<PAGE> 1
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
The six months ended May 31, the first half of the 1994 fiscal year for the
eleven Portfolios of the Vanguard State Tax-Free Funds, witnessed something
that we have not seen much of since 1987: rising interest rates. As a result,
the prices of long-term municipal bonds declined during the period, while the
income from money market instruments received a nice boost.
This environment, of course, negatively impacted the net asset
values of each of our Insured Long-Term Portfolios, as reflected in the
table on page 2. (The net asset values of our Money Market Portfolios, as you
would expect, remained constant, at $1.00 per share.) While fluctuating asset
values are part and parcel of bond investing, our Long-Term Portfolios
exceeded the total returns (capital change plus income) achieved by
competitive state tax-free bond funds. What is more, all of our Portfolios
remain virtually peerless in the mutual fund field with respect to their
investment quality, as shown in the third column of the table on page 2. In
summary form, here are the Portfolio highlights over the past twelve months:
* THE STATE MONEY MARKET PORTFOLIOS--provided total returns ranging
from +2.2% to +2.3% . . . current yields are in the area of 2.6%,
about the same as they were twelve months ago but nicely above their
level at the outset of the fiscal half year . . . net asset values
remained at $1.00 per share.
* THE STATE INSURED LONG-TERM PORTFOLIOS--reflecting the rebound in
interest rates, turned in modest total returns ranging from +1.9%
to +3.3% . . . current income yields are running about 5.4%, some 40
basis points (0.40%) higher than they were twelve months ago.
The detailed results for each of our State Tax-Free
Portfolios--including per share net asset values, dividends, and capital gains
distributions, as well as current yields--are presented on the following page.
To provide some perspective on how our Insured Long-Term Portfolios fared in
the face of rising interest rates, the table that follows summarizes the
income returns and the capital returns for each Portfolio:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Investment Returns
Twelve Months Ended
Insured Long-Term May 31, 1994
Portfolio* ----------------------------------------------
Income Capital Total
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA +5.4% -3.5% +1.9%
NEW YORK +5.4 -3.2 +2.2
PENNSYLVANIA +5.6 -2.3 +3.3
NEW JERSEY +5.3 -3.4 +1.9
OHIO +5.2 -2.8 +2.4
FLORIDA +5.1 -2.2 +2.9
- - --------------------------------------------------------------------------------------------
</TABLE>
* On March 4, 1994, the California Insured Intermediate-Term Portfolio
was introduced. Since its inception, the Portfolio has achieved an
income return of +1.0%, a capital return of +0.4%, and a total return
of +1.4%.
* FIXED-INCOME MARKET REVIEW
The basic benchmark for the bond market is the long-term U.S. Treasury bond.
During the past six months, its yield rose from 6.3% at the start of the
period to 7.4% at its conclusion. This yield change engendered a decline of
about -13% in the Treasury bond's price. I am happy to report that the
tax-exempt bond market fared a good bit better, with the yield on
long-term high-grade municipal bonds rising from 5.5% to 6.1%, resulting in
a price decline of some -8%. However painful this decline may be for
investors in long-term bonds, it is worth noting that interest rates had
been dropping steadily for some seven years, and the retracement during the
past six months has merely returned rates to the level prevailing at the end of
1992.
A primary cause of the interest rate rise was investor fears about a
resurgence of inflation. So far, at least, there is little evidence of it.
The U.S. Consumer Price Index has risen just 2.3% over the past twelve
months, although more sensitive indicators--such as commodity prices--have
been rising at a much higher rate. In an effort to quell these inflationary
fears, the Federal Reserve acted to "tighten" the money supply and slow
economic growth and potential future inflation, raising the
1
<PAGE> 2
Federal funds rate (at which banks borrow from one another) four times--in
February, March, April, and again in May--from 3.00% to 4.25%.
These increases in short-term rates are often seen by market
participants as a restraint on potential inflation, and thus cause long-term
rates to fall. This time around, quite the reverse has been true. In any
event, proving that "it is an ill wind (indeed) that blows no good," the
rate increase has added to the income received by investors in our Money
Market Portfolios. And, because of the "lag" from the date interest rates rise
until they are fully manifested in money market fund yields, further dividend
increases in our Money Market Portfolios likely lie in prospect.
* IN SUMMARY
In my Chairman's letter to you one year ago, I noted that "it is hard to
imagine that the steady trend toward ever-lower interest rates can go much
further." I went on to caution that if rates did reverse their decline in
response to a strengthening economy, the capital rewards enjoyed by our
longer-term Portfolios would turn to capital penalties. While I do not
presume any forecasting ability whatsoever, these observations have proved
prescient. Nonetheless, provided that you own the Vanguard Portfolio (or
combination of Portfolios) that meets your long-term risk-reward objectives,
I would urge you to "stay the course" and avoid the temptation to make
precipitate changes in your fund holdings.
I look forward to reporting on our results for the full 1994 fiscal year
six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- - ---------------------
John C. Bogle
Chairman of the Board
June 17, 1994
<TABLE>
<CAPTION>
Net Asset Value
Total Per Share Dividends Total Return
Net Assets ----------------- --------------- ----------------
(millions) Average Average Nov. 30, May 31, Six Twelve Six Twelve Current
Portfolio May 31, 1994 Maturity Quality* 1993 1994 Months Months Months Months Yield**
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . $1,126 35 days MIG 1 $ 1.00 $ 1.00 $ .011 $.023 +1.1% +2.3% 2.55%
PENNSYLVANIA . . 1,041 37 days MIG 1 1.00 1.00 .011 .023 +1.1 +2.3 2.60
NEW JERSEY . . . 803 41 days MIG 1 1.00 1.00 .011 .022 +1.1 +2.2 2.46
OHIO . . . . . . 139 47 days MIG 1 1.00 1.00 .011 .023 +1.2 +2.3 2.57
- - -------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA . . . $ 929 12.9 years Aaa $11.30 $10.66 $ .451+ $.753+ -1.8% +1.9% 5.58%
CALIFORNIA
INTERMEDIATE-
TERM . . . . . 57 5.3 years Aaa -- 10.04 .101++ -- +1.4++ -- 4.82
NEW YORK . . . . 760 11.8 years Aaa 10.97 10.49 .306+ .602+ -1.6 +2.2 5.41
PENNSYLVANIA . . 1,430 11.7 years Aaa 11.36 10.85 .388+ .703+ -1.1 +3.3 5.47
NEW JERSEY . . . 700 11.5 years Aaa 11.77 11.18 .374+ .690+ -1.9 +1.9 5.41
OHIO . . . . . . 162 9.7 years Aaa 11.61 11.08 .327+ .630+ -1.8 +2.4 5.48
FLORIDA . . . . . 292 12.1 years Aaa 10.86 10.38 .339+ .611+ -1.3 +2.9 5.39
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
* MIG 1 and Aaa are Moody's highest ratings for, respectively, short-term and
long-term municipal bonds.
** Money Market Portfolios' yields are 7-day annualized yields; others are
30-day SEC yields.
+ Include capital gains distributions of $.152 for California, $.012 for New
York, $.079 for Pennsylvania, $.063 for New Jersey, $.032 for Ohio, and
$.070 for Florida.
++ Since inception, March 4, 1994.
The shares of each of the Vanguard "single state" Portfolios are
available for purchase solely by residents of the designated states.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS NOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN ACCORDANCE
WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS
(PERIODS ENDED MARCH 31, 1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
INCEPTION SINCE
PORTFOLIO DATE 1 YEAR 5 YEARS INCEPTION
- - ------------------------------------ ---------- ------ ------- ---------
<S> <C> <C> <C> <C>
CALIFORNIA INSURED LONG-TERM 4/7/86 +1.77% +8.56% +7.70%
CALIFORNIA INSURED INTERMEDIATE-TERM 3/4/94 -- -- -0.64
CALIFORNIA MONEY MARKET 6/1/87 +2.34 +4.05 +4.34
NEW YORK INSURED TAX-FREE 4/7/86 +2.37 +8.97 +7.23
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +3.14 +9.22 +8.11
PENNSYLVANIA MONEY MARKET 6/13/88 +2.31 +4.15 +4.39
NEW JERSEY INSURED LONG-TERM 2/3/88 +2.44 +8.87 +8.65
NEW JERSEY MONEY MARKET 2/3/88 +2.24 +4.12 +4.37
OHIO INSURED LONG-TERM 6/18/90 +2.70 -- +9.12
OHIO MONEY MARKET 6/18/90 +2.31 -- +3.54
FLORIDA INSURED TAX-FREE 9/1/92 +2.56 -- +7.01
</TABLE>
THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE NOTE THAT AN INVESTMENT IN A MONEY MARKET FUND, SUCH AS A MONEY
MARKET PORTFOLIO OF THE VANGUARD STATE TAX-FREE FUNDS, IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
3
<PAGE> 4
REPORT FROM THE INVESTMENT ADVISER
STATE INSURED
LONG-TERM PORTFOLIOS
Over the past six months, the pace of domestic economic activity accelerated
sharply. Strong improvements in the rate of growth in Gross Domestic Product
(GDP), and a host of related statistics such as home sales, automobile
sales, and consumer confidence, provided ample evidence of renewed vigor.
Bond markets seldom react well to strong economic signals and this
period was no exception. The yield on the 30-year Treasury bond rose 1.1
percentage points (from 6.3% to 7.4%). During the same period, municipal bonds
performed slightly better, with the yield on long-term high-grades rising 0.6%
(from 5.5% to 6.1%), producing an 8.3% loss of value.
As one would expect, the sharp rise in interest rates negatively
impacted the share price of the State Insured Long-Term Portfolios. To be
sure, a decline of this nature can be disconcerting to even the most
resolute long-term investor. However, following more than a decade of
exceptional returns of longer-term fixed-income assets, the poor six-month
period represents only a partial "give back" of previous prosperity. Looking
beyond the short-term share price volatility, a shareholder of the State
Insured Long-Term Portfolios can expect to receive an attractive, consistent,
and durable stream of tax-exempt dividend income.
* SUCCESSFUL STRATEGIES . . .
For the recent period, two of several core strategies stand out for enhancing
the relative returns of the State Insured Long-Term Portfolios. First, a
reduction in average maturity over the past year improved relative market
performance and moderated some of the "sting" of a bear market. Some of this
was accomplished by focusing on municipals maturing in 15 to 20 years,
rather than the slightly higher yielding but more volatile 30-year
maturities. This modest reduction in average maturity effectively "locked-in"
a portion of the gains in share price achieved in the previous bull market.
Second, the prudent maintenance of reserve positions of about 10% of
fund assets added to our relative stability. What is more, these reserves
provided a liquidity cushion to meet shareholder redemptions. In good times,
reserves (which normally yield less than longer-term assets) forego a small
amount of yield potential. In difficult market conditions, such as prevailed
during the past six months, the additional reserves allow the portfolio to
meet redemption requests without the inopportune (and sometimes
"distressed") sale of securities.
* LOOKING FORWARD . . .
The issuance of new municipal bonds has fallen dramatically. Issuance for the
first six months in fiscal 1994 was 26% below the pace of a year earlier.
Early indications show forward supply even lower compared to the "mad dash"
of 1993. Municipalities appear to have completed the process of refinancing
older, higher coupon debt of the 1980's and early 1990's. At the same
time, a record number of previously mentioned high coupon bonds are
approaching their call dates, and a huge amount of principal will be returned
to owners of individual bonds. All things being equal, this should continue
to provide more attractive returns for municipal bonds than their taxable
brethren.
In conclusion, it would be reassuring to believe that the recent
increase in interest rates is sufficient to "rein in" the rapidly expanding
U.S. economy and dampen any inflationary expectations. Yet, that observation
might be premature. If history serves as any guide, the process may take
longer than the recent six months of "pain." If so, there could be
more share price unpleasantness ahead before the markets resume their
positive return pattern of the past decade. However, attempting to "time" the
turnaround--getting out at the highs and then getting back in at the
lows--tends to be equally futile for the institutional and individual
investor alike. The best advice we know is to endure the swings and allow the
powerful tax exempt compounding of interest to continue.
4
<PAGE> 5
STATE MONEY MARKET PORTFOLIOS
The past six months ushered in a change in the Federal Reserve Board's
previously accommodative monetary policy. Since February 4, 1994, market
participants watched anxiously as the Federal Reserve Board, in four separate
instances, pushed the Federal funds rate up 125 basis points (1.25%) to 4.25%
and tightened the discount rate 50 basis points (0.50%) to 3.50%. This series
of moves by the Fed has signaled the end of stimulative policy (maintained
throughout 1993) and the initiation of a policy of "neutrality."
The effect of the tightening on the short-term municipal market was
surprisingly mild. While yields on "first tier" taxable money market funds
rose approximately 70 basis points over the six-month period, yields on
state-specific and general purpose tax-free money funds rose a mere 35 basis
points. The primary contributor to the unresponsive municipal market was the
scarcity of new issue supply. Supply of short-term municipal securities is
quite cyclical, and depends on an issuer's fiscal year, which generally
runs from July 1 to June 30. As a result, supply typically remains light in
the months leading up to June and dramatically increases in the summer months,
as issuers prepare to fund their upcoming budgetary needs in the new fiscal
year. This lack of supply experienced during a period of rising rates in the
broader taxable markets enabled short-term municipal yields to maintain
relative stability. As technical supply factors temporarily have been
depressing yields on short-term municipal securities, we have been targeting
a low average weighted maturity for the tax-exempt money funds of 45 to
60 days. Our Portfolios should be commensurately more responsive when new
issue supply surges and interest rates rise. We expect the shift from scarcity
to abundance will occur within weeks.
While the market focused on an accelerating economy and the rise in
interest rates, the Securities and Exchange Commission quietly launched its
own initiative to ensure the net asset value safety of tax-exempt money
funds, consistent with those already applicable to taxable money funds. In
fact, the SEC has proposed regulations that coincide with (or in some
cases are less restrictive than) our conservative approach to managing money
market funds. Thus, they will have little impact on the Vanguard Money Market
Portfolios. We believe that the Commission's proposals, if adopted, will be
a positive force in elevating industrywide portfolio standards.
In conclusion, the upcoming months could potentially bring about
significant regulatory and economic changes in our market. While keeping a
watchful eye on the actions of the Federal Reserve Board and maintaining our
conservative investment approach, we look forward to capitalizing on any
opportunities that may result.
Sincerely,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela E. Wisehaupt
Vice President
David E. Hamlin
Assistant Vice President
Reid O. Smith
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Vanguard Fixed Income Group
June 13, 1994
5
<PAGE> 6
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
May 31, 1994
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (100.6%)
- - -------------------------------------------------------
ISSUER INSURED (91.2%)
Allegany Health System Rev.
(St. Mary's Hosp.)
5.00%, 12/1/12 (1) $ 7,380 $ 6,517
Brevard County GO
5.80%, 3/1/05 (1) 1,200 1,234
Broward County Solid Waste
5.75%, 7/1/13 (1) 5,130 4,951
Canaveral Port Auth.
6.00%, 6/1/06 (3) 1,000 1,028
Charlotte County Utility System
5.25%, 10/1/11 (3) 1,070 983
5.50%, 10/1/17 (3) 3,015 2,781
Coral Springs Improvement Dist.
GO 6.00%, 6/1/10 (1) 2,300 2,343
Dade County Health Facilities
Auth. (Baptist Hosp. Miami)
5.25%, 5/15/13 (1) 5,500 4,945
(Jackson Memorial Hosp.)
5.625%, 6/1/13 (1) 4,570 4,315
5.25%, 6/1/23 (1) 3,000 2,597
Dade County School GO
5.00%, 8/1/12 (1) 3,000 2,664
5.00%, 8/1/13 (1) 2,000 1,759
6.125%, 6/1/14 (1) 6,660 6,708
Dade County Seaport GO
6.25%, 10/1/10 (2) 2,000 2,057
6.50%, 10/1/26 (2) 12,200 12,463
Dade County Water & Sewer
VRDO 2.85%, 10/5/94 (3) 5,900 5,900
5.00%, 10/1/13 (3) 10,900 9,537
Davie Water & Sewer
6.375%, 10/1/12 (2) 2,500 2,661
Daytona Beach Water & Sewer
5.75%, 11/15/08 (2) 2,470 2,467
Dunedin Utility System
6.75%, 10/1/08 (3) 1,115 1,225
6.75%, 10/1/10 (3) 2,465 2,688
6.75%, 10/1/12 (3) 1,445 1,583
Florida Municipal Power Agency
(Tricity Project)
5.00%, 10/1/10 (2) 4,340 3,929
Florida Turnpike Auth.
TOB VRDO 3.00%, 7/1/94 (3) 3,540 3,540
5.00%, 7/1/13 (3) 5,000 4,390
5.00%, 7/1/15 (3) 5,000 4,331
5.00%, 7/1/16 (3) 3,700 3,193
6.35%, 7/1/22 (3) 1,780 1,806
Fort Pierce Utilities Auth.
5.25%, 10/1/16 (2) 9,000 8,033
Greater Orlando Aviation Auth.
6.10%, 10/1/06 (2) 2,500 2,597
6.20%, 10/1/08 (2) 4,300 4,435
Gulf Breeze Local Govt.
Pooled Loan Program VRDO
2.70%, 6/1/94 (3) 3,700 3,700
Hillsborough County Aviation
Auth.(Tampa International
Airport)
3.10%, 10/1/94 (3) 5,905 5,900
5.75%, 10/1/11 (2) 4,660 4,535
Hillsborough County Industrial
Development Auth.
(Univ. Community Hosp.)
6.50%, 8/15/19 (1) 7,500 7,883
Hollywood Water & Sewer Rev.
5.50%, 10/1/15 (3) 3,000 2,787
Homestead Special Insurance
5.25%, 3/1/03 (1) 1,500 1,502
Indian River County
Water & Sewer
6.50%, 9/1/08 (3) 2,540 2,731
5.25%, 9/1/18 (3) 3,215 2,852
Kissimee Utility Auth. Electric
System
5.50%, 10/1/15 (3) 6,750 6,262
5.25%, 10/1/18 (3) 5,000 4,435
Marion County Hosp. Dist.
(Monroe Regional Medical
Center)
6.20%, 10/1/07 (3) 1,000 1,038
Melbourne Water & Sewer
6.375%, 10/1/12 (3) 1,000 1,036
Miami Beach Health Facilities
Auth.
(Mt. Sinai Medical Center)
6.25%, 11/15/08 (5) 2,000 2,067
6.125%, 11/15/14 (5) 1,250 1,255
Miami GO
5.90%, 12/1/06 (3) 1,280 1,316
5.90%, 12/1/08 (3) 1,000 1,017
6.00%, 12/1/09 (3) 1,380 1,407
5.50%, 12/1/13 (3) 1,715 1,610
Orange County Tourist
Development
5.90%, 10/1/10 (1) 1,250 1,245
5.75%, 10/1/19 (1) 7,750 7,401
Orlando & Orange County
Expressway Auth.
6.50%, 7/1/10 (3) 2,000 2,134
5.375%, 7/1/11 (2) 5,000 4,679
Osceola County Gas Tax Rev.
5.90%, 4/1/08 (3) 1,805 1,816
Palm Beach County Criminal
Justice Facility
5.375%, 6/1/07 (3) 5,280 5,190
5.375%, 6/1/08 (3) 2,375 2,303
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -------------------------------------------------------
<S> <C> <C>
5.375%, 6/1/11 (3) $ 1,120 $ 1,055
7.20%, 6/1/15 (3) 3,000 3,407
Palm Beach County Solid Waste
Auth.
5.75%, 12/1/04 (1) 2,000 2,080
Pinellas County Health
Facilities Auth.
5.60%, 7/1/23 (1) 7,000 6,454
(Morton Plant Hosp.)
5.25%, 11/15/12 (1) 2,705 2,461
5.50%, 11/15/18 (1) 2,000 1,832
St. John's County School Dist. GO
5.375%, 12/1/06 (3) 3,000 2,950
St. Lucie County Utility System
6.50%, 10/1/08 (1) 4,910 5,281
5.50%, 10/1/15 (3) 5,000 4,650
6.00%, 10/1/20 (3) 3,165 3,228
Sarasota County Utility System
7.00%, 10/1/09 (3) 6,260 7,009
Seacoast Utility Auth.
5.50%, 3/1/10 (3) 2,500 2,401
5.50%, 3/1/17 (3) 2,400 2,235
5.50%, 3/1/19 (3) 1,595 1,481
Seminole County School Board
6.125%, 7/1/14 (1) 1,000 1,002
6.125%, 7/1/19 (1) 1,500 1,507
Seminole County Water &
Sewer Rev.
6.00%, 10/1/09 (1) 1,800 1,834
6.00%, 10/1/12 (1) 5,000 5,027
6.00%, 10/1/19 (1) 7,000 6,928
Tamarac Water & Sewer Utility
5.90%, 10/1/11 (3) 3,980 3,971
West Palm Beach Public Service Tax
6.125%, 3/1/10 (1) 1,560 1,582
-------
GROUP TOTAL 266,136
-------
- - -------------------------------------------------------
NON-INSURED (9.4%)
Florida Board of Education
4.00%, 6/1/95 1,845 1,848
6.75%, 6/1/21 5,250 5,501
Gainesville Utility System
6.50%, 10/1/12 1,500 1,601
Hillsborough County Industrial
Development Auth. PCR VRDO
(Tampa Electric Co.)
3.15%, 6/1/94 1,900 1,900
Jacksonville Electric Auth.
10.00%, 10/1/94 (Prere.) 1,800 1,875
Orlando Utilities Comm.BAN VRDO
2.70%, 6/1/94 3,145 3,145
10.50%, 10/1/94 (Prere.) 2,500 2,633
6.75%, 10/1/17 6,500 7,030
Volusia County Tourist
Development VRDO TOB
3.15%, 6/1/94 2,000 2,000
-------
GROUP TOTAL 27,533
-------
- - -------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $300,538) 293,669
- - -------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.6%)
- - -------------------------------------------------------
Other Assets--Note B 10,267
Liabilities (12,075)
-------
(1,808)
- - -------------------------------------------------------
NET ASSETS (100%)
Applicable to 28,122,233
outstanding shares of
beneficial interest
(unlimited authorization--
no par value) $291,861
- - -------------------------------------------------------
NET ASSET VALUE PER SHARE $10.38
- - -------------------------------------------------------
+See Note A to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - -------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $296,094 $10.53
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 901 .03
Unrealized Depreciation
of Investments--Note D (5,134) (.18)
- - -------------------------------------------------------
NET ASSETS $291,861 $10.38
- - -------------------------------------------------------
</TABLE>
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(5) CGI (Capital Guaranty Insurance)
(6) BIGI (Bond Investors Guaranty Insurance)
(7) Connie Lee Inc.
(8) FHA (Federal Housing Authority)
BAN--Bond Anticipation Note
CP--Commercial Paper
GO--General Obligation
PCR--Pollution Control Revenue
TOB--Tender Option Bond
VRDO--Variable Rate Demand Obligation
(Prere.)--Prerefunded
7
<PAGE> 8
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1994
(000)
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,803
- - ----------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . 7,803
- - ----------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . . . . . . . . . . . $ 15
Management and Administrative . . . . . . . . . . . . . . . . . . 238
Marketing and Distribution . . . . . . . . . . . . . . . . . . . . 35 288
------
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Shareholders' Reports . . . . . . . . . . . . . . . . . . . . . . . . 14
Annual Meeting and Proxy Costs . . . . . . . . . . . . . . . . . . . . 3
Trustees' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 1
- - ----------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . 309
- - ----------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . 7,494
- - ----------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . (99)
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 3,992
- - ----------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . . . . . . . . . 3,893
- - ----------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . (17,271)
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 1,072
- - ----------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation) . . . . . (16,199)
- - ----------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations . . . $ (4,812)
================================================================================================================
</TABLE>
8
<PAGE> 9
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
MAY 31, 1994 November 30, 1993
(000) (000)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,494 9,441
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . 3,893 (1,044)
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . (16,199) 10,257
- - ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . . . (4,812) 18,654
- - ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . (7,494) (9,441)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,923) --
- - ------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . (9,417) (9,441)
- - ------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . 51,729 152,794
-- In Lieu of Cash Distributions . . . . . . . . . . . . . . . 6,470 6,508
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . 58,222 109,713
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . (23,783) (23,593)
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . (55,737) (48,800)
- - ------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . . 36,901 196,622
- - ------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . 22,672 205,835
- - ------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,189 63,354
- - ------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $291,861 $269,189
============================================================================================================
(1) Distributions Per Share . . . . . . . . . . . . . . . . . . . . .
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . $.269 $ .537
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . $.070 --
- - ------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed . . . . . . . . . . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,210 24,750
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . 606 605
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,491) (6,793)
- - ------------------------------------------------------------------------------------------------------------
3,325 18,562
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended September 1 to
SIX MONTHS ENDED November 30, November 30,
For a Share Outstanding Throughout Each Period MAY 31, 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $10.86 $10.16 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . .269 .537 .122
Net Realized and Unrealized Gain (Loss) on Investments . . . . (.410) .700 .160
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . (.141) 1.237 .282
- - -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . (.269) (.537) (.122)
Distributions from Realized Capital Gains . . . . . . . . . . . (.070) -- --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . (.339) (.537) (.122)
- - -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $10.38 $10.86 $10.16
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . -1.34% +12.38% +2.84%
- - -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . $292 $269 $63
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . .21%* .21% .24%*
Ratio of Net Investment Income to Average Net Assets . . . . . . 5.07%* 5.01% 5.10%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . 54%* 34% 15%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
NOTES TO FINANCIAL STATEMENTS
Vanguard Florida Insured Tax-Free Fund is registered under the Investment
Company Act of 1940 as an open-end investment company. The Fund invests in
securities of municipal issuers whose ability to meet their obligations may be
affected by economic and political developments in the State of Florida.
* A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies.
Such policies are consistently followed by the Fund in the preparation
of financial statements.
1. SECURITY VALUATION: Municipal bonds are valued utilizing primarily the
latest bid prices or, if bid prices are not available, on the basis of
valuations based on a matrix system (which considers such factors as
security prices, yields, maturities and ratings), both as furnished by
an independent pricing service.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
10
<PAGE> 11
3. FUTURES: The Fund utilizes futures contracts to a limited extent. The
primary risks associated with the use of futures contracts are
imperfect correlation between the change in market value of the bonds
held by the 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. Fluctuations in the value
of futures contracts are recorded as unrealized appreciation
(depreciation) until terminated at which time realized gains (losses)
are recognized. Unrealized appreciation (depreciation) related to open
futures contracts is required to be treated as realized gain (loss)
for Federal income tax purposes.
4. DISTRIBUTIONS: Distributions from net investment income are declared
on a daily basis payable on the first business day of the following
month. Annual distributions from realized gains, if any, are recorded
on the ex-dividend date. Capital gain distributions are determined on
a tax basis and may differ from realized capital gains for financial
reporting purposes due to differences in the timing of realization of
gains.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized
gains and losses on the sale of investment securities are those of
specific securities sold. Premiums and original issue discounts are
amortized and accreted, respectively, to interest income over the
lives of the respective securities.
* B. The Vanguard Group, Inc. furnishes at cost investment advisory,
corporate management, administrative, marketing and distribution services.
The costs of such services are allocated to the Fund under methods
approved by the Board of Trustees. The Fund has contributed capital of
$46,000 to Vanguard (included in Other Assets), representing .2 of 1% of
Vanguard's capitalization. The Fund's officers and trustees are also
officers and directors of Vanguard.
* C. During the year ended May 31, 1994, the Fund made purchases of
$113,338,000 and sales of $72,728,000 of investment securities other than
temporary cash investments.
* D. At May 31, 1994, unrealized depreciation of investment securities for
financial reporting and Federal income tax purposes aggregated $6,869,000
of which $2,072,000 related to appreciated securities and $8,941,000
related to depreciated securities.
At May 31, 1994, the Fund had short positions in Municipal Bond Index and
U.S. Treasury Bond futures contracts expiring through September 1994, with
an aggregate settlement value and net unrealized appreciation of
$45,574,000 and $1,735,000, respectively. The market value of securities
deposited as initial margin for open futures contracts was $1,428,000.
11
<PAGE> 12
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and
may be distributed to others only if preceded
or accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q182-05/94
VANGUARD
FLORIDA INSURED
TAX-FREE FUND
[PHOTO--SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
MAY 31, 1994
<PAGE> 13
EDGAR APPENDIX
The back cover of the printed version of this report features the
flags of the United States of America and Vanguard flying from a halyard.
