing funds that operate under lower quality standards will need to alter
their fund management policies. Vanguard's tax-exempt money market Portfolios,
however, have always been managed in a conservative, quality-oriented manner,
and we anticipate minimal impact when the new regulations take effect.
In summary, the coming months will require vigilance. Market participants
will be required to adopt more stringent regulations at a time when tax-exempt
assets are growing and the supply of new issues is minimal. Vanguard's
conservative management style will give the Money Market Portfolio a strategic
advantage as stricter regulations dictate that competitors play catch-up in
terms of quality.
Ian A. MacKinnon, Senior Vice President
Pamela W. Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Vanguard Fixed Income Group
December 16, 1996
7
<PAGE> 10
PERFORMANCE SUMMARY: INSURED LONG-TERM PORTFOLIO
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
both share price and return can fluctuate widely so that an investment in the
Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 6/18/90-11/30/96
- ---------------------------------------------------
INSURED LONG-TERM PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------
<S> <C> <C> <C> <C>
1990 3.0% 3.0% 6.0% 4.9%
1991 2.9 6.6 9.5 10.3
1992 4.5 6.2 10.7 10.0
1993 6.3 5.7 12.0 11.1
<CAPTION>
INSURED LONG-TERM PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------
<S> <C> <C> <C> <C>
1994 -11.2% 4.9% -6.3% -5.2%
1995 13.1 6.4 19.5 18.9
1996 0.3 5.4 5.7 5.9
- ---------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 20 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: 6/18/90-11/30/96
<TABLE>
<S> <C> <C> <C> <C>
1990 06 10000 10000 10000
1990 08 10079 10055 10091
1990 11 10604 10449 10487
1991 02 10836 10677 10767
1991 05 11132 10941 11011
1991 08 11341 11153 11281
1991 11 11612 11404 11563
1992 02 11902 11683 11842
1992 05 12182 11927 12092
1992 08 12663 12335 12540
1992 11 12853 12485 12722
1993 02 13728 13244 13471
1993 05 13814 13329 13539
1993 08 14327 13804 14070
1993 11 14400 13933 14132
1994 02 14456 13987 14216
1994 05 14142 13601 13873
1994 08 14335 13711 14095
1994 11 13495 13026 13394
1995 02 14872 14142 14490
1995 05 15427 14712 15142
1995 08 15500 14715 15345
1995 11 16120 15444 15926
1996 02 16314 15486 16091
1996 05 16008 15203 15834
1996 08 16353 15423 16149
1996 11 17046 16199 16862
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LONG-TERM PORTFOLIO 5.75% 7.98% 8.62% $17,046
AVERAGE OHIO MUNICIPAL FUND 4.89 7.27 7.76 16,199
LEHMAN MUNICIPAL BOND INDEX 5.88 7.84 8.43 16,862
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insured Long-Term Portfolio 6/18/90 6.15% 7.54% 2.41% 5.94% 8.35%
- ------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
8
<PAGE> 11
PERFORMANCE SUMMARY: MONEY MARKET PORTFOLIO
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
returns can fluctuate widely. An investment in a money market fund 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.
per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 6/18/90-11/30/96
- -------------------------------------------------
MONEY MARKET PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------
<S> <C> <C> <C> <C>
1990 0.0% 2.6% 2.6% 2.5%
1991 0.0 4.7 4.7 4.5
1992 0.0 3.0 3.0 2.9
1993 0.0 2.4 2.4 2.2
<CAPTION>
MONEY MARKET PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------
<S> <C> <C> <C> <C>
1994 0.0% 2.6% 2.6% 2.4%
1995 0.0 3.8 3.8 3.5
1996 0.0 3.4 3.4 3.1
- -------------------------------------------------
</TABLE>
*Average Ohio Tax-Exempt Money Market Fund.
See Financial Highlights table on page 21 for dividend information for the past
five years.
CUMULATIVE PERFORMANCE: 6/18/90-11/30/96
<TABLE>
<S> <C> <C> <C>
1990 06 10000 10000
1990 08 10115 10110
1990 11 10259 10251
1991 02 10394 10381
1991 05 10515 10495
1991 08 10626 10605
1991 11 10736 10714
1992 02 10831 10805
1992 05 10920 10891
1992 08 10990 10958
1992 11 11061 11025
1993 02 11129 11086
1993 05 11194 11146
1993 08 11257 11202
1993 11 11324 11262
1994 02 11386 11317
1994 05 11454 11378
1994 08 11526 11445
1994 11 11616 11527
1995 02 11721 11621
1995 05 11839 11729
1995 08 11946 11828
1995 11 12056 11927
1996 02 12162 12022
1996 05 12265 12115
1996 08 12365 12206
1996 11 12468 12299
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
--------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO 3.42% 3.04% 3.48% $12,468
AVERAGE OHIO TAX-EXEMPT
MONEY MARKET FUND 3.13 2.80 3.26 12,299
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/96*
- -----------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 6/18/90 3.48% 3.06% 0.00% 3.48% 3.48%
- -----------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
9
<PAGE> 12
PORTFOLIO PROFILE: INSURED LONG-TERM PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to an unmanaged index. Key elements of this Profile are
defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -------------------------------------------
<S> <C>
Number of Issues 112
Yield 4.8%
Yield to Maturity* 4.8%
Average Coupon 5.4%
Average Maturity 9.6 years
Average Quality Aaa
Average Duration 6.5 years
Expense Ratio 0.20%
*After expenses.
INVESTMENT FOCUS
- -------------------------------------------
[FIGURE 3]
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
INSURED LONG-TERM LEHMAN
PORTFOLIO INDEX*
- -------------------------------------------
<S> <C> <C>
R-Squared 0.97 1.00
Beta 1.07 1.00
*Lehman Municipal Bond Index.
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Aaa 97.1%
Aa 2.9
A --
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------
<S> <C>
Under 1 Year 12.5%
1-5 Years 16.3
5-10 Years 28.1
10-20 Years 34.4
20-30 Years 8.7
Over 30 Years --
- -------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
[PHOTO]
AVERAGE COUPON. The average interest rate, expressed as a percentage of face
value, paid on the securities held by a portfolio.
AVERAGE DURATION. An estimate of how much a portfolio's share price will
fluctuate in response to a change in interest rates. To estimate the price
sensitivity of a portfolio, multiply its duration by the change in rates. If
interest rates rise by one percentage point, the share price of a portfolio with
an average duration of five years would decline by about 5%. If rates decrease
by a percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity and are repaid. In general, the longer the average maturity, the
more a portfolio's share price will fluctuate in response to changes in market
interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
credit ratings assigned to the portfolio's securities holdings by credit-rating
agencies. Agencies assign credit ratings after appraising an issuer's ability to
meet its obligations. Quality is graded on a scale, with Aaa indicating the most
creditworthy bond issuers and MIG-1 indicating the most creditworthy issues of
municipal money market securities.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the fluctuations in the overall market (or appropriate market
index). The market, or index, has a beta of 1.00, so a portfolio with a beta of
1.20 would have seen its share price rise or fall by 12% when the overall market
rose or fell by 10%.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or other
credit problems on securities held by a portfolio.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors. The average expense ratio in 1995 for state tax-free bond
funds was 1.01%; for state tax-free money market funds, the figure was 0.59%.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of a portfolio's net asset value, is based on income earned by the
portfolio over the past 30 days (7 days for money market portfolios) and is
annualized, or projected forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
11
<PAGE> 14
PORTFOLIO PROFILE: MONEY MARKET PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics. Key
elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ---------------------------------------------
<S> <C>
Number of Issues 55
Yield 3.4%
Average Maturity 62 days
Average Quality MIG-1
Expense Ratio 0.20%
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Aaa 19.3%
Aa 64.9
A 15.8
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
12
<PAGE> 15
[PHOTO]
FINANCIAL STATEMENTS
NOVEMBER 30, 1996
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's municipal bond
holdings, including each security's market value on the last day of the
reporting period and information on credit enhancements (insurance or letters of
credit). Securities are grouped and subtotaled according to their insured or
non-insured status. Other assets are added to, and liabilities are subtracted
from, the value of Total Municipal Bonds to calculate the Portfolio's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the
Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share. At
the end of the Statement of Net Assets, you will find a table displaying the
composition of the Portfolio's net assets on both a dollar and per-share basis.
Undistributed Net Investment Income is usually zero because the Portfolio
distributes its net income to shareholders as a dividend each day. Any realized
gains must be distributed annually, so the bulk of net assets consists of Paid
in Capital (money invested by shareholders). The balance shown for Accumulated
Net Realized Gains usually approximates the amount available to distribute to
shareholders as taxable capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net realized gains, will appear as
negative balances. Unrealized Appreciation (Depreciation) is the difference
between the value of the Portfolio's investments and their cost, and reflects
the gains (losses) that would be realized if the Portfolio were to sell all of
its investments at their statement-date values.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.3%)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (86.0%)
Adams County OH School Dist. GO 5.55% 12/1/09 (1) $ 1,000 $ 1,036
Akron Bath & Copley OH Joint Township
(Children's Hosp. Medical Center) 5.50% 1/1/08 (2) 1,000 1,030
Aurora County OH School Dist. 5.80% 12/1/16 (3) 3,000 3,114
Bedford Heights OH GO 5.65% 12/1/14 (2) 500 523
Butler County OH Sewer System Rev. 6.25% 12/1/12 (2) 2,925 3,130
Butler County OH Water Works 5.125% 12/1/21 (2) 500 481
City of Canton OH GO 5.375% 12/1/07 (2) 1,000 1,032
City of Canton OH GO (Water Works System) 5.75% 12/1/10 (2) 1,000 1,043
City of Canton OH GO (Water Works System) 5.85% 12/1/15 (2) 1,000 1,042
Chillicothe OH GO 6.05% 12/1/12 (2) 675 710
Clermont County OH (Mercy Health System) 5.40% 9/1/05 (2) 2,500 2,624
Clermont County OH (Mercy Health System) 5.50% 9/1/06 (2) 2,500 2,624
Cleveland OH Airport System Rev. 0.00% 1/1/05 (1) 3,975 2,693
Cleveland OH Airport System Rev. 7.25% 1/1/20 (1) 800 876
Cleveland OH GO 5.30% 9/1/08 (2) 4,500 4,647
Cleveland OH GO 5.375% 9/1/09 (2) 2,000 2,064
Cleveland OH GO 5.375% 9/1/10 (2) 1,000 1,024
Cleveland OH GO 5.375% 9/1/12 (2) 1,000 1,015
Cleveland OH GO 6.25% 10/1/11 (1) 2,500 2,674
Cleveland OH Public Power System Rev. 7.00% 11/15/24 (1) 2,750 3,180
Cleveland OH School Dist. GO 0.00% 12/1/05 (3) 700 460
Cleveland OH School Dist. GO 0.00% 12/1/06 (3) 700 434
Cleveland OH School Dist. GO 0.00% 12/1/07 (3) 500 293
Cleveland OH School Dist. GO 0.00% 12/1/08 (3) 400 220
Cleveland OH School Dist. GO 5.875% 12/1/11 (3) 1,500 1,552
Cleveland OH Water Works Rev. 5.50% 1/1/13 (1) 3,125 3,202
Cleveland OH Water Works Rev. 5.50% 1/1/21 (1) 2,500 2,564
Cleveland OH Water Works Rev. 6.25% 1/1/15 (2) 4,500 4,799
Columbus City OH School Dist. GO 7.00% 12/1/00((3)Prere.) 1,750 1,961
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cuyahoga County OH Hosp. Rev. (Metro Health System) 6.00% 2/15/19 (1) $ 1,000 $ 1,016
Cuyahoga County OH Hosp. Rev. (Univ. Hosp. Health System) 5.50% 1/15/19 (1) 7,545 7,478
Cuyahoga County OH Hosp. Rev. (Univ. Hosp. Health System) 6.875% 1/15/99 (5)(Prere.) 1,825 1,965
Dayton OH Water System Rev. 6.75% 12/1/10 (1) 1,000 1,048
Delaware City OH School Dist. GO 5.20% 12/1/16 (3) 1,000 973
Delaware OH Sewer System Rev. 5.95% 11/15/12 (2) 1,500 1,559
Dublin OH School Dist. GO 0.00% 12/1/05 (3) 1,220 802
Dublin OH School Dist. GO 0.00% 12/1/06 (3) 1,220 757
Fairfield County OH Hosp. Rev. (Lancaster-Fairfield Hosp.) 5.375% 6/15/15 (1) 3,000 3,012
Franklin County OH Convention Center Rev. 0.00% 12/1/07 (1) 4,355 2,548
Franklin County OH Convention Center Rev. 7.00% 12/1/00 (1)(Prere.) 675 757
Franklin County OH Hosp. Fac. Rev. (Riverside United Methodist) 7.25% 5/15/20 (1) 2,800 3,088
Greater Cleveland OH Regional Trans. Auth. 5.60% 12/1/11 (3) 4,505 4,639
Hamilton County OH Rev. (Children's Hosp.) 5.20% 5/15/09 (1) 2,000 2,019
Hamilton County OH Sewer System Rev. 5.25% 12/1/16 (3) 2,000 1,954
Hamilton County OH Sewer System Rev. 5.40% 12/1/08 (3) 5,700 5,951
Hamilton County OH Sewer System Rev. 5.45% 12/1/09 (3) 3,250 3,385
Hamilton OH Water System Rev. 6.30% 10/15/21 (1) 2,000 2,135
Hilliard County OH School Dist. GO 5.00% 12/1/20 (3) 1,150 1,089
Hilliard County OH School Dist. GO 5.75% 12/1/19 (3) 2,000 2,043
Hilliard County OH School Dist. GO 6.55% 12/1/05 (3) 500 566
Kettering City OH School Dist. GO 5.30% 12/1/14 (3) 1,350 1,342
Lisbon OH School Dist. GO 6.25% 12/1/17 (2) 1,000 1,074
Lucas County OH GO 6.95% 12/1/11 (1) 2,700 3,021
Lucas County OH Hosp. Rev. (Promedica Health Care) 5.75% 11/15/09 (1) 3,000 3,151
Marietta City OH School Dist. 5.75% 12/1/07 (2) 1,500 1,599
Marysville OH GO 5.55% 12/1/13 (2) 1,400 1,426
Marysville OH Water System Rev. 7.05% 12/1/01 (1)(Prere.) 1,250 1,416
Medina City OH School Dist. GO 6.20% 12/1/18 (3) 2,100 2,246
Mount Vernon OH Sewer System Rev. 6.00% 12/1/12 (2) 750 784
New Philadelphia City OH School Dist. 6.25% 12/1/17 (2) 2,300 2,456
North Canton OH GO 5.90% 12/1/14 (2) 2,000 2,075
Northeast OH Sewer Dist. Rev. 5.60% 11/15/13 (2) 1,880 1,917
Northeast OH Sewer Dist. Rev. 5.60% 11/15/14 (2) 1,500 1,517
Northeast OH Sewer Dist. Rev. 6.50% 11/15/01 (2)(Prere.) 2,500 2,769
Ohio Air Quality Dev. Auth. PCR (Ohio Edison) 7.10% 6/1/18 (3) 1,000 1,100
Ohio Air Quality Dev. Auth. PCR (Ohio Edison) 7.45% 3/1/16 (3) 500 553
Ohio Building Auth. (Adult Correctional Fac.) 5.95% 10/1/13 (1) 3,000 3,147
Ohio Building Auth. (Transp. Fac.) 7.00% 9/1/07 (1) 2,270 2,500
Ohio Higher Educ. Fac. Rev. (Univ. of Dayton) 6.60% 12/1/17 (3) 2,200 2,468
Ohio Higher Educ. Fac. Rev. (Univ. of Dayton) 6.75% 12/1/15 (3) 1,000 1,125
Ohio Public Fac. Comm. 5.00% 11/1/97 (1) 3,700 3,748
Ohio Public Fac. Comm. (Community Mental Health) 4.50% 12/1/97 (1) 2,000 2,018
Ohio Univ. General Receipts 5.00% 12/1/13 (3) 2,000 1,907
Ohio Water Dev. Auth. 5.50% 12/1/11 (2) 1,000 1,013
Ohio Water Dev. Auth. 5.50% 12/1/14 (1) 1,595 1,611
Ohio Water Dev. Auth. 7.00% 12/1/09 (2)(ETM) 1,500 1,729
Olmsted Falls City OH School Dist. GO 5.85% 12/15/17 (3) 2,000 2,057
Olmsted Falls City OH School Dist. GO 6.85% 12/15/11 (3) 565 647
Ottowa County OH GO 7.00% 9/1/11 (2) 500 560
Pickerington OH GO 5.80% 12/1/09 (3) 500 535
Revere OH School Dist. GO 6.00% 12/1/16 (2) 3,850 4,044
Reynoldsburg OH School Dist. GO 6.55% 12/1/17 (3) 3,600 3,970
Richland County OH GO 5.40% 12/1/15 (2) 1,120 1,119
Richland County OH GO 6.95% 12/1/11 (2) 450 522
Springboro Community City OH School Dist. GO 5.25% 12/1/16 (2) 4,000 3,946
Summit County OH GO 6.90% 8/1/02 (2)(Prere.) 175 197
Summit County OH GO 6.90% 8/1/03 (2)(Prere.) 2,425 2,755
Summit County OH GO 6.90% 8/1/12 (2) 2,650 2,953
Trumbull County OH GO 5.30% 12/1/14 (2) 1,500 1,482
Trumbull County OH Rev. (Trumbull Memorial Hosp.) 6.25% 11/15/12 (3) 2,000 2,133
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wood County OH Justice Center GO 5.95% 12/1/07 (2) $ 1,750 $ 1,876
Woodridge OH School Dist. GO 6.00% 12/1/19 (2) 1,000 1,049
Woodridge OH School Dist. GO 6.80% 12/1/14 (2) 2,000 2,376
Wooster City OH School Dist. GO 6.50% 12/1/17 (2) 2,500 2,781
OUTSIDE OHIO:
Puerto Rico Public Building Auth. Rev. 0.00% 7/1/01 (3) 850 701
-------
186,246
-------
SECONDARY MARKET INSURED (1.0%)
Franklin OH (Mount Carmel Health-Holy Cross Health System) 6.75% 6/1/19 (1) 2,000 2,222
-------
NON-INSURED (11.3%)
Cincinnati OH Student Loan Funding Corp. Student Loan Rev. VRDO 3.50% 12/4/96 LOC 500 500
Columbus OH GO VRDO 3.45% 12/5/96 800 800
Columbus OH GO 4.00% 6/15/97 1,645 1,650
Cuyahoga County OH Hosp. VRDO (Cleveland Clinic) 3.55% 12/4/96 LOC 300 300
Cuyahoga County OH Hosp. VRDO (St. Luke's Hosp.) 3.55% 12/4/96 LOC 500 500
Hamilton County OH GO BAN 4.50% 12/31/97 1,375 1,382
Hamilton County OH Hosp. Fac. Rev. VRDO (Bethesda Hosp.) 3.50% 12/5/96 LOC 3,200 3,200
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas & Electric Co.) 4.05% 12/3/96 LOC 4,700 4,700
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas & Electric Co.) 4.15% 12/3/96 LOC 2,400 2,400
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas & Electric Co.) 4.25% 12/3/96 LOC 900 900
Ohio GO 7.625% 8/1/10 3,510 4,400
Ohio GO (Highway Obligation) 4.50% 5/15/98 1,100 1,111
Ohio Higher Educ. Fac. Auth. Rev. (Case Western Reserve Univ.) 6.50% 10/1/20 250 288
Ohio Higher Educ. Fac. Auth. Rev. (Oberlin College) 5.375% 10/1/15 1,500 1,480
Ohio State Univ. VRDO 3.40% 12/5/96 200 200
Ohio Water Dev. Auth. Environmental VRDO (Mead Corp.) 3.90% 12/3/96 LOC 600 600
------
24,411
------
- -------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $202,265) 212,879
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.7%)
- -------------------------------------------------------------------------------------------------------------
Other Assets--Note B 4,164
Liabilities (592)
-----
3,572
- -------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------
Applicable to 18,542,277 outstanding shares of beneficial interest
(unlimited authorization--no par value) $216,451
=============================================================================================================
NET ASSET VALUE PER SHARE $11.67
=============================================================================================================
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 17.
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $205,118 $11.06
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 697 .04
Unrealized Appreciation--Note F
Investment Securities 10,614 .57
Futures Contracts 22 --
- -------------------------------------------------------------------------------------------------------------
NET ASSETS $216,451 $11.67
=============================================================================================================
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (102.1%)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beachwood OH Water & Sewer BAN 4.40% 10/9/97 $ 600 $ 602
Brecksville-Broadview OH School Dist. GO BAN 3.90% 1/17/97 3,500 3,501
Butler County OH BAN 4.20% 10/30/97 750 753
Butler County OH BAN 4.25% 10/23/97 4,240 4,255
Cincinnati OH GO 4.60% 12/1/96 1,000 1,000
Cincinnati OH School Dist. TAN 3.65% 12/1/96 (2) 3,400 3,400
Cincinnati OH School Dist. TAN 5.41% 7/10/97 4,000 4,042
Cleveland-Cuyahoga County OH Port Auth. VRDO
(Rock & Roll Hall of Fame) 3.55% 12/4/96 LOC 4,900 4,900
Columbus OH Electric System Rev. VRDO 3.50% 1/2/97 LOC 800 800
Columbus OH GO VRDO 3.45% 12/5/96 9,900 9,900
Columbus OH Sewer Rev. VRDO 3.55% 12/5/96 4,900 4,900
Cuyahoga County OH Hosp. Rev. Improvement VRDO (Cleveland Clinic) 3.55% 12/4/96 10,000 10,000
Cuyahoga County OH Hosp. Rev. Improvement VRDO (Cleveland Clinic) 3.55% 12/4/96 LOC 15,100 15,100
Cuyahoga County OH Hosp. Rev. Improvement VRDO (St. Luke's Hosp.) 3.55% 12/4/96 LOC 15,600 15,600
Cuyahoga County OH Hosp. Rev. Improvement
(Univ. Hosp. Health System) 5.00% 1/15/97 (1) 1,985 1,988
Fairfield City OH BAN 4.40% 8/29/97 3,750 3,762
Fairfield County OH BAN 4.45% 10/22/97 880 884
Franklin County OH GO BAN 3.90% 8/1/97 9,000 9,003
Franklin County OH Hosp. Rev. VRDO (Holy Cross Health System) 3.45% 12/5/96 11,800 11,800
Green County OH GO BAN 4.50% 6/4/97 7,000 7,018
Hamilton County OH BAN 4.00% 4/10/97 4,540 4,548
Hamilton County OH BAN 4.25% 4/10/97 4,665 4,672
Hamilton County OH Hosp. Fac. Rev. VRDO (Bethesda Hosp.) 3.50% 12/5/96 LOC 13,200 13,200
Hancock County OH GO 4.50% 9/19/97 1,725 1,732
Lucas County OH GO 4.30% 12/1/96 (3) 3,525 3,525
Middleburg Heights OH BAN 4.05% 5/29/97 585 586
Montgomery City OH BAN 3.75% 12/20/96 3,000 3,000
Montgomery County OH Rev. VRDO (Miami Valley Hosp.) 3.65% 12/10/96 LOC 5,200 5,200
Montgomery County OH Rev. VRDO (Sisters of Charity) 3.55% 12/5/96 1,400 1,400
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas & Electric Co.) 4.05% 12/3/96 LOC 9,700 9,700
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas & Electric Co.) 4.15% 12/3/96 LOC 1,400 1,400
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas & Electric Co.) 4.25% 12/3/96 LOC 8,700 8,700
Ohio Air Quality Dev. Auth. VRDO (Mead Corp.) 3.90% 12/3/96 LOC 5,400 5,400
Ohio Building Auth. (Adult Correctional Building Project) 5.00% 4/1/97 (2) 2,660 2,673
Ohio GO 3.70% 8/1/97 3,000 3,000
Ohio Higher Educ. Fac. 5.875% 12/1/96 6,650 6,650
Ohio Higher Educ. Fac. TOB VRDO 3.65% 12/5/96 (2) 6,000 6,000
Ohio Higher Educ. Fac. VRDO (Mount Union College Project) 3.55% 12/5/96 LOC 1,670 1,670
Ohio PCR VRDO (British Petroleum) 4.00% 12/3/96 2,500 2,500
Ohio Public Fac. Comm. (Higher Educ.) 4.40% 12/1/96 7,000 7,000
Ohio Public Fac. Comm. (Higher Educ.) 4.625% 12/1/97 5,250 5,304
Ohio Public Fac. Comm. (Higher Educ.) 5.00% 11/1/97 5,100 5,150
Ohio Public Fac. Comm. (Mental Health) 7.00% 12/1/97 2,000 2,064
Ohio School Dist. COP RAN 4.53% 12/31/96 1,170 1,171
Ohio State Univ. VRDO 3.40% 12/5/96 4,650 4,650
Ohio Water Dev. Auth. VRDO (Mead Corp.) 3.90% 12/3/96 LOC 4,720 4,720
Ohio Water Dev. Auth. VRDO (Timpken Co. Project) 3.60% 12/4/96 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) 3.55% 12/5/96 LOC 1,235 1,235
Scioto County OH Marine Term Fac. Rev. VRDO (Norfolk Southern Corp.) 3.60% 12/4/96 12,000 12,000
Strongsville OH BAN 3.90% 12/26/96 800 800
Sylvania OH School Dist. 6.35% 12/1/97 1,000 1,027
Toledo OH VRDO 3.50% 12/5/96 LOC 5,500 5,500
Univ. of Cincinnati OH GO BAN 3.75% 3/20/97 3,400 3,404
Warren County OH BAN 4.38% 6/3/97 1,180 1,182
- -----------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $259,276) 259,276
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- -----------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.1%)
- -----------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note B $ 2,962
Liabilities (8,278)
---------
(5,316)
- -----------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------
Applicable to 253,964,872 outstanding shares of beneficial interest
(unlimited authorization--no par value) $253,960
=========================================================================================
NET ASSET VALUE PER SHARE $1.00
=========================================================================================
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see below.
<CAPTION>
- -----------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $253,968 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (8) --
Unrealized Appreciation -- --
- -----------------------------------------------------------------------------------------
NET ASSETS $253,960 $1.00
=========================================================================================
</TABLE>
Key to Abbreviations
BAN--Bond Anticipation Note.
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
IDR--Industrial Development Revenue Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
RAN--Revenue Anticipation Note.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
TRAN--Tax Revenue Anticipation Note.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
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) BIGI (Bond Investors Guaranty Insurance).
(6) Connie Lee Inc.
(7) 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.
17
<PAGE> 20
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. These
expenses directly reduce the amount of investment income available to pay to
shareholders as tax-exempt income dividends. This Statement also shows any Net
Gain (Loss) realized on the sale of investments, and the increase or decrease in
the Unrealized Appreciation (Depreciation) on investments during the period. If
a Portfolio invested in futures contracts during the period, the results of
these investments are shown separately.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1996
----------------------------
Insured Money
Long-Term Market
Portfolio Portfolio
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest 11,166 $7,247
--------------------
Total Income 11,166 7,247
--------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 25 24
Management and Administrative 315 304
Marketing and Distribution 44 58
Custodian Fees 7 7
Auditing Fees 7 7
Shareholders' Reports 12 8
Annual Meeting and Proxy Costs 2 1
Trustees' Fees and Expenses 1 1
-----------------
Total Expenses 413 410
Expenses Paid Indirectly--Note C (7) (7)
-----------------
Net Expenses 406 403
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 10,760 6,844
- -----------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold 665 --
Futures Contracts 339 --
- -----------------------------------------------------------------------------------------
REALIZED NET GAIN 1,004 --
- -----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (287) --
Futures Contracts 169 --
- -----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (118) --
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,646 $6,844
=========================================================================================
</TABLE>
18
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes information
that is detailed in the Statement of Operations. Because the Portfolio
distributes its income to shareholders each day, the amounts of
Distributions--Net Investment Income generally equal the net income earned as
shown under the Operations section. The amounts of Distributions--Realized
Capital Gain may not match the capital gains shown in the Operations section,
because distributions are determined on a tax basis and may be made in a period
different from the one in which the gains were realized on the financial
statements. The Capital Share Transactions section shows the amount shareholders
invested in the Portfolio, either by purchasing shares or by reinvesting
distributions, and the amounts redeemed. The corresponding numbers of Shares
Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Insured Long-Term Portfolio Money Market Portfolio
- ------------------------------------------------------------------------- ------------------------
YEAR ENDED NOVEMBER 30,
- -----------------------------------------------------------------------------------------------------
1996 1995 1996 1995
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 10,760 $ 9,407 $ 6,844 $ 6,087
Realized Net Gain (Loss) 1,004 (489) -- --
Change in Unrealized Appreciation
(Depreciation) (118) 20,709 -- --
---------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 11,646 29,627 6,844 6,087
---------------------------------------------------
DISTRIBUTIONS
Net Investment Income (10,760) (9,407) (6,844) (6,087)
Realized Capital Gain -- -- -- --
---------------------------------------------------
Total Distributions (10,760) (9,407) (6,844) (6,087)
---------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 45,385 54,297 247,383 184,523
Issued in Lieu of Cash Distributions 7,733 6,817 6,250 5,640
Redeemed (34,509) (32,898) (177,257) (159,838)
---------------------------------------------------
Net Increase from
Capital Share Transactions 18,609 28,216 76,376 30,325
- -----------------------------------------------------------------------------------------------------
Total Increase 19,495 48,436 76,376 30,325
- -----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 196,956 148,520 177,584 147,259
---------------------------------------------------
End of Year $216,451 $ 196,956 $ 253,960 $ 177,584
=====================================================================================================
(1)Shares Issued (Redeemed)
Issued 3,954 4,867 247,383 184,523
Issued in Lieu of Cash Distributions 674 608 6,250 5,640
Redeemed (3,016) (2,987) (177,257) (159,838)
---------------------------------------------------
Net Increase in Shares Outstanding 1,612 2,488 76,376 30,325
=====================================================================================================
</TABLE>
19
<PAGE> 22
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total Return
and shows net investment income and expenses as percentages of average net
assets. These data will help you assess: the variability of the Portfolio's net
income and total returns from year to year; the relative contributions of net
income and capital gains to the Portfolio's total return; how much it costs to
operate the Portfolio; and the extent to which the Portfolio tends to distribute
capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
Portfolio for one year. Money market portfolios do not show a Portfolio Turnover
Rate because securities purchased with less than one year to maturity are
excluded from the calculation of turnover rates.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Insured Long-Term Portfolio
YEAR ENDED NOVEMBER 30,
----------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.63 $10.28 $11.61 $11.07 $10.60
- -------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .603 .610 .599 .608 .630
Net Realized and Unrealized Gain (Loss) on Investments .040 1.350 (1.298) .685 .474
----------------------------------------------
Total from Investment Operations .643 1.960 (.699) 1.293 1.104
----------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.603) (.610) (.599) (.608) (.630)
Distributions from Realized Capital Gains -- -- (.032) (.145) (.004)
----------------------------------------------
Total Distributions (.603) (.610) (.631) (.753) (.634)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.67 $11.63 $10.28 $11.61 $11.07
=============================================================================================================
TOTAL RETURN 5.75 % 19.45% -6.29% 12.03% 10.69%
=============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $216 $197 $149 $166 $101
Ratio of Total Expenses to Average Net Assets 0.20% 0.21% 0.23% 0.21% 0.31%
Ratio of Net Investment Income to Average Net Assets 5.26% 5.45% 5.38% 5.29% 5.77%
Portfolio Turnover Rate 17% 7% 16% 10% 27%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED NOVEMBER 30,
-------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .034 .037 .026 .023 .030
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
---------------------------------------------
Total from Investment Operations .034 .037 .026 .023 .030
---------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.034) (.037) (.026) (.023) (.030)
Distributions from Realized Capital Gains -- -- -- -- --
----------------------------------------------
Total Distributions (.034) (.037) (.026) (.023) (.030)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================================
TOTAL RETURN 3.42% 3.78% 2.58% 2.37% 3.01%
==========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $254 $178 $147 $132 $92
Ratio of Total Expenses to Average Net Assets 0.20% 0.21% 0.23% 0.21% 0.31%
Ratio of Net Investment Income to Average Net Assets 3.36% 3.71% 2.56% 2.34% 2.95%
Portfolio Turnover Rate N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
Vanguard Ohio Tax-Free Fund is registered under the Investment Company Act of
1940 as an open-end investment company, or mutual fund, and comprises 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 conform with generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Money Market Portfolio: Investment securities are
valued at amortized cost, which approximates market value. Insured Long-Term
Portfolio: Bonds, and temporary cash investments acquired more than 60 days to
maturity, are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and credit ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio 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 CONTRACTS: The Insured Long-Term Portfolio may use Municipal
Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with
the objectives of enhancing returns, managing interest-rate risk, maintaining
liquidity, diversifying credit risk, and minimizing transaction costs. The
Portfolio may purchase or sell futures contracts instead of bonds to take
advantage of pricing differentials between the futures contracts and the
underlying 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. The
aggregate principal amounts of the contracts are not recorded in the financial
statements. Fluctuations in the value of the contracts are recorded in the
Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date
securities are bought or sold. Costs used to determine realized gains (losses)
on the sale of investment securities are those of the 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 November 30, 1996, the Fund had contributed capital aggregating
$41,000 to Vanguard (included in Other Assets), representing 0.2% of Vanguard's
capitalization. The Fund's trustees and officers are also directors and officers
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 custody account. For the
year ended November 30, 1996, custodian fee offset arrangements reduced expenses
of each Portfolio by $7,000.
22
<PAGE> 25
D. During the year ended November 30, 1996, the Insured Long-Term Portfolio
purchased $42,320,000 of investment securities and sold $33,228,000 of
investment securities, other than temporary cash investments.
E. Capital gains 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. For federal income tax purposes, the
Portfolios had the following capital gains available for distribution at
November 30, 1996, or capital losses available to offset future capital gains:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CAPITAL LOSS
--------------------------
CAPITAL GAINS EXPIRATION
AVAILABLE FOR FISCAL YEAR(S)
DISTRIBUTION AMOUNT ENDING
PORTFOLIO (000) (000) NOV. 30
-----------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term $1,113 -- --
Money Market -- $(8) 2001-2004
-----------------------------------------------------------------------
</TABLE>
The Insured Long-Term Portfolio used a capital loss carryforward of $58,000
to offset taxable capital gains realized during the year ended November 30,
1996, reducing the amount of capital gains that would otherwise be available to
distribute to shareholders.
F. At November 30, 1996, net unrealized appreciation of Insured Long-Term
Portfolio investment securities for financial reporting and federal income tax
purposes was $10,614,000, consisting of unrealized gains of $10,712,000 on
securities that had risen in value since their purchase and $98,000 in
unrealized losses on securities that had fallen in value since their purchase.
At November 30, 1996, the aggregate settlement value of open futures
contracts expiring in March 1997, and the related unrealized appreciation were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
(000)
---------------------------
NUMBER OF AGGREGATE
LONG SETTLEMENT UNREALIZED
PORTFOLIO/FUTURES CONTRACTS CONTRACTS VALUE APPRECIATION
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term/
U.S. Treasury Bond 28 $3,245 $22
-----------------------------------------------------------------------------
</TABLE>
The market value of securities deposited as initial margin for open futures
contracts by the Insured Long-Term Portfolio was $513,000.
23
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Trustees of
Vanguard Ohio Tax-Free Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Insured Long-Term Portfolio and Money Market Portfolio (constituting Vanguard
Ohio Tax-Free Fund, hereafter referred to as the "Fund") at November 30, 1996,
and the results of each of their operations, the changes in each of their net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 31, 1996
SPECIAL 1996 TAX INFORMATION (UNAUDITED)
VANGUARD OHIO TAX-FREE FUND
This information for the fiscal year ended November 30, 1996, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term Portfolio designates $955,000 as capital gain
dividends (from net long-term capital gains), which will be distributed in
December 1996.
Each Portfolio designates 100% of its income dividends as
exempt-interest dividends.
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
24
<PAGE> 27
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer Inc.;
Director of Sun Company, Inc. and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and
Massa-chusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corp., Baker Fentress & Co., The Jeffrey Co., and Southern New England
Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich
Co., and The Standard Products Co.
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 Co., Procter & Gamble Co., 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.
and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
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.
RICHARD F. HYLAND, Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of
each of the investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President, Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President, Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[VANGUARD LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
[email protected] http://www.vanguard.com
All Vanguard Funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses may
be obtained directly from The Vanguard Group.
(c) 1996 Vanguard Marketing Corporation, Distributor
27
<PAGE> 28
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity-International
Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q960-11/96
[PHOTO]
