<PAGE>
VANGUARD(R)
OHIO TAX-EXEMPT
FUNDS
ANNUAL REPORT
NOVEMBER 30, 1999
[SHIP GRAPHIC]
[MEMBERS OF THE VANGUARD GROUP]
VANGUARD OHIO TAX-EXEMPT MONEY MARKET FUND
VANGUARD OHIO INSURED LONG-TERM TAX-EXEMPT FUND
<PAGE>
Dear Shareholders:
Two roads diverged in a wood, and I--I took the one less traveled by, and that
has made all the difference.
I can think of no better words than those of Robert Frost to begin this special
letter to our shareholders, who have placed such extraordinary trust in me and
in Vanguard over the past quarter century. When the firm was founded 25 years
ago, we deliberately took a new road to managing a mutual fund enterprise.
Instead of having the funds controlled by an outside management company with its
own financial interests, the Vanguard funds--there were only 11 of them
then--would be controlled by their own shareholders and operate solely in their
financial interests. The outcome of our unprecedented decision was by no means
certain. We described it then as "The Vanguard Experiment."
Well, I guess it's fair to say it's an experiment no more. During the
past 25 years, the assets we hold in stewardship for investors have grown from
$1 billion to more than $500 billion, and I believe that our reputation for
integrity, fair-dealing, and sound investment principles is second to none in
this industry. Our staggering growth--which I never sought--has come in
important part as a result of the simple investment ideas and basic human values
that are the foundation of my personal philosophy. I have every confidence that
they will long endure at Vanguard, for they are the right ideas and right
values, unshakable and eternal.
While Emerson believed that "an institution is the lengthened shadow of
one man," Vanguard today is far greater than any individual. The Vanguard crew
has splendidly implemented and enthusiastically supported our founding ideas and
values, and deserves the credit for a vital role in forging our success over the
years. It is a dedicated crew of fine human beings, working together in an
organization that is well prepared to press on regardless long after I am gone.
Creating and leading this enterprise has been an exhilarating run. Through it
all, I've taken the kudos and the blows alike, enjoying every moment to the
fullest, and even getting a second chance at life with a heart transplant three
years ago. What more could a man ask?
While I shall no longer be serving on the Vanguard Board, I want to
assure you that I will remain vigorous and active in a newly created Vanguard
unit, researching the financial markets, writing, and speaking. I'll continue to
focus whatever intellectual power and ethical strength I possess on my mission
to assure that mutual fund investors everywhere receive a fair shake. In the
spirit of Robert Frost:
But I have promises to keep, and miles to go before I sleep, and miles to go
before I sleep.
You have given me your loyalty and friendship over these long years,
and I deeply appreciate your thousands of letters of support. For my part, I
will continue to keep an eagle eye on your interests, for you deserve no less.
May God bless you all, always.
/S/
JCB
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CONTENTS
REPORT FROM THE CHAIRMAN 1
THE MARKETS IN PERSPECTIVE 6
REPORT FROM THE ADVISER 8
PERFORMANCE SUMMARIES 10
FUND PROFILES 12
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT ACCOUNTANTS 27
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REPORT FROM THE CHAIRMAN
JOHN J. BRENNAN
[PHOTO OF JOHN J. BRENNAN]
Concerns about higher inflation took hold of the bond market during the early
months of Vanguard Ohio Tax-Exempt Funds' 1999 fiscal year and never loosened
their grip. The resulting decline in prices made the 12 months ended November 30
a difficult period for fixed-income investors. Our Insured Long-Term Tax-Exempt
Fund registered a total return of -2.1%, which was slightly better than that of
its average peer, but behind that of its unmanaged benchmark index. Our
Tax-Exempt Money Market fund earned a total return of 3.0%, just ahead of the
2.8% return of the average Ohio tax-exempt money market fund.
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TOTAL RETURNS
FISCAL YEAR ENDED
NOVEMBER 30, 1999
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VANGUARD OHIO TAX-EXEMPT
MONEY MARKET FUND 3.0%
(SEC 7-Day Annualized Yield: 3.54%)
Average Ohio Tax-Exempt
Money Market Fund* 2.8
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VANGUARD OHIO INSURED LONG-TERM
TAX-EXEMPT FUND -2.1%
Average Ohio Municipal Debt Fund* -3.0
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*Derived from data provided by Lipper Inc.
The table at right presents each fund's 12-month return along with
those of our average mutual fund competitors. The total return (capital change
plus reinvested dividends) of our Insured Long-Term Tax-Exempt Fund is based on
a decrease in net asset value from $12.02 per share on November 30, 1998, to
$11.17 per share on November 30, 1999, and is adjusted for dividends totaling
$0.582 per share paid from net investment income and a distribution of $0.023
per share paid from net realized capital gains. The Money Market Fund's net
asset value remained at $1 per share, as was expected but not guaranteed. At the
end of the fiscal year, the Insured Long-Term Fund's yield was 5.12%, up from
4.28% a year earlier; the Money Market Fund's yield was 3.54%, up from 3.05%.
For Ohio residents, income earned by our funds is exempt from federal
and Ohio State income taxes, but may be subject to local taxes and to the
alternative minimum tax.
FINANCIAL MARKETS IN REVIEW
The 12 months ended November 30 featured plenty of positive economic news, as
well as a good deal of apprehension over how long the good times can last
without touching off higher inflation. The U.S. economy expanded at an
inflation-adjusted rate of 4.3% from the third quarter of 1998 to the third
quarter of 1999, the nation's unemployment rate hovered near record-low levels,
and inflation barely stirred.
However, the nagging concern that inflation would soon accelerate
resulted in a steady rise in interest rates during the fiscal year. The rate
increase merely restrained the stock market, which managed an impressive
advance, but dealt a heavy blow to bond prices, which suffered their worst year
since 1994. The Federal Reserve Board went along with the uptrend in interest
rates, hiking its target for short-term interest rates by 25 basis points on
three separate occasions in an attempt to head off inflation it believes could
result from strong growth and tight labor markets.
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Technology companies propelled the U.S. stock market higher, and the
Standard & Poor's 500 Index, which is dominated by large-capitalization stocks,
returned 20.9%--the index's fifth straight year of returns higher than 20%. The
broad market, as represented by the Wilshire 5000 Total Market Index, advanced
an even higher 22.4%, but a large portion of the gain was concentrated in a
relatively small number of stocks. Many value-oriented stocks were left far
behind.
The yield of the 30-year U.S. Treasury bond ended the fiscal year at
6.29%, up 123 basis points (1.23 percentage points) from its starting point of
5.06% on November 30, 1998. The yield of 3-month U.S. Treasury bills climbed to
5.30% on balance, from 4.48%. Yields of high-quality, long-term municipal bonds
climbed nearly a full percentage point, from 4.89% when the period began to
5.87% on November 30, 1999. Yields of top-grade (MIG-1) 3-month notes, which
react more quickly to changes in short-term interest rates, rose from 2.95% to
3.80%.
The Lehman Brothers 10 Year Municipal Bond Index, a good measure of the
long-term municipal market, recorded a return of -0.4% during our fiscal year.
Long-term bonds suffer more when interest rates are rising, just as they benefit
more from a decline in interest rates.
Municipal bonds performed well early in the 1999 fiscal year as new
issuance dropped off from 1998's near-record levels and yields remained high
relative to Treasuries. But their relative performance faltered later in the
period because many investors were attracted to corporate bonds.
At the end of the fiscal year, the spread between yields of long-term
Treasuries and long-term munis stood at just 42 basis points (0.42 percentage
point). This is an extremely narrow gap, given that the income from Treasuries
is subject to federal income taxes (but not state taxes), while income from a
state-specific municipal bond fund is fully exempt from federal and state taxes.
On November 30, the yield of a top-quality, long-term municipal bond was equal
to about 93% of the yield of the 30-year U.S. Treasury bond. Historically, the
ratio has been about 84%.
FISCAL 1999 PERFORMANCE OVERVIEW
The -2.1% return of Vanguard Ohio Insured Long-Term Tax-Exempt Fund was slightly
better than the -3.0% return of the average Ohio municipal bond fund, which has
lower average credit quality than our fund but a similar average maturity. Our
return, however, was 1 percentage point behind that of the unmanaged Lehman
Municipal Bond Index. Though our fund earned an income return of 4.8%, a price
decline of -6.9% engendered by the rise in interest rates pulled our total
return into negative territory for the year. (The Performance Summary on page 11
presents a breakdown of the fund's returns into their income and capital
components dating to the fund's inception.) Our performance advantage over our
average peer was primarily the result of our lower costs. The Lehman index,
which includes municipal bonds from across the country, is a notoriously tough
competitor because it does not incur the "real world" operating expenses and
transaction costs that all mutual funds must bear. The index also has a slightly
lower average duration than your fund, making it slightly less sensitive to
interest rate changes--an advantage during fiscal 1999.
The Tax-Exempt Money Market Fund provided a total return of 3.0%,
outpacing the 2.8% return of its average peer.
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Though the rise in interest rates during the past 12 months was to blame for the
poor bond returns, a slide in rates just one year ago provided a boost to bond
prices and returns. The simple lesson is that interest rates rise and fall,
sometimes gradually and sometimes sharply. All bond investors should know that
over long periods, the ups and downs in rates tend to offset each other, leaving
a bond fund's interest income as the chief source of return. And considering
that interest paid on munis today is considerably higher than a year ago, it
would seem that tax-exempt securities have become more attractive. At a yield of
about 5.1% compounded annually, money doubles in a little more than 14 years, or
more than two years sooner than at 4.3%.
THE MUNICIPAL BOND TAX ADVANTAGE
For Ohio residents, the income earned by our funds is exempt from federal,
state, and, in most cases, local taxes. At current yields, investors in
long-term municipal bonds who are taxed at the highest marginal tax rate (39.6%)
can earn an astounding 55% more after-tax income than they could in comparable
long-term U.S. Treasury bonds. Short-term municipal securities also offer an
advantage over taxable investments with similar maturities. On November 30, the
yield of MIG-1 notes was almost 20% higher than the after-tax yield of 90-day
U.S. Treasury bills. For Ohio taxpayers subject to the highest tax rates, a
yield of 5.9% on a tax-exempt long-term bond is the equivalent of a 9.8% taxable
yield. For a tax-exempt short-term yield of 3.8%, the taxable equivalent is
6.3%.
These remarkable advantages are illustrated in the table below, which
compares the annual net income earned on U.S. Treasury and tax-exempt securities
as of November 30, 1999, assuming a $100,000 investment.
There is an important distinction between state-specific municipal bond
funds and U.S. Treasury bonds. Treasury securities are backed by the full faith
and credit of the U.S. government and therefore have unmatched credit quality.
Also, municipal bond funds that confine their investments to a single state lack
the diversification that comes from spreading investments among various states,
which may be subject to different economic conditions and different risks.
Private insurance on the bonds in our Long-Term Tax-Exempt Fund, however, helps
to reduce these additional credit risks. Though the insurance does not provide
protection against fluctuations in the fund's value, it guarantees full payment
of interest and principal for our bond holdings.
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ILLUSTRATION OF INCOME FROM
A HYPOTHETICAL $100,000 INVESTMENT
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SHORT-TERM LONG-TERM
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Taxable gross income $5,300 $6,300
Less taxes (39.6%) (2,100) (2,500)
Net after-tax income 3,200 3,800
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Tax-exempt income $3,800 $5,90
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Tax-exempt income advantage $ 600 $2,100
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Percentage advantage 19% 55
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This illustration assumes current yields (as of November 30, 1999) of 6.3% for
long-term U.S. Treasury bonds, 5.3% for U.S. Treasury bills, 5.9% for long-term
municipals, and 3.8% for short-term municipals. The tax adjustment assumes a
typical itemized tax return based on a federal tax rate of 39.6%. Income from
U.S. Treasuries is not subject to state taxes; local taxes are not considered.
The illustration is not intended to represent future results.
This insurance, however, is not generally available for short-term
securities. As a result, our investment adviser, Vanguard's Fixed Income Group,
is responsible for preserving the principal value of the Tax-Exempt Money Market
Fund. Money
3
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market mutual funds are not guaranteed by the Federal Deposit Insurance
Corporation, which insures bank accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
An annual review of any mutual fund should be accompanied by an examination of
the fund's longer-term record. The table below compares the performance of our
funds since their June 18, 1990, inception with those of their average peer
mutual funds. It also presents the current value of hypothetical $10,000
investments made at our funds' inception. As you can see, the Vanguard Ohio
Tax-Exempt Funds have established fine records versus their competitors during
their life span of nearly ten years. Our advantage over this period has
amounted, in the case of the Insured Long-Term Fund, to $1,290, or about 13% of
the original investment.
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TOTAL RETURNS
JUNE 18, 1990, TO NOVEMBER 30, 1999
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FINAL VALUE OF
AVERAGE A $10,000
ANNUAL RETURN INITIAL INVESTMENT*
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AVERAGE AVERAGE
OHIO TAX-EXEMPT VANGUARD COMPETING VANGUARD COMPETING VANGUARD
FUND FUND FUND FUND FUND ADVANTAGE
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Money Market 3.4% 3.2% $13,743 $13,443 $ 300
Insured Long-Term 7.1 6.3 19,114 17,824 1,290
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*Assuming reinvestment of all income dividends and capital gains distributions.
Our performance edge versus competitors over nearly a decade can be
explained by the same factor that explained our outperformance during the 1999
fiscal year: cost. Our funds have expense ratios (annual expenses as a
percentage of average net assets) of 0.19% for the Insured Long-Term Tax-Exempt
Fund and 0.18% for the Money Market Tax-Exempt Fund--far below the 1.11% charged
by the average long-term Ohio tax-exempt fund and the 0.58% charged by the
average Ohio tax-exempt money market fund. Because fund operating costs are
deducted directly from the income earned by a bond fund, our funds have a
significant edge in their quest to provide returns that are superior to those of
similar funds. The combination of our cost advantage and skillful management by
Vanguard's Fixed Income Group has benefited our shareholders over the past
decade, and we expect it to continue to do so in the future.
IN SUMMARY
During a period when the stock market seems invulnerable, it's easy to overlook
the merits of bonds. However, bond funds must not be judged by how well their
returns stack up against those of stock funds in a particular period, but by
what they can add to a balanced investment program, namely, current income and
relative stability. Vanguard Ohio Tax-Exempt Funds can provide a high level of
after-tax income, particularly for those in high income tax brackets, and
especially compared with the income available from the stock market, whose
average dividend yield is less than 1.5%. And because the performance of bonds
often differs from that of equities, a commitment to bonds is a useful
diversifier that can help smooth the sometimes-volatile returns of stocks.
4
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We advise investors to hold balanced portfolios of stock funds, bond
funds, and short-term reserves in proportions suitable to their own investment
goals, time horizon, and tolerance for risk. Once you have such a plan in place,
we advise you to stick with it through good times and bad.
/s/
John J. Brennan
Chairman and Chief Executive Officer
December 18, 1999
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A NOTE OF THANKS TO OUR FOUNDER
================================================================================
As you may have read on the inside cover of our report, our founder, John C.
Bogle, is retiring December 31, 1999, as Senior Chairman of our Board after
nearly 25 years of devoted service to Vanguard and our shareholders. Vanguard
investors have Jack to thank for creating a truly mutual mutual fund company
that operates solely in the interest of its fund shareholders. And mutual fund
investors everywhere have benefited from his energetic efforts to improve this
industry. Finally, on a personal note, I am forever grateful to Jack for giving
me the opportunity to join this great company in 1982.
5
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THE MARKETS IN PERSPECTIVE
YEAR ENDED NOVEMBER 30, 1999
Strong economic expansion sent global stock markets charging higher but dealt a
blow to bond prices during the fiscal year ended November 30, 1999. The
powerhouse U.S. economy led the global growth parade, joined by Asian, European,
and Latin American economies that had slumped or stagnated in 1998.
Interest rates rose sharply as investors and monetary policymakers grew
increasingly worried that such strong economic growth would cause inflation to
surge. Although the rise in rates caused bond prices to fall, it only tempered
the stock market's advance.
U.S. STOCK MARKETS
Against the backdrop of a booming economy, U.S. companies reported solid
increases in earnings during the fiscal year. The nation's economic output
increased at an inflation-adjusted rate of 4.3%--a very rapid pace for such a
large, mature economy. Consumer spending, which accounts for roughly two-thirds
of economic activity, powered the expansion. Americans spent freely, encouraged
by rising wealth from a long bull market, a hot job market, and climbing
incomes.
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AVERAGE ANNUAL RETURNS
PERIODS ENDED NOVEMBER 30, 1999
---------------------------------
1 YEAR 3 YEARS 5 YEARS
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STOCKS
S&P 500 Index 20.9% 24.3% 27.5%
Russell 2000 Index 15.7 10.1 14.8
Wilshire 5000 Index 22.4 22.6 25.6
MSCI EAFE Index 21.4 12.3 11.4
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BONDS
Lehman Aggregate Bond Index 0.0% 5.6% 8.0%
Lehman 10 Year Municipal Bond Index -0.4 4.8 7.6
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.7 5.0 5.2
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OTHER
Consumer Price Index 2.6% 2.0% 2.4%
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The stock market, as measured by the Wilshire 5000 Index, gained 22.4%
overall. For a change, mid-capitalization and small-cap stocks outpaced their
large-cap brethren. The large-cap S&P 500 Index, which accounts for more than
75% of the U.S. stock market's total value, gained 20.9% during the year; the
rest of the market (as measured by the Wilshire 4500 Index) gained 29.0%.
Increasingly optimistic expectations for future corporate earnings more
than offset the negative effects of rising interest rates during fiscal 1999.
Higher rates often hurt stock prices because many investors use current rates to
discount the value of a stock's projected earnings and dividends. The higher the
interest rate, the more future earnings are discounted, and the less investors
will pay for the stock now.
Because of a remarkable surge in prices for technology stocks, growth
stocks again outperformed value stocks during the past year. Within the S&P 500
Index, growth stocks--characterized by high prices in relation to earnings, book
value, and dividends--recorded a 28.5% return, 16 percentage points above the
12.5% return for value stocks. The disparity was even greater in the small-cap
segment of the market; growth stocks within the small-cap Russell 2000 Index
gained 32.7%, while value stocks posted a -1.4% return.
Technology stocks within the S&P 500 Index gained 66%. QUALCOMM posted
an eye-popping 1,200% return, and a number of computer-related stocks doubled or
tripled in
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price, including Sun Microsystems (+257%), Apple Computer (+206%), Oracle
(+197%), Gateway (+172%), Texas Instruments (+152%), and Cisco Systems (+136%).
Big gains for wireless telecommunications and cable-TV stocks powered
the utilities category to an overall gain of nearly 28%. The producer-durables
group, which includes some technology-related manufacturers as well as aircraft
and equipment makers, gained 27%. Oil exploration and service firms in the
"other energy" category posted a 26% return, assisted by a jump in prices for
oil and natural gas.
The year's worst-performing sector was consumer staples (down nearly
- -12%). This group suffered as severe price competition and a stronger dollar in
Europe crimped profits for many food and beverage makers, and the specter of
litigation costs caused tobacco stocks to slump. The auto & transportation group
declined -2% overall, with airline stocks hurt by rising prices for jet fuel.
U.S. BOND MARKETS
Stock investors may cheer a fast-growing economy, but rapid growth tends to
worry bond investors. Early in the fiscal year, inflation seemed
dormant--plunging oil prices had taken commodity price indexes to the lowest
point in a quarter-century. But as the world economy began hitting on all
cylinders, the bond market feared that a minuscule U.S. unemployment rate,
rising commodity prices, and capacity constraints would cause inflation to
accelerate. Although oil prices were up nearly 150% during the fiscal year, the
overall price level, as measured by the Consumer Price Index, increased by a
moderate 2.6%.
The Federal Reserve Board, anticipating price pressures, abandoned its
bias toward easier monetary policy, and by mid-year was boosting interest rates
to try to throttle back the economic engines. The bond market was ahead of the
Fed--interest rates began rising sharply in February. By fiscal year-end, the
yield of 30-year U.S. Treasury bonds had risen 1.23 percentage points (123 basis
points) to 6.29%. The 10-year Treasury note's yield rose 148 basis points, from
4.71% to 6.19%. The rise in short-term rates was more restrained; 3-month
Treasury bill yields were up 82 basis points to 5.30% at fiscal year-end.
Bond prices fall when interest rates rise, and long-term bond prices
are most sensitive to changing rates. Long-term Treasury bond prices fell by
more than -13%, resulting in total returns of -8%. The Lehman Aggregate Bond
Index, a measure of the overall taxable bond market, which has an
intermediate-term structure on average, broke even on the year, as interest
income of 6.2% was offset by price declines. The damage to municipal bond prices
was not as severe as for Treasuries, and the intermediate-term Lehman 7 Year
Municipal Bond Index recorded a price decline of -3.7% and a total return of
0.5%.
INTERNATIONAL STOCK MARKETS
International markets had a strong year, with European stocks gaining 21.9% in
local-currency terms and Pacific-region stocks advancing 30.2%. However,
currency effects significantly altered the returns to U.S.-based investors. The
U.S. dollar rose in value against most European currencies but fell sharply
against the Japanese yen. As a result, returns from Europe plunged to 9.8% in
dollar terms while returns from the Pacific soared to 51.0%.
Overall, U.S. investors earned 21.4% in the major developed
international markets, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index. The bull markets in most nations
stemmed from renewed optimism that economic growth would continue to accelerate.
Japan and the rest of Asia, which were hit hardest by currency and economic
crises in 1997 and 1998, saw the biggest stock gains.
Emerging markets, as measured by the Select Emerging Markets Free
Index, gained 37.1% in U.S.-dollar terms, as investors regained an appetite for
the considerable risks of smaller markets.
7
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REPORT FROM THE ADVISER
Interest rates rose during the 12 months ended November 30, 1999, the fiscal
year for the Vanguard Ohio Tax-Exempt Funds. The rise was principally due to
investors' fears about the impact of the strong economy and the low unemployment
rate on inflation. In the past, these factors have caused inflation to increase,
and many investors expect that history will repeat itself at some point. So far,
employment costs and consumer price indexes have not risen substantially, but
each number is being closely watched for any upsurge. A desire to head off
inflation and concerns about the booming stock market led the Federal Reserve
Board to increase interest rates three times during the fiscal year, raising the
federal funds rate by a total of 0.75 percentage point.
As you might expect, yields of insured long-term municipal bonds rose
along with yields on U.S. Treasury bonds during fiscal 1999. During the first
half of the year, long-term insured municipals performed better than Treasury
securities; municipal yields increased by less than half as much as those for
long-term Treasuries. But the relative performance flip-flopped during the
second half, when yields on long-term municipals increased almost 11/2 times as
much as those on long Treasuries. Over the full fiscal year, the yield on the
benchmark 30-year U.S. Treasury bond rose by 1.23 percentage points (from 5.06%
to 6.29%), while the yield of a similar AAA-rated municipal bond rose by about 1
percentage point (from 4.89% to 5.87%).
Two factors account for the first-half outperformance of insured
municipal bonds and for their later underperformance. First, as the fiscal year
began in December 1998, insured municipal bonds were especially attractive to
investors, because the AAA-rated insured municipal's tax-exempt yield of 4.9%
was equal to 97% of the yield of a 30-year Treasury. For an investor in the top
marginal tax bracket of 39.6%, that 4.9% yield was equivalent to an 8.1% yield
on a taxable bond. By May 31, the middle of our fiscal year, the long-term
insured municipal's yield was about 89% as high as the 30-year Treasury's yield,
making insured municipal bonds somewhat less alluring. The second factor was
that in the second half of the fiscal year, corporate bond yields had become
quite attractive, providing stiff competition for the bond investor's dollar.
During this period the corporate bond market encountered the same type of supply
imbalance that the municipal market had seen in fiscal 1998, as corporations
rushed bond issues to market to complete their financing before the end of the
century. The result was attractively high yields on corporate debt, which
enticed some large institutional buyers away from the municipal market. At
year-end, yields on long-term insured municipal bonds had risen in relation to
those on Treasuries, and 30-year munis offered yields equal to 94% of yields on
30-year Treasuries.
The municipal market was aided by the fact that the supply of new
issues was lower during 1999 than in 1998. Through November, issuance of
municipal securities in 1999 amounted to $207 billion, down more than 20% from
the same period in 1998. The main reason for the decline was a 53% decrease in
the issuance of refunding bonds, whose proceeds are used to pay off
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INVESTMENT PHILOSOPHY
The adviser believes that each fund, while operating within stated maturity and
stringent quality targets, can achieve a high level of current income that is
exempt from federal and Ohio income taxes by investing in insured and
high-quality uninsured securities issued by Ohio state, county, and municipal
governments.
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older, higher-coupon bonds. Because of the rise in interest rates, refunding
issues generally did not make fiscal sense during 1999. As the economy continued
to expand, the supply of bonds issued for new projects was unchanged from 1998.
THE INSURED LONG-TERM TAX-EXEMPT FUND
Long-term bonds typically are hurt most by rising interest rates. As a result,
the Ohio Insured Long-Term Tax-Exempt Fund suffered a price decline of -6.9% and
posted a total return of -2.1%. Although negative returns are never good news,
this result actually was strong in comparison with competitors, whose average
return was -3.0%. Our edge over the average peer fund was due to the combination
of Vanguard's disciplined approach to risk and our low operating expenses.
Across all bond maturities, we seek to find the best values for each
level of interest rate risk. This strategy helped in a year of rising interest
rates. Our focus on keeping expenses low is helpful at all times and is critical
in delivering above-average tax-exempt income, since expenses are deducted
directly from a bond fund's interest income. Our emphasis on keeping the funds
invested in high-quality securities benefits our shareholders by reducing credit
risk. The overall effect is a happy paradox: The coexistence of low costs and
high quality results in an attractive combination of superior yields and low
credit risk.
THE TAX-EXEMPT MONEY MARKET FUND
Our Tax-Exempt Money Market Fund returned 3.0% during fiscal 1999, beating the
2.8% return of the average Ohio tax-exempt money market fund. The rise in
interest rates during the period was slightly less pronounced for tax-exempt
money market instruments than for long-term bonds. After rising 19 basis points
during the first half of the fiscal year, yields on 1-year municipals rose 69
basis points during the second half, which is traditionally a time of heavy
borrowing by municipalities. The benchmark 1-year MIG-1 note closed the fiscal
year with a yield of 3.87%, up 88 basis points from the 2.99% yield a year
earlier. Yields on the 1-year U.S. Treasury bill, meanwhile, rose by 118 basis
points for the year to 5.68%, after a second-half jump of 71 basis points. On
balance, short-term tax-exempt securities became slightly more attractive
relative to Treasury securities: The ratio of the yield on 1-year MIG-1 notes to
that on 1-year Treasury bills rose from 66.4% to 68.1% during the year.
As we begin fiscal year 2000, the Tax-Exempt Money Market Fund is
positioned to take advantage of its dual strengths of conservative,
quality-oriented management and low operating expenses. We believe these
strengths will continue to generate superior risk-adjusted returns for our
shareholders.
Ian A. MacKinnon, Managing Director
Christopher M. Ryon, Principal
Pamela Wisehaupt Tynan, Principal
John M. Carbone, Principal
Vanguard Fixed Income Group
December 13, 1999
9
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PERFORMANCE SUMMARY
OHIO TAX-EXEMPT MONEY MARKET FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note that annual
returns can fluctuate widely. An investment in a money market fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund.
TOTAL INVESTMENT RETURNS: JUNE 18, 1990-NOVEMBER 30, 1999
- ---------------------------------------------------------
OHIO TAX-EXEMPT
MONEY MARKET FUND
AVERAGE
FUND
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------
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
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
1997 0.0 3.5 3.5 3.2
1998 0.0 3.4 3.4 3.1
1999 0.0 3.0 3.0 2.8
- ---------------------------------------------
SEC 7-Day Annualized Yield (11/30/1999): 3.54%
- ---------------------------------------------
*Average Ohio Tax-Exempt Money Market Fund.
See Financial Highlights table on page 23
for dividend information for the past
five years.
CUMULATIVE PERFORMANCE: JUNE 18, 1990-NOVEMBER 30, 1999
- -------------------------------------------------------
199008 10115 10107
199011 10259 10246
199102 10394 10375
199105 10515 10489
199108 10626 10604
199111 10736 10709
199202 10831 10798
199205 10920 10885
199208 10990 10952
199211 11061 11017
199302 11129 11078
199305 11194 11139
199308 11257 11198
199311 11324 11254
199402 11386 11308
199405 11454 11371
199408 11526 11443
199411 11616 11520
199502 11721 11613
199505 11839 11722
199508 11946 11826
199511 12056 11921
199602 12162 12015
199605 12265 12109
199608 12365 12207
199611 12468 12294
199702 12570 12383
199705 12680 12486
199708 12791 12594
199711 12903 12690
199802 13011 12785
199805 13124 12889
199808 13232 12993
199811 13337 13080
199902 13432 13164
199905 13531 13255
199908 13632 13352
199911 13743 13443
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1999
-------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Ohio Tax-Exempt Money
Market Fund 3.04% 3.42% 3.42% $13,743
Average Ohio Tax-Exempt
Money Market Fund* 2.77 3.14 3.18 13,443
- --------------------------------------------------------------------------------
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999*
- --------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Ohio Tax-Exempt
Money Market Fund 6/18/1990 3.01% 3.42% 0.00% 3.42% 3.42%
- --------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
10
<PAGE>
PERFORMANCE SUMMARY
OHIO INSURED LONG-TERM TAX-EXEMPT FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: JUNE 18, 1990-NOVEMBER 30, 1999
- ---------------------------------------------------------
OHIO INSURED LONG-TERM
TAX-EXEMPT FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------
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
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
1997 0.9 5.4 6.3 7.2
1998 2.6 5.2 7.8 7.8
1999 -6.9 4.8 -2.1 -1.1
- -------------------------------------------
*Lehman Municipal Bond Index.
See Financial Highlights table on page 24 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: JUNE 18, 1990-NOVEMBER 30, 1999
- -------------------------------------------------------
199008 10079 10055 10091
199011 10604 10449 10487
199102 10836 10677 10767
199105 11132 10941 11011
199108 11341 11153 11281
199111 11611 11404 11563
199202 11902 11683 11842
199205 12182 11927 12092
199208 12662 12335 12540
199211 12853 12485 12722
199302 13727 13244 13471
199305 13814 13329 13539
199308 14327 13804 14070
199311 14400 13933 14132
199402 14456 13987 14216
199405 14142 13601 13873
199408 14334 13711 14095
199411 13495 13026 13394
199502 14872 14142 14490
199505 15427 14712 15142
199508 15499 14715 15345
199511 16119 15444 15926
199602 16314 15486 16091
199605 16007 15203 15834
199608 16352 15423 16149
199611 17045 16199 16862
199702 17133 16209 16977
199705 17272 16347 17145
199708 17725 16688 17643
199711 18119 17210 18072
199802 18610 17535 18529
199805 18815 17747 18753
199808 19261 17993 19169
199811 19528 18377 19474
199902 19719 18419 19669
199905 19597 18372 19629
199908 19173 17818 19265
199911 19114 17824 19265
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1999
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Ohio Insured Long-Term
Tax-Exempt Fund -2.13% 7.21% 7.09% $19,114
Average Ohio Municipal Fund* -3.01 6.47 6.31 17,824
Lehman Municipal Bond Index -1.07 7.54 7.18 19,265
- --------------------------------------------------------------------------------
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999*
- --------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Ohio Insured Long-Term
Tax-Exempt Fund 6/18/1990 -2.04% 6.29% 1.54% 5.68% 7.22%
- --------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE>
FUND PROFILE
OHIO TAX-EXEMPT MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1999. Key elements of this Profile are defined on page 13.
FINANCIAL ATTRIBUTES
- ---------------------------------
Yield 3.5%
Average Maturity 55 days
Average Quality MIG-1
Expense Ratio 0.18%
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ---------------------------------
MIG-1/SP-1+ 59.8%
A-1/P-1 28.9
AAA/AA 9.9
A 1.4
- ---------------------------------
Total 100.0%
12
<PAGE>
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund'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
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund 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%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing instruments. This
figure does not include cash invested in futures contracts to simulate bond
investment.
Distribution by Credit Quality. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund 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
fund 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 fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days (7 days for money market funds) 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 fund were held to their maturity dates.
13
<PAGE>
FUND PROFILE
OHIO INSURED LONG-TERM TAX-EXEMPT FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 13.
FINANCIAL ATTRIBUTES
- -----------------------------------------------
OHIO INSURED LEHMAN
LONG-TERM INDEX*
- -----------------------------------------------
Number of Issues 170 52,144
Yield 5.1% --
Yield to Maturity 5.3% --
Average Coupon 5.2% 5.5%
Average Maturity 12.9 years 13.0 years
Average Quality AAA AA+
Average Duration 8.2 years 7.5 years
Expense Ratio 0.19% --
Cash Reserves 0.1% --
*Lehman Municipal Bond Index.
INVESTMENT FOCUS
- -----------------------------------------------
[grid]
AVERAGE MATURITY LONG
CREDIT QUALITY HIGH
VOLATILITY MEASURES
- -----------------------------------------------
OHIO INSURED LEHMAN
LONG-TERM INDEX*
- -----------------------------------------------
R-Squared 0.98 1.00
Beta 1.07 1.00
*Lehman Municipal Bond Index.
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ------------------------------
AAA 96.4%
AA 3.6
A 0.0
BBB 0.0
BB 0.0
B 0.0
- ------------------------------
Total 100.0%
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- ------------------------------
Under 1 Year 8.9%
1-5 Years 10.7
5-10 Years 22.7
10-20 Years 33.9
20-30 Years 23.8
Over 30 Years 0.0
- ------------------------------
Total 100.0%
14
<PAGE>
FINANCIAL STATEMENTS
NOVEMBER 30, 1999
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund'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). Other
assets are added to, and liabilities are subtracted from, the value of Total
Municipal Bonds to calculate the fund's Net Assets. Finally, Net Assets are
divided by the outstanding shares of the fund 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 fund's net assets on both a dollar and
per-share basis. Undistributed Net Investment Income is usually zero because the
fund 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 fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
OHIO TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.8%)
- -------------------------------------------------------------------------------------------------------------------
Akron-Summit County OH Public Library 4.00% 12/1/1999 (3) 2,320 2,320
Butler County OH BAN 3.85% 8/3/2000 3,000 3,008
Butler County OH BAN 4.14% 3/15/2000 3,150 3,154
Butler County OH BAN 4.15% 10/19/2000 4,490 4,505
Butler County OH BAN 4.18% 3/15/2000 4,250 4,256
Cincinnati OH City School Dist. TAN 5.00% 12/1/1999 (2) 3,005 3,005
Columbus OH Electric System Rev. VRDO 3.60% 12/2/1999 LOC 14,520 14,520
Columbus OH GO 4.75% 9/15/2000 1,750 1,765
Columbus OH GO 5.50% 6/15/2000 2,000 2,024
Columbus OH GO VRDO 3.70% 12/2/1999 900 900
Columbus OH Sewer Rev. VRDO 3.80% 12/2/1999 3,100 3,100
Cuyahoga County OH Econ. Dev. Rev. VRDO (Cleveland Orchestra) 3.60% 12/2/1999 LOC 8,600 8,600
Cuyahoga County OH Hosp. Rev. (Meridia Health System) 7.25% 8/15/2000 (Prere.) 2,500 2,613
Cuyahoga County OH Hosp. Rev. VRDO (Cleveland Clinic Foundation) 3.90% 12/8/1999 19,100 19,100
Cuyahoga County OH Hosp. Rev. VRDO (Cleveland Clinic Foundation) 3.90% 12/8/1999 LOC 8,700 8,700
Cuyahoga County OH Hosp. Rev. VRDO (Univ. Hosp. Health Systems) 3.90% 12/2/1999 (2) 12,000 12,000
Dayton OH GO 3.10% 12/1/1999 (3) 510 510
Fairfield County OH BAN 4.00% 7/25/2000 2,930 2,940
Franklin County OH Hosp. Rev. (Riverside United Methodist) 7.50% 5/15/2000 (Prere.) 1,000 1,039
Franklin County OH Hosp. Rev. (Riverside United Methodist) 7.60% 5/15/2000 (Prere.)13,730 14,252
Franklin County OH Hosp. Rev. VRDO (U.S. Health Corp.) 3.90% 12/2/1999 LOC 18,520 18,520
Greene County OH GO 3.84% 9/7/2000 10,415 10,423
Hamilton County OH Hosp. Fac. Rev. VRDO (Bethesda Hosp.) 3.75% 12/2/1999 LOC 25,550 25,550
Hamilton County OH Hosp. Fac. Rev. VRDO
(Health Alliance of Greater Cincinnati) 3.85% 12/8/1999 (1) 9,015 9,015
Hancock County OH BAN 3.42% 12/1/1999 3,115 3,115
Kings OH Local School Dist. BAN 4.19% 3/1/2000 6,000 6,011
Lorain County OH Hosp. Rev. CP (Catholic Healthcare Partners) 3.55% 3/9/2000 7,000 7,000
Lorain County OH Hosp. Rev. CP (Catholic Healthcare Partners) 3.60% 2/14/1999 7,000 7,000
Lorain County OH Hosp. Rev. CP (Catholic Healthcare Partners) 3.65% 3/7/2000 5,600 5,600
Mason OH City School Dist. BAN 3.38% 2/17/2000 5,750 5,755
15
<PAGE>
- -------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
OHIO TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------
Montgomery County OH VRDO (Catholic Health Initiatives) 3.95% 12/8/1999 19,400 19,400
Ohio Air Quality Dev. Auth. PUT (Ohio Edison Project) 2.95% 2/1/2000 LOC 3,200 3,200
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas &
Electric Co. Project) 3.60% 12/2/1999 LOC 5,650 5,650
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas &
Electric Co. Project) 3.70% 12/2/1999 LOC 4,300 4,300
Ohio Air Quality Dev. Auth. VRDO (Cincinnati Gas &
Electric Co. Project) 3.95% 12/2/1999 LOC 3,060 3,060
Ohio Air Quality Dev. Auth. VRDO (Timken Co.) 3.90% 12/8/1999 LOC 5,000 5,000
Ohio Building Auth. Rev. (Arts Fac. Building Fund) 5.00% 10/1/2000 3,830 3,867
Ohio Higher Educ. Fac. Comm. Rev. VRDO (Kenyon College) 3.90% 12/8/1999 10,000 10,000
Ohio Higher Educ. Fac. Comm. Rev. VRDO
(Mount Union College Project) 3.90% 12/2/1999 LOC 1,445 1,445
Ohio PCR VRDO (Sohio Air British Petroleum Co.) 3.80% 12/2/1999 10,100 10,100
Ohio Public Fac. Comm. Rev. (Higher Educ. Capital Fac.) 4.50% 12/1/2000 1,500 1,509
Ohio Public Fac. Comm. Rev. (Higher Educ. Capital Fac.) 5.00% 11/1/2000 (1) 5,540 5,604
Ohio Public Fac. Comm. Rev. (Mental Health Capital Fac.) 4.625% 12/1/1999 1,570 1,570
Ohio School Dist. COP TAN 4.14% 6/30/2000 5,000 5,021
Ohio Solid Waste Rev. VRDO (BP Exploration & Oil Inc. Project) 3.85% 12/2/1999 33,075 33,075
Ohio State Univ. CP 3.70% 12/2/1999 10,800 10,800
Ohio State Univ. CP 3.85% 12/2/1999 2,500 2,500
Ohio State Univ. CP 4.00% 12/2/1999 12,100 12,100
Ohio Turnpike Comm. Rev. TOB VRDO 3.95% 12/2/1999 (3) + 15,000 15,000
Ohio Water Dev. Auth. PCR PUT (Ohio Edison Co. Project) 3.75% 9/1/2000 LOC 7,000 7,000
Ohio Water Dev. Auth. Pure Water Rev. 5.40% 6/1/2000 (1) 3,260 3,287
Ohio Water Dev. Auth. Rev. (Duquesne Light Co.) 3.95% 1/19/2000 (2) 4,300 4,300
Ohio Water Dev. Auth. Rev. VRDO (Mead Corp.) 3.60% 12/2/1999 LOC 2,820 2,820
Ohio Water Dev. Auth. Rev. VRDO (Timken Co. Project) 3.90% 12/8/1999 LOC 4,065 4,065
Solon OH BAN 3.60% 6/15/2000 1,750 1,753
Toledo OH City Services Special Assessment VRDO 3.90% 12/2/1999 LOC 22,600 22,600
Univ. of Cincinnati OH BAN 3.14% 3/1/2000 5,000 5,003
OUTSIDE OHIO:
Puerto Rico Govt. Dev. Bank CP 3.55% 12/9/1999 15,200 15,200
Puerto Rico Govt. Dev. Bank VRDO 3.60% 12/8/1999 (1) 5,500 5,500
- -------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $440,029) 440,029
- -------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.2%)
- -------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 6,190
Liabilities (1,005)
---------
5,185
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------
Applicable to 445,220,834 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $445,214
===================================================================================================================
NET ASSET VALUE PER SHARE $1.00
===================================================================================================================
*See Note A in Notes to Financial Statements.
+Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified buyers. At November 30, 1999, the aggregate value of these
securities was $15,000,000, representing 3.4% of net assets.
For key to abbreviations and other references, see page 20.
- -------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------
Paid in Capital $445,224 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (10) --
Unrealized Appreciation -- --
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $445,214 $1.00
===================================================================================================================
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FACE MARKET
OHIO INSURED LONG-TERM MATURITY AMOUNT VALUE*
TAX-EXEMPT FUND COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.9%)
- ----------------------------------------------------------------------------------------------------------
ISSUER INSURED (87.9%)
Adams County OH School Dist. GO 5.55% 12/1/2009 (1) 1,000 1,033
Akron Bath & Copley OH Joint Township Hosp. Dist. Rev.
(Akron Medical Center Project) 5.375% 1/1/2017 (2) 3,000 2,847
Akron Bath & Copley OH Joint Township Hosp. Dist. Rev.
(Akron Medical Center Project) 5.50% 1/1/2008 (2) 1,000 1,020
Aurora County OH School Dist. GO 5.80% 12/1/2016 (3) 3,000 3,017
Barberton OH School Dist. GO 5.125% 11/1/2022 (3) 3,000 2,697
Bedford Heights OH GO 5.65% 12/1/2014 (2) 500 510
Butler County OH Sewer System Rev. 5.00% 12/1/2023 (2) 2,245 1,969
Butler County OH Sewer System Rev. 5.375% 12/1/2015 (3) 1,730 1,680
Butler County OH Sewer System Rev. 6.25% 12/1/2002 (2)(Prere.) 2,925 3,102
Butler County OH Transp. Improvement Dist. Rev. 6.00% 4/1/2011 (4) 4,000 4,191
Butler County OH Transp. Improvement Dist. Rev. 6.00% 4/1/2012 (4) 2,320 2,446
Canal Winchester OH Local School Dist. GO 6.00% 12/1/2013 (3) 1,680 1,757
Canton OH GO 5.375% 12/1/2007 (2) 1,000 1,023
Canton OH GO (Water Works System) 5.75% 12/1/2010 (2) 1,000 1,041
Canton OH GO (Water Works System) 5.85% 12/1/2015 (2) 1,000 1,016
Clermont County OH Hosp. Fac. Rev. (Mercy Health System) 5.50% 9/1/2006 (2) 2,500 2,577
Cleveland-Cuyahoga County OH Port Auth. Rev.
(Rock & Roll Hall of Fame 5.40% 12/1/2015 (2) 2,000 1,948
Cleveland OH Airport System Rev. 0.00% 1/1/2005 (1) 3,975 3,095
Cleveland OH Airport System Rev. 5.125% 1/1/2022 (4) 3,000 2,634
Cleveland OH Airport System Rev. 7.25% 1/1/2000 (1)(Prere.) 800 818
Cleveland OH GO 5.375% 9/1/2010 (2) 1,000 1,022
Cleveland OH GO 5.375% 9/1/2012 (2) 1,000 1,011
Cleveland OH GO 5.50% 8/1/2009 (1) 4,500 4,643
Cleveland OH GO 6.25% 10/1/2001 (1)(Prere.) 2,500 2,634
Cleveland OH Public Power System Rev. 5.25% 11/15/2016 (1) 5,950 5,667
Cleveland OH Public Power System Rev. 7.00% 11/15/2004 (1)(Prere.) 2,750 3,080
Cleveland OH School Dist. GO 0.00% 12/1/2005 (3) 700 521
Cleveland OH School Dist. GO 0.00% 12/1/2006 (3) 700 493
Cleveland OH School Dist. GO 0.00% 12/1/2007 (3) 500 332
Cleveland OH School Dist. GO 0.00% 12/1/2008 (3) 400 251
Cleveland OH School Dist. GO 5.875% 12/1/2011 (3) 1,500 1,557
Cleveland OH Water Works Rev. 5.00% 1/1/2023 (4) 3,000 2,641
Cleveland OH Water Works Rev. 5.00% 1/1/2028 (4) 2,000 1,730
Cleveland OH Water Works Rev. 5.50% 1/1/2013 (1) 3,805 3,862
Cleveland OH Water Works Rev. 5.50% 1/1/2021 (1) 6,500 6,264
Cleveland OH Water Works Rev. 6.25% 1/1/2002 (2)(Prere.) 4,305 4,543
Cleveland OH Water Works Rev. 6.25% 1/1/2015 (2) 195 203
Columbus OH Muni. Airport Auth. Rev. (Port of Columbus) 5.00% 1/1/2028 (2) 3,000 2,575
Columbus OH School Dist. GO 7.00% 12/1/2000 (3)(Prere.) 1,750 1,836
Cuyahoga County OH Hosp. Rev. (Univ. Hosp. Health System) 5.375% 1/15/2009 (1) 3,500 3,542
Cuyahoga County OH Hosp. Rev. (Univ. Hosp. Health System) 5.50% 1/15/2019 (1) 7,545 7,168
Cuyahoga County OH Hosp. Rev. (W.O. Walker Center Inc.) 5.00% 1/1/2023 (2) 2,500 2,173
Defiance OH Waterworks System GO 5.65% 12/1/2018 (2) 1,130 1,108
Dublin OH School Dist. GO 0.00% 12/1/2005 (3) 1,220 908
Dublin OH School Dist. GO 0.00% 12/1/2006 (3) 1,220 859
Fairfield County OH Hosp. Rev. (Lancaster-Fairfield Hosp.) 5.375% 6/15/2015 (1) 3,000 2,926
Forest Hills OH School Dist. GO 6.00% 12/1/2007 (1) 750 804
Franklin County OH Convention Center Rev. 0.00% 12/1/2007 (1) 4,355 2,892
Franklin County OH Convention Center Rev. 7.00% 12/1/2000 (1)(Prere.) 675 708
Franklin County OH Hosp. Rev. (Riverside United Methodist) 7.25% 5/15/2000 (1)(Prere.) 2,800 2,896
Gallia County OH Hosp. Rev. (Holzer Medical Center Project 5.125% 10/1/2013 (2) 3,000 2,875
Greater Cleveland OH Regional Transp. Auth. GO 5.00% 12/1/2018 (3) 5,000 4,506
Greater Cleveland OH Regional Transp. Auth. GO 5.375% 12/1/2010 (3) 1,665 1,691
Greater Cleveland OH Regional Transp. Auth. GO 5.375% 12/1/2012 (3) 1,850 1,852
Greater Cleveland OH Regional Transp. Auth. GO 5.375% 12/1/2013 (3) 1,850 1,835
17
<PAGE>
- ----------------------------------------------------------------------------------------------------------
FACE MARKET
OHIO INSURED LONG-TERM MATURITY AMOUNT VALUE*
TAX-EXEMPT FUND COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.9%)
- ----------------------------------------------------------------------------------------------------------
Greater Cleveland OH Regional Transp. Auth. GO 5.60% 12/1/2011 (3) 5,505 5,658
Greater Cleveland OH Regional Transp. Auth. GO 5.65% 12/1/2006 (3)(Prere.) 1,000 1,057
Greene County OH Sewer System Rev. 5.125% 12/1/2020 (1) 2,000 1,819
Hamilton County OH Hosp. Fac. Rev. (Children's Hosp.) 5.20% 5/15/2009 (1) 2,000 1,993
Hamilton County OH Hosp. Fac. Rev. (Children's Hosp.) 5.375% 5/15/2013 (1) 2,235 2,207
Hamilton County OH Hosp. Fac. Rev. VRDO
(Health Alliance of Greater Cincinnati) 3.85% 12/8/1999 (1) 5,385 5,385
Hamilton County OH Sales Tax Rev. (Hamilton County
Football Project) 4.75% 12/1/2027 (1) 1,500 1,241
Hamilton County OH Sales Tax Rev. (Hamilton County
Football Project) 5.00% 12/1/2018 (1) 3,000 2,703
Hamilton County OH Sales Tax Rev. (Hamilton County
Football Project) 5.00% 12/1/2027 (1) 8,850 7,651
Hamilton County OH Sales Tax Rev. (Hamilton County
Football Project) 5.50% 12/1/2013 (1) 2,000 2,009
Hamilton County OH Sewer System Rev. 5.45% 12/1/2009 (3) 3,250 3,351
Hamilton OH Waterworks Rev. 6.30% 10/15/2021 (1) 2,000 2,032
Hilliard County OH School Dist. GO 5.75% 12/1/2019 (3) 2,000 1,979
Hilliard County OH School Dist. GO 6.55% 12/1/2005 (3) 500 547
Lake County OH Hosp. Fac. Rev. (Lake Hosp. System Inc.) 5.375% 8/15/2015 (2) 2,900 2,803
Lakota OH Local School Dist. GO 5.05% 12/1/2013 (3) 1,925 1,845
Lisbon OH School Dist. GO 6.25% 12/1/2017 (2) 1,000 1,037
Lorain County OH Hosp. Rev. (Catholic Healthcare Partners 5.625% 9/1/2014 (1) 3,290 3,291
Lorain County OH Hosp. Rev. (Catholic Healthcare Partners) 6.00% 9/1/2006 (1) 1,500 1,591
Lorain County OH Hosp. Rev. (Catholic Healthcare Partners) 6.00% 9/1/2008 (1) 1,250 1,326
Loveland OH City School Dist. GO 3.20% 12/1/1999 (1) 1,000 1,000
Loveland OH City School Dist. GO 5.25% 12/1/2014 (1) 1,230 1,190
Lucas County OH GO 6.95% 12/1/2000 (1)(Prere.) 2,700 2,831
Lucas County OH Hosp. Rev. (ProMedica Health Care) 5.75% 11/15/2009 (1) 3,000 3,121
Lucas County OH Hosp. Rev. (ProMedica Health Care) 5.75% 11/15/2014 (1) 6,000 6,058
Lucas County OH Hosp. Rev. (ProMedica Health Care) 5.625% 11/15/2015 (2) 2,500 2,475
Lucas County OH Hosp. Rev. (ProMedica Health Care) 5.625% 11/15/2017 (2) 2,075 2,026
Marietta OH City School Dist. GO 5.75% 12/1/2007 (1)(Prere.) 1,250 1,328
Medina OH School Dist. GO 6.20% 12/1/2002 (3)(Prere.) 2,100 2,243
Mount Vernon OH Sewer System Rev. 6.00% 12/1/2012 (2) 750 774
New Philadelphia OH School Dist. GO 6.25% 12/1/2017 (2) 2,300 2,370
North Canton OH GO 5.90% 12/1/2004 (2)(Prere. 2,000 2,146
Northeast OH Regional Sewer Dist. Rev. 5.60% 11/15/2013 (2) 1,500 1,506
Northeast OH Regional Sewer Dist. Rev. 6.50% 11/15/2001 (2)(Prere.) 2,500 2,628
Northwest OH Local School Dist. GO 5.15% 12/1/2022 (3) 2,095 1,891
Oak Hills OH Local School Dist. GO 7.20% 12/1/2009 (1) 1,625 1,888
Ohio Air Quality Dev. Auth. PCR (Ohio Edison Project 7.10% 6/1/2018 (3) 1,000 1,032
Ohio Air Quality Dev. Auth. PCR (Ohio Edison Project 7.45% 3/1/2016 (3) 500 514
Ohio Building Auth. Rev. (Adult Correctional Fac.) 5.50% 4/1/2016 (2) 4,965 4,850
Ohio Building Auth. Rev. (Adult Correctional Fac.) 5.95% 10/1/2013 (1) 3,000 3,092
Ohio Higher Educ. Fac. Rev. (Oberlin College) 5.00% 10/1/2026 (3) 1,000 704
Ohio Higher Educ. Fac. Rev. (Univ. of Dayton) 6.60% 12/1/2017 (3) 2,200 2,367
Ohio Higher Educ. Fac. Rev. (Univ. of Dayton) 6.75% 12/1/2015 (3) 1,000 1,073
Ohio Higher Educ. Fac. Rev. (Xavier Univ. 5.30% 5/15/2017 (1) 3,000 2,842
Ohio Higher Educ. Fac. Rev. (Xavier Univ.) 5.375% 5/15/2022 (1) 7,000 6,567
Ohio Higher Educ. Fac. Rev. (Xavier Univ.) 6.00% 5/15/2011 (1) 2,000 2,106
Ohio Turnpike Comm. Rev. 5.25% 2/15/2013 (3) 1,780 1,742
Ohio Turnpike Comm. Rev. 5.70% 2/15/2006 (1)(Prere.) 1,000 1,062
Ohio Univ. General Receipts Rev. (Athen 5.25% 12/1/2019 (4) 4,000 3,710
Ohio Water Dev. Auth. Fresh Water Rev. 5.25% 12/1/2012 (4) 2,990 2,959
Ohio Water Dev. Auth. Fresh Water Rev. 5.90% 12/1/2015 (2) 3,250 3,301
Ohio Water Dev. Auth. Pollution Control Fac. Rev. 5.125% 6/1/2019 (1) 2,750 2,514
Ohio Water Dev. Auth. Pollution Control Fac. Rev. 5.50% 6/1/2011 (1) 2,300 2,348
Ohio Water Dev. Auth. Pollution Control Fac. Rev. 5.50% 12/1/2014 (1) 1,595 1,592
Ohio Water Dev. Auth. Pure Water Rev. 5.50% 12/1/2011 (2) 1,000 1,011
Ohio Water Dev. Auth. Pure Water Rev. 7.00% 12/1/2009 (2)(ETM) 1,500 1,671
18
<PAGE>
FACE MARKET
OHIO INSURED LONG-TERM MATURITY AMOUNT VALUE*
TAX-EXEMPT FUND COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.9%)
- ----------------------------------------------------------------------------------------------------------
Olmsted Falls OH School Dist. GO 5.85% 12/15/2017 (3) 2,000 2,007
Olmsted Falls OH School Dist. GO 6.85% 12/15/2004 (3)(Prere.) 565 630
Ottowa County OH GO 7.00% 9/1/2001 (2)(Prere.) 500 533
Perrysburg OH Exempted Village School Dist. GO 5.00% 12/1/2025 (4) 1,385 1,441
Pickerington OH Local School Dist. GO 5.00% 12/1/2019 (2) 3,000 2,695
Pickerington OH Local School Dist. GO 5.80% 12/1/2009 (3) 500 524
Revere OH School Dist. GO 6.00% 12/1/2016 (2) 3,850 3,908
Reynoldsburg OH School Dist. GO 0.00% 12/1/2009 (3) 1,465 866
Reynoldsburg OH School Dist. GO 0.00% 12/1/2010 (3) 1,465 814
Reynoldsburg OH School Dist. GO 6.55% 12/1/2002 (3)(Prere.) 3,600 3,880
Richland County OH GO 5.40% 12/1/2015 (2) 1,120 1,095
Richland County OH GO 6.95% 12/1/2011 (2) 450 501
South-Western City School Dist. (Franklin &
Pickway County OH) 4.75% 12/1/2026 (2) 1,750 1,449
Springboro OH Community City School Dist. GO 5.25% 12/1/2016 (2) 3,000 2,857
Summit County OH GO 6.90% 8/1/2001 (2)(Prere.) 2,650 2,811
Summit County OH GO 6.90% 8/1/2002 (2)(Prere.) 175 186
Summit County OH GO 6.90% 8/1/2003 (2)(Prere.) 2,425 2,618
Toledo OH Waterworks Rev. 5.25% 11/15/2013 (3) 2,000 1,956
Trumbull County OH Hosp. Rev. (Trumbull Memorial Hosp.) 6.25% 11/15/2003 (3)(Prere.) 2,000 2,107
Univ. of Akron Ohio General Receipts 5.50% 1/1/2019 (3) 3,045 2,927
Univ. of Arkon Ohio General Receipts 5.70% 1/1/2024 (3) 2,000 1,946
Univ. of Akron Ohio General Reciepts 5.75% 1/1/2029 (3) 3,000 2,921
Wood County OH GO (Justice Center) 5.95% 12/1/2007 (2) 1,750 1,831
Woodridge OH School Dist. GO 6.00% 12/1/2019 (2) 1,000 1,010
Woodridge OH School Dist. GO 6.80% 12/1/2014 (4) 2,195 1,297
Wooster OH School Dist. GO 0.00% 12/1/2010 (4) 2,265 1,259
Wooster OH School Dist. GO 0.00% 12/1/2011 (4) 2,315 1,211
Wooster OH School Dist. GO 6.50% 12/1/2002 (2)(Prere.) 2,500 2,691
Wyoming OH School Dist. 5.15% 12/1/2027 (3) 3,250 2,888
OUTSIDE OHIO:
Puerto Rico Govt. Dev. Bank VRDO 3.60% 12/8/1999 (1) 3,300 3,300
Puerto Rico Public Building Auth. Rev. 0.00% 7/1/2001 (3) 850 795
Puerto Rico Public Building Auth. Rev. 5.00% 7/1/2027 (2) 1,500 1,319
---------
333,252
---------
SECONDARY MARKET INSURED (1.6%)
Franklin County OH Hosp. Rev.
(Mount Carmel Health-Holy Cross Health System) 6.75% 6/1/2002 (1)(Prere.) 2,000 2,145
Ohio Higher Educ. Fac. Rev. (John Carroll Univ.) 5.75% 4/1/2019 (1) 4,000 3,958
---------
6,103
---------
NONINSURED (10.4%)
Clermont County OH Hosp. Fac. Rev. VRDO
(Mercy Health Systems) 3.90% 12/8/1999 100 100
Columbus OH GO 5.25% 5/15/2009 1,000 1,016
Cuyahoga County OH Econ. Dev. Rev. VRDO
(Cleveland Orchestra) 3.60% 12/2/1999 LOC 1,000 1,000
Cuyahoga County OH Hosp. Rev. (Cleveland Clinic Foundation)5.125% 1/1/2029 1,250 1,076
Cuyahoga County OH Hosp. Rev. VRDO
(Cleveland Clinic Foundation) 3.90% 12/8/1999 LOC 300 300
Franklin County OH GO 5.00% 12/1/2017 3,780 3,449
Franklin County OH GO 5.375% 12/1/2020 9,255 8,759
Hamilton County OH Hosp. Fac. Rev. VRDO (Bethesda Hosp. 3.75% 12/2/1999 LOC 300 300
Ohio Air Quality Dev. Auth. VRDO
(Cincinnati Gas & Electric Co. Project) 3.60% 12/2/1999 LOC 1,100 1,100
Ohio Air Quality Dev. Auth. VRDO
(Cincinnati Gas & Electric Co. Project) 3.95% 12/2/1999 LOC 2,100 2,100
Ohio Air Quality Dev. Auth. VRDO (Mead Corp.) 3.60% 12/2/1999 LOC 1,300 1,300
Ohio GO 7.625% 8/1/2010 3,510 4,242
Ohio Higher Educ. Fac. Rev. (Case Western Reserve Univ.) 6.50% 10/1/2020 250 271
Ohio Housing Finance Agency Mortgage Rev. 5.025% 3/1/2021 3,000 2,953
Ohio State Univ. General Receipts Rev. 5.75% 12/1/2013 + 1,000 1,028
Ohio State Univ. General Receipts Rev. 5.75% 12/1/2014 + 1,000 1,018
19
<PAGE>
- ----------------------------------------------------------------------------------------------------------
FACE MARKET
OHIO INSURED LONG-TERM MATURITY AMOUNT VALUE*
TAX-EXEMPT FUND COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------
Ohio State Univ. General Receipts Rev. VRDO 3.95% 12/8/1999 4,000 4,000
Rocky River OH City School Dist. GO 5.375% 12/1/2017 2,200 2,118
Sycamore OH Community School Dist. GO 5.00% 12/1/2023 4,000 3,509
---------
39,639
---------
- ----------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $385,456) 378,994
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
- ----------------------------------------------------------------------------------------------------------
Other Assets--Note B 7,368
Liabilities (7,040)
---------
328
- ----------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------
Applicable to 33,951,072 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $379,322
==========================================================================================================
NET ASSET VALUE PER SHARE $11.17
==========================================================================================================
*See Note A in Notes to Financial Statements.
+Security purchased on a when-issued or delayed delivery basis for which the
fund has not taken delivery as of November 30, 1999.
For key to abbreviations and other references, see below.
- ----------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------------------------
Paid in Capital $386,383 $11.38
Undistributed Net Investment Income -- --
Overdistributed Net Realized Gains--Note E (599) (.02)
Unrealized Depreciation--Note F (6,462) (.19)
- ----------------------------------------------------------------------------------------------------------
NET ASSETS $379,322 $11.17
==========================================================================================================
</TABLE>
KEY TO ABBREVIATIONS
BAN--Bond Anticipation Note.
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
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 Assurance Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
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.
20
<PAGE>
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to the fund. 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
fund invested in futures contracts during the period, the results of these
investments are shown separately.
- --------------------------------------------------------------------------------
OHIO INSURED
OHIO TAX-EXEMPT LONG-TERM
MONEY MARKET TAX-EXEMPT
FUND FUND
---------------------------------
YEAR ENDED NOVEMBER 30, 1999
---------------------------------
(000) (000)
- -------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Interest $12,191 $18,774
---------------------------------
Total Income 12,191 18,774
---------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 47 45
Management and Administrative 552 548
Marketing and Distribution 85 65
Custodian Fees 6 5
Auditing Fees 7 7
Shareholders' Reports 9 11
Trustees' Fees and Expenses 1
---------------------------------
Total Expenses 707 682
Expenses Paid Indirectly--Note C (6) (5)
Net Expenses 701 677
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 11,490 18,097
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (6) (385)
Futures Contracts -- 529
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (6) 144
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- (26,099)
Futures Contracts -- 47
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- (26,052)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $11,484 $ (7,811)
================================================================================
21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund 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 fund, 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.
- --------------------------------------------------------------------------------
OHIO TAX-EXEMPT OHIO INSURED LONG-TERM
MONEY MARKET FUND TAX-EXEMPT FUND
-------------------- -----------------------
YEAR ENDED NOVEMBER 30,
------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income 11,490 10,252 18,097 14,239
Realized Net Gain (Loss) (6) -- 144 520
Change in Unrealized
Appreciation (Depreciation) -- -- (26,052) 6,387
Net Increase (Decrease)
in Net Assets Resulting
from Operations 11,484 10,252 (7,811) 21,146
DISTRIBUTIONS
Net Investment Income (11,490) (10,252) (18,097) (14,239)
Realized Capital Gain -- -- (611) --
------------------------------------------------
Total Distributions (11,490) (10,252) (18,708) (14,239)
CAPITAL SHARE TRANSACTIONS1
Issued 446,766 330,928 148,841 93,813
Issued in Lieu of Cash
Distributions 10,486 9,257 13,289 10,084
Redeemed (356,696) (293,952) (80,072) (40,024)
Net Increase from
Capital Share
Transactions 100,556 46,233 82,058 63,873
- --------------------------------------------------------------------------------
Total Increase 100,550 46,233 55,539 70,780
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 344,664 298,431 323,783 253,003
------------------------------------------------
End of Year $445,214 $344,664 $379,322 $323,783
================================================================================
1Shares Issued (Redeemed)
Issued 446,766 330,928 12,743 7,874
Issued in Lieu of Cash
Distributions 10,486 9,257 1,145 846
Redeemed (356,696) (293,952) (6,884) (3,365)
------------------------------------------------
Net Increase in Shares
Outstanding 100,556 46,233 7,004 5,355
================================================================================
22
<PAGE>
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund'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 fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the fund;
and the extent to which the fund 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 fund for
one year. Money market funds are not required to report a Portfolio Turnover
Rate.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
OHIO TAX-EXEMPT MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
--------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .030 .033 .034 .034 .037
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
---------------------------------------
Total from Investment Operations .030 .033 .034 .034 .037
---------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.030) (.033) (.034) (.034) (.037)
Distributions from Realized Capital Gains -- -- -- -- --
---------------------------------------
Total Distributions (.030) (.033) (.034) (.034) (.037)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================
TOTAL RETURN 3.04% 3.37% 3.49% 3.42% 3.78%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $445 $345 $298 $254 $178
Ratio of Total Expenses to Average Net Assets 0.18% 0.20% 0.19% 0.20% 0.21%
Ratio of Net Investment Income to Average Net Assets 3.00% 3.30% 3.43% 3.36% 3.71%
=========================================================================================================
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S>
FINANCIAL HIGHLIGHTS (CONTINUED) <C> <C> <C> <C> <C>
OHIO INSURED LONG-TERM TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
----------------------------------------------
----------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $12.02 $11.72 $11.67 $11.63 $10.28
- --------------------------------------------------------------------------------------------------------------
Net Investment Income .582 .592 .598 .603 .610
Net Realized and Unrealized Gain (Loss) on Investments (.827) .300 .110 .040 1.350
Total from Investment Operations (.245) .892 .708 .643 1.960
DISTRIBUTIONS
Dividends from Net Investment Income (.582) (.592) (.598) (.603) (.610)
Distributions from Realized Capital Gains (.023) -- (.060 -- --
Total Distributions (.605) (.592) (.658) (.603) (.610)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.17 $12.02 $11.72 $11.67 $11.63
==============================================================================================================
TOTAL RETURN -2.13% 7.78% 6.30% 5.75% 19.45%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $379 $324 $253 $216 $197
Ratio of Total Expenses to Average Net Assets 0.19% 0.20% 0.17% 0.20% 0.21%
Ratio of Net Investment Income to Average Net Assets 5.00% 4.98% 5.17% 5.26% 5.45%
Portfolio Turnover Rate 8% 8% 14% 17% 7%
==============================================================================================================
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Vanguard Ohio Tax-Exempt Funds comprise the Ohio Tax-Exempt Money Market Fund
and Ohio Insured Long-Term Tax-Exempt Fund, each of which is registered under
the Investment Company Act of 1940 as a diversified open-end investment company,
or mutual fund. Each fund 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 to generally accepted
accounting principles for mutual funds. The funds consistently follow such
policies in preparing their financial statements.
1. SECURITY VALUATION: Tax-Exempt Money Market Fund: Investment
securities are valued at amortized cost, which approximates market value.
Insured Long-Term Tax-Exempt Fund: 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 ratings), both as furnished by
independent pricing services. Other temporary cash investments are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not available are valued by methods deemed by the Board of
Trustees to represent fair value.
2. FEDERAL INCOME TAXES: Each 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 CONTRACTS: The Insured Long-Term Tax-Exempt Fund 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 fund may purchase or sell futures contracts instead of
bonds to take advantage of pricing differentials between the futures contracts
and the underlying bonds. The fund 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 fund and the prices of
futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. 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.
25
<PAGE>
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution SERVICES. THE COSTS OF
SUCH SERVICES ARE ALLOCATED TO EACH FUND UNDER METHODS APPROVED BY THE BOARD OF
Trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At November 30, 1999, the funds had
contributed capital to Vanguard (included in Other Assets) of:
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF
TO VANGUARD OF FUND VANGUARD'S
OHIO TAX-EXEMPT FUND (000) NET ASSETS CAPITALIZATION
- --------------------------------------------------------------------------------
Money Market $88 0.02% 0.09%
Insured Long-Term 79 0.02 0.08
- --------------------------------------------------------------------------------
The funds' Trustees and officers are also Directors and officers of Vanguard.
C. The funds' custodian bank has agreed to reduce its fees when the funds
maintain cash on deposit in their non-interest-bearing custody accounts. For the
year ended November 30, 1999, custodian fee offset arrangements reduced expenses
of the Tax-Exempt Money Market Fund and Insured Long-Term Tax-Exempt Fund by
$6,000 and $5,000, respectively.
D. During the year ended November 30, 1999, the Insured Long-Term Tax-Exempt
Fund purchased $112,255,000 of investment securities and sold $26,102,000 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. The Insured Long-Term Tax-Exempt Fund had
realized losses totaling $506,000 through November 30, 1999, which are deferred
for tax purposes and reduce the amount of unrealized appreciation on investment
securities for tax purposes (see Note F). At November 30, 1999, the fund had
available capital losses of $93,000 to offset future net capital gains through
November 30, 2007.
F. At November 30, 1999, net unrealized depreciation of Insured Long-Term
Tax-Exempt Fund investment securities for federal income tax purposes was
$6,968,000, consisting of unrealized gains of $5,653,000 on securities that had
risen in value since their purchase and $12,621,000 in unrealized losses on
securities that had fallen in value since their purchase (see Note E).
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Vanguard Ohio Tax-Exempt Funds
In our opinion, the accompanying statements 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
Ohio Tax-Exempt Money Market Fund and Ohio Insured Long-Term Tax-Exempt Fund
(constituting Vanguard Ohio Tax-Exempt Funds, hereafter referred to as the
"Funds") at November 30, 1999, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 2000
- --------------------------------------------------------------------------------
SPECIAL 1999 TAX INFORMATION (UNAUDITED) FOR VANGUARD OHIO TAX-EXEMPT FUNDS
This information for the fiscal year ended November 30, 1999, is included
pursuant to provisions of the Internal Revenue Code.
The Ohio Insured Long-Term Tax-Exempt Fund distributed $611,000 as capital
gain dividends (from net long-term capital gains) to shareholders in December
1998, all of which is designated as a 20% rate gain distribution.
Each fund designates 100% of its income dividends as exempt-interest
dividends.
- --------------------------------------------------------------------------------
27
<PAGE>
THE VANGUARD FAMILY OF FUNDS
STOCK FUNDS
- -----------------------------------------------------
500 Index Fund
Aggressive Growth Fund
Capital Opportunity Fund
Convertible Securities Fund
Emerging Markets Stock Index Fund
Energy Fund Equity Income Fund
European Stock Index Fund
Explorer Fund Extended Market Index Fund*
Global Equity Fund
Gold and Precious Metals Fund
Growth and Income Fund
Growth Index Fund*
Health Care Fund
Institutional Index Fund*
International Growth Fund
International Value Fund
Mid-Cap Index Fund*
Morgan Growth Fund
Pacific Stock Index Fund
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund*
Small-Cap Index Fund*
Small-Cap Value Index Fund*
Tax-Managed Capital Appreciation Fund*
Tax-Managed Growth and Income Fund*
Tax-Managed International Fund*
Tax-Managed Small-Cap Fund*
Total International Stock Index Fund
Total Stock Market Index Fund*
U.S. Growth Fund
Utilities Income Fund
Value Index Fund*
Windsor Fund
Windsor II Fund
BALANCED FUNDS
- -----------------------------------------------------
Asset Allocation Fund
Balanced Index Fund
Global Asset Allocation Fund
LifeStrategy Conservative Growth Fund
LifeStrategy Growth Fund
LifeStrategy Income Fund
LifeStrategy Moderate Growth Fund
STAR Fund
Tax-Managed Balanced Fund
Wellesley Income Fund
Wellington Fund
BOND FUNDS
- -----------------------------------------------------
Admiral Intermediate-Term Treasury Fun
Admiral Long-Term Treasury Fund
Admiral Short-Term Treasury Fund
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Insured Long-Term Tax-Exempt Fun
Intermediate-Term Bond Index Fund
Intermediate-Term Corporate Fund
Intermediate-Term Tax-Exempt Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Preferred Stock Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund*
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds (California, Florida,
Massachusetts, New Jersey, New
York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
- -----------------------------------------------------
Admiral Treasury Money Market Fund
Federal Money Market Fund
Prime Money Market Fund*
State Tax-Exempt Money Market Funds
(California, New Jersey, New York, Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY PLAN
- -----------------------------------------------------
Balanced Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High-Grade Bond Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group, P.O. Box
2600, Valley Forge, PA 19482-2600. Read it carefully before you invest or send
money.
28
<PAGE>
THE PEOPLE WHO GOVERN YOUR FUND
The Trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund Trustees also serve on the Board of Directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Seven of Vanguard's nine board members are independent, meaning that
they have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers
for the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new Trustees/Directors; and electing
Vanguard officers.
The list below provides a brief description of each Trustee's
professional affiliations. Noted in parentheses is the year in which the Trustee
joined the Vanguard Board.
TRUSTEES
JOHN C. BOGLE ? (1967) Founder, Senior Chairman of the Board, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOHN J. BRENNAN ? (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN ?(1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY ? (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL ? (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. ? (1993) Chairman, President, Chief Executive
Officer, and Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JOHN C. SAWHILL ? (1991) 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., NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR. ? (1971) 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 ? (1985) Retired Chairman of Rohm & Haas Co.;
Director of Cummins Engine Co. and The Mead Corp.; Trustee of Vanderbilt
University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY v Secretary; Managing Director and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
THOMAS J. HIGGINS v Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON v Legal Department.
ROBERT A. DISTEFANO v Information Technology.
JAMES H. GATELY v Individual Investor Group.
KATHLEEN C. GUBANICH v Human Resources.
IAN A. MACKINNON v Fixed Income Group.
F. WILLIAM MCNABB, III v Institutional Investor Group.
MICHAEL S. MILLER v Planning and Development.
RALPH K. PACKARD v Chief Financial Officer.
GEORGE U. SAUTER v Core Management Group.
<PAGE>
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
[SHIP]
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc.
Frank Russell Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire
Associates.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q960-01/19/2000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
