<PAGE> 1
VANGUARD
FLORIDA INSURED
TAX-FREE FUND
Annual Report
November 30, 1996
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our course
toward the twenty-first century. Our Report cover reflects that blending of
tradition and innovation, of past, present, and future. The montage includes a
bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's
flagship at The Battle of the Nile); a clock built circa 1816 in Scotland,
featuring a portrait of Nelson (who is also shown, accepting a surrender, in a
detail from a nineteenth-century engraving); and several views of our recently
completed campus, which is steeped in nautical imagery--from our buildings named
after Nelson's warships (Victory, Majestic, and Goliath are three shown), to our
artwork and ornamental compass rose.
<PAGE> 2
[PHOTO]
VANGUARD HAS ALWAYS STRIVED TO BE THE STANDARD-BEARER for mutual fund
disclosure, going well beyond the "letter of the law" in our shareholder
communications. During the past year, we raised the standard once again by
rewriting and reformatting our Fund prospectuses. They are designed to ensure
that prospective investors fully understand, before they make an investment,
each Fund's investment strategies, risks, and costs. In that spirit, we have
redesigned our Annual Reports to shareholders, which provide a comprehensive
discussion and analysis of the year's results in the context of each Fund's
investment objectives and policies. Since Vanguard has long been recognized for
the quality and content of these Fund Reports, our overriding objective was to
maintain the character of the previous Reports, while adding information to
assist shareholders in understanding the investment characteristics of their
Fund.
THE NEW FUND REPORTS INCLUDE A MESSAGE TO SHAREHOLDERS from Chairman John C.
Bogle and President John J. Brennan. This Message continues to provide a candid
assessment of the Fund's performance relative to an appropriate unmanaged market
benchmark and a peer group of mutual funds with similar investment policies. It
also reviews the principal factors contributing to--and detracting from--the
returns earned by the Fund. To help you evaluate your Fund's current-year
performance, the Message includes a discussion of the Fund's long-term
investment results, as well as a look ahead to the prospects for the coming
year. A recap of the financial markets, which had been included as part of the
Chairman's letter, now appears in The Markets In Perspective. This overview
covers the world's financial markets, putting the results of the Fund's strategy
in a global perspective.
THE PORTFOLIO PROFILE REPRESENTS AN ADDITION TO OUR FUND REPORTS. In this day
and age, many investors use detailed statistical information to evaluate their
mutual fund holdings, and our new Portfolio Profile furnishes shareholders with
comprehensive data on key characteristics--sector diversification, volatility,
top-ten holdings, among others--that ultimately define how a Fund is likely to
perform in various market environments. For this information to be used
effectively, we include a brief description of the profiled characteristics. The
Report From The Adviser (for our traditionally managed Funds) now covers
specific topics that we have defined as being the important ones for the adviser
to address--and we do our best to ensure that this Report is written in the same
simple and candid manner that characterizes all Vanguard communications.
Finally, each Adviser's Report will include an inset reminder of the adviser's
basic investment philosophy.
WE TRUST THAT THIS REDESIGNED FUND REPORT will continue to meet your need for a
fair, candid, and clear presentation of your Fund's investment results and a
thorough portfolio review. We welcome any comments that you might have at any
time regarding these Reports.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Report From
The Adviser
6
Portfolio
Profile
8
Performance
Summary
10
Financial
Statements
11
Report Of
Independent
Accountants
20
Trustees And
Officers
INSIDE BACK COVER
<PAGE> 3
[PHOTO]
John C. Bogle
[PHOTO]
John J. Brennan
DEAR SHAREHOLDER,
The 1996 fiscal year for Vanguard Florida Insured Tax-Free Fund, which
ended on November 30, proved notable for one important reason: Relative
stability returned to the municipal bond market for the first time in the past
four years.
Interest rates fluctuated in a fairly narrow range during the
year--responding to marked shifts in investor sentiment about the strength of
the U.S. economy and the specter of inflation--but on balance the yield on
long-term U.S. Treasury bonds increased only slightly and the yield available on
long-term tax-exempt bonds was essentially unchanged. In this calmer
environment, the return of our Fund exceeded the results of its competitive fund
group (+6.5% versus +4.7%). The table at right presents the Fund's twelve-month
return as well as its income and capital components.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
INVESTMENT RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1996
- ---------------------------------------------------------
INCOME CAPITAL TOTAL
- ---------------------------------------------------------
<S> <C> <C> <C>
Vanguard Florida Insured
Tax-Free Fund +5.3% +1.2% +6.5%
- ---------------------------------------------------------
</TABLE>
The total return (capital change plus reinvested dividends) of the Fund
is based on a change in net asset value from $10.94 per share on November 30,
1995, to $11.07 per share on November 30, 1996, adjusted for dividends totaling
$0.550 per share from net investment income.
FISCAL 1996 PERFORMANCE OVERVIEW
In the taxable bond market, yields experienced some interim variability, but
ended the period just a bit higher than their beginning levels. Yields on
municipal bonds remained unchanged on balance at 5.7%, as investor concerns
about the prospect of a "flat tax" all but disappeared.
This environment of relative stability contrasted starkly with the
three previous years. During 1993, interest rates tumbled and bond prices
surged, only to reverse themselves in the rapidly rising interest-rate
environment of 1994. But in 1995, a remarkable about-face in the course of
interest rates sent bond prices soaring once again. The lesson is clear: While
bond (and bond fund) prices can fluctuate sharply over short periods, these
price swings tend to be offsetting over longer periods.
During fiscal 1996, when most municipal bond funds essentially earned
their coupons, the +6.5% annual total return for the Florida Insured Tax-Free
Fund was significantly ahead of the +4.7% annual return for the average Florida
municipal bond fund and the +5.9% return of the Lehman Municipal Bond Index. Our
margin over the Index is particularly satisfying, given that the Index incurs
none of "real world" operating expenses and transaction costs that all mutual
funds must bear.
For Florida residents, the income earned by our Fund is exempt from
federal income tax and the assets are exempt from the state intangible tax.
Given these tax advantages, investors in the Florida Insured Tax-Free Fund who
are taxed at the highest federal marginal tax rate can earn 46% more after-tax
income than they could in a comparable long-term taxable bond fund. Put another
way, for a Florida investor, a yield of 5.7% on a tax-exempt long-term portfolio
would be the equivalent of a 9.4% taxable yield.
1
<PAGE> 4
The table below presents a general comparison of the annual income
earned on tax-exempt and taxable securities as of November 30, 1996, assuming a
$100,000 investment.
Please note that this example ignores two important quality
distinctions between state- specific municipal bond funds and U.S. Treasury bond
funds: (1) U.S. Treasury bond funds hold solely Treasury securities, which are
backed by the full faith and credit of the U.S. government; and (2)
state-specific municipal bond funds incur a significant risk by concentrating
their assets in securities from a particular economic region. Of course, for
Vanguard Florida Insured Tax-Free Fund, these added risks are substantially
mitigated by private insurance, which, in effect, guarantees the full payment of
annual income and the return of principal at maturity for the municipal bonds we
hold.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
- ---------------------------------------------------------
<S> <C>
Taxable gross income $6,400
Less taxes (39.6%) (2,500)
Net after-tax income 3,900
- ---------------------------------------------------------
Tax-exempt income $5,700
- ---------------------------------------------------------
Tax-exempt income advantage $1,800
- ---------------------------------------------------------
Percentage advantage 46%
- ---------------------------------------------------------
</TABLE>
Illustration assumes current yields (as of November 30, 1996) of 6.4% for
long-term U.S. Treasury bonds and 5.7% for long-term municipals. Tax adjustment
assumes federal tax rate of 39.6%; local taxes not considered. The illustration
is not intended to represent future results.
LONG-TERM PERFORMANCE OVERVIEW
The accompanying table compares the longer-term performance of our Fund with
that of its mutual fund peer group. It also illustrates the "Vanguard
Advantage"--the performance edge our Fund provided over its competitive
standard.
Our expense ratio advantage over our typical competitor plays a key
role in our performance advantage. Our Fund maintains an expense ratio (expenses
as a percentage of average net assets) of 0.19%, compared with the 1.01% charged
by the average long-term state tax-free fund. This benefit over our competitors
has been available to our shareholders year after year with no sacrifice in
credit quality. Our investment adviser, Vanguard Fixed Income Group, also plays
a key role in our success, managing the Fund ably and maintaining a level of
investment quality that is, in our judgment, second to none in the field.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
SEP. 1, 1992, TO NOV. 30, 1996
- ------------------------------------------------------------------
AVERAGE
VANGUARD COMPETITIVE VANGUARD
FUND FUND ADVANTAGE
- ------------------------------------------------------------------
<S> <C> <C> <C>
Vanguard Florida Insured
Tax-Free Fund +8.0% +6.7% +1.3%
- ------------------------------------------------------------------
</TABLE>
IN SUMMARY
The past four years have illustrated the range of market environments that bond
fund investors may enjoy--or be forced to endure. Which of these environments is
normal for municipal bonds? The answer is probably: all of the above. In the
years ahead, there are sure to be more sharp rises in interest rates, more
sustained declines, and more years of relative tranquility. Indeed, this is part
and parcel of investing in bond funds. In the long run, however, the rate of
interest income--"the coupon"--will be the dominant source of our returns.
2
<PAGE> 5
Whatever the year-to-year turbulence of the bond market, Vanguard
Florida Insured Tax-Free Fund will do what it has always done: continue our
focus on providing returns that exceed those of competitive norms, even as we
maintain the highest standards of credit quality. As part of a long-term
investment program that includes stock funds, bond funds, and money market
funds, the Florida Insured Tax-Free Fund should prove rewarding to investors.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
Chairman of the Board President
December 18, 1996
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE: FISCAL YEAR ENDED NOVEMBER 30, 1996
[PHOTO]
U.S. EQUITY MARKETS
Few investors would have expected the stock market over the past 12 months to
come close to matching the 37.0% return of the prior 12. Yet when the past two
fiscal years are considered cumulatively, the Standard & Poor's 500 Composite
Stock Price Index has risen 75.1%. Not surprisingly, many of the factors that
drove the market higher in 1995 were also in place this year. Once again, steady
economic growth and low inflation were powerful motivators.
The equity markets were decidedly "un-equitable," however, when it came
to size and sectors. Companies with larger market values, such as those that
dominate the S&P 500 Index, prevailed. In fact, even within the Index, it was
the largest companies that turned in the best performance. The 50 biggest
companies in the S&P 500 Index (which account for roughly half its market value)
gained 31.8% in the fiscal year ended November 30, compared with an increase of
27.9% for the entire Index. Looking at the S&P 500 Index's performance by
sector, financial stocks were strongest, closing the year with a 41.9% gain.
Technology stocks were a close second, gaining 39.3%. Utilities, plagued early
in the year by higher interest rates and a rapidly changing competitive
landscape, eked out a 4.4% return, the lowest within the Index.
With the largest companies performing so well, it was difficult for
smaller issues to keep pace. This was evidenced in the considerable difference
between the 27.9% return of the S&P 500 Index and the 16.5% return of the
Russell 2000 Small Stock Index. Even for the smaller companies, there was a
significant range of performance among sectors. Energy stocks led the Russell
2000 Index with a 77.0% gain for the year. Here, rising prices, limited exposure
to the cyclical refining business, and a reduced number of competitors created a
favorable environment for the stocks. At the other end of the spectrum were
health-care stocks, which showed a loss of -0.4%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1996
- ---------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Equity
S&P 500 Index 27.9% 21.0% 18.2%
Russell 2000 Index 16.5 14.0 16.8
MSCI-EAFE Index 12.1 11.7 9.9
- ---------------------------------------------------------------------
Fixed-Income
Lehman Aggregate Bond Index 6.1% 6.5% 7.9%
Lehman 10-Year Municipal
Bond Index 5.7 6.2 8.0
Salomon 90-Day U.S. Treasury Bills 5.3 5.0 4.4
- ---------------------------------------------------------------------
Other
Consumer Price Index 3.2% 2.8% 2.9%
- ---------------------------------------------------------------------
</TABLE>
U.S. FIXED-INCOME MARKETS
As the fiscal year ended, the 30-year U.S. Treasury yield of 6.4% was modestly
higher than its 6.1% level on November 30, 1995. The relatively small difference
in these figures belies the turmoil endured by the fixed-income markets over the
past 12 months.
When the fiscal year began, "Steady as she goes" was the common wisdom.
Modest economic growth and benign inflation were expected to continue, giving
the Federal Re-
4
<PAGE> 7
serve no reason to move interest rates higher. That complacency was shattered by
an exceptionally strong February jobs report, the first of what turned out to be
a succession of signs that in fact the economy was growing at a much faster--and
potentially inflation-inducing--pace. The bond market reacted swiftly to
compensate for the perceived risk: The 30-year Treasury yield jumped from just
below 6.0% in late December to 6.7% in late March. The next several months saw a
consistent pattern in which bond yields rose on the Friday of the jobs-report
release only to fall back by the middle of the month. In reality, there was
little bite to the bark. Inflation, as measured by the Consumer Price Index,
remained near an annualized rate of 3.2%. And, as the fiscal year entered its
final quarter, evidence once again pointed to more "acceptable" levels of
growth. That--plus the market's satisfaction with the national election results
and prospects for budget action--helped bonds finish the fiscal year with a
strong rally.
The rally enabled the longer-maturity sectors of the market to overcome
performance deficits and finish the year with positive returns. Although the
specter of the Federal Reserve Board loomed large during the year, in fact the
Board acted only twice, lowering the federal funds rate by a total of 0.5%.
Corporate bonds, mortgage-backed issues, and municipals were three
relatively bright spots over the past year. The strength in earnings that
benefited stock prices extended to the corporate bond sector as well. These
bonds, especially those of lower credit quality, performed well relative to
Treasuries as there appeared to be little risk of skipped interest payments or
bankruptcy against the good earnings backdrop. The stable-to-rising
interest-rate environment throughout most of the year benefited another large
segment of the bond market--mortgages--as the threat of refinancings receded.
Finally, municipal bonds outpaced their U.S. Treasury counterparts. The sector
was shielded to a certain extent from the inflation wars of the Treasury market,
and demand outstripped supply for much of the year.
INTERNATIONAL EQUITY MARKETS
Concern about U.S. Federal Reserve Board policy appeared to drive global markets
as much as it did those in the United States. In aggregate, the markets rose
17.0%, as measured by the Morgan Stanley Capital International-Europe,
Australasia, Far East Index. A stronger dollar reduced this return to 12.1% for
U.S.-based investors.
Regionally, Europe's 22.9% return overshadowed the 1.4% generated by
the Pacific Basin. Europe's major markets continued to work toward the economic
targets that must be attained by 1999 under the Maastricht Treaty. This ongoing,
albeit bumpy, effort kept the continent's economic growth modest and gave
investors confidence. The Pacific region, of course, was dominated by the
influence of the Japanese market. Despite evidence of a strengthening economy
early in the year, Japan's market was shadowed by lingering problems in the
banking and real estate sectors and by tepid interest on the part of Japanese
investors. The dollar's appreciation against the yen had a significant impact on
returns, turning the year's 7.1% gain in yen into a -4.5% loss in dollars. In
contrast, the returns for a number of other countries in the region were quite
strong: for example, Hong Kong, 38.2%, and Malaysia, 31.8% (in U.S. dollars).
5
<PAGE> 8
REPORT FROM THE ADVISER
[PHOTO]
Yields on tax-exempt securities decreased slightly while yields on
short-term securities ended virtually unchanged in the 12 months ended November
30, 1996, the fiscal year for Vanguard Florida Insured Tax-Free Fund.
Over the 12 months, the yield on high-grade, long-term municipal bonds
declined by 8 basis points, or 0.08 percentage point, from 5.74% to 5.66%. By
way of comparison, the yield on the benchmark 30-year U.S. Treasury bond
increased by 22 basis points, from 6.13% to 6.35%. However, these relatively
small changes obscure the volatility in both markets during the course of the
year.
During the first half, reports of a solid increase in economic activity
and robust employment gains fanned fears of inflation. In reaction, by June the
fixed-income market had driven up the yields on the 30-year Treasury bond and on
long-term, high-grade municipal bonds to 7.19% and 6.22%, respectively. But as
the economy cooled from its earlier torrid pace, investors grew more confident
that the Federal Reserve Board would not have to tighten monetary policy, and
yields fell back nearly to their levels at the start of the year.
FLAT-TAX TRAUMA
For municipal bonds, the issue of tax reform grew in importance in early 1996.
Various flat-tax proposals either directly or indirectly threatened the
tax-exempt privilege of municipal securities. In its basic form, a flat tax
would reduce the current hierarchy of income-tax rates to only one lower level
for all earned income. Unearned income (interest, dividends, and capital gains)
would not be taxed at all. Since all interest would be exempt from federal
income tax, municipal bond interest payments would no longer offer a special tax
benefit. Early in the fiscal year, concern about such proposals caused the
prices of municipal bonds to fall relative to those of taxable bonds, enabling
municipal investors to purchase high-grade, tax-exempt bonds with attractive
yields--as high as 94% of comparable U.S. Treasury obligations.
However, as a campaign issue, the complete overhaul of the federal tax
system bombed by early summer. The flat tax suffered a peaceful demise upon the
nomination of Bob Dole and was effectively buried with the reelection of
President Clinton. By the end of the year, with the flat-tax trauma a thing of
the past, the ratio of tax-exempt yields to taxable yields fell to 89%. The
relative outperformance of municipals came despite an increase late in the year
in the supply of new tax-exempt bond issues, which raised the tax-
exempt/taxable yield ratio from a low of 84% in August.
INVESTMENT PHILOSOPHY
The Fund reflects a belief that a high level of current income exempt from
federal income tax and Florida's intangible personal property tax can be
achieved by investing primarily in long-term insured bonds issued by state,
county, and municipal governments in Florida.
THE EXPENSE RATIO ADVANTAGE
For 1996, Vanguard Florida Insured Tax-Free Fund provided a positive rate of
return, roughly commensurate with the dividends derived from interest income on
the Fund. Because market yields changed only slightly over the year, income was
the dominant component of total
6
<PAGE> 9
return. In this environment, Vanguard's low expense ratio provided a powerful
advantage in maximizing the tax-exempt return to shareholders. The lower expense
ratio allows more investment income to flow directly to shareholders, which
translates into higher Fund returns. Over time, this has the powerful and
enduring effect of contributing to superior performance.
Looking ahead, we believe that the tax-exempt investment arena will
continue to provide above-average value to shareholders who seek a high-quality
investment with durable and attractive after-tax returns. This is especially
true for our State Tax-Free Portfolios, which offer the extra benefit of income
that is exempt from state, as well as federal, taxes.
Ian A. MacKinnon, Senior Vice President
Pamela W. Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Vanguard Fixed Income Group
December 16, 1996
7
<PAGE> 10
PORTFOLIO PROFILE: FLORIDA INSURED TAX-FREE FUND
NOVEMBER 30, 1996
This Profile provides a snapshot of the Fund's characteristics, compared where
appropriate to an unmanaged index. Key elements of this Profile are defined on
page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -------------------------------------------
<S> <C>
Number of Issues 115
Yield 4.9%
Yield to Maturity* 5.0%
Average Coupon 5.7%
Average Maturity 13.5 years
Average Quality Aaa
Average Duration 8.3 years
Expense Ratio 0.19%
</TABLE>
*After expenses.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
FLORIDA INSURED LEHMAN
TAX-FREE FUND INDEX*
- -------------------------------------------
<S> <C> <C>
R-Squared 0.95 1.00
Beta 1.13 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------
<S> <C>
Under 1 Year 9.3%
1-5 Years 1.8
5-10 Years 24.6
10-20 Years 43.0
20-30 Years 21.3
Over 30 Years --
- -------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- -------------------------------------------
[FIGURE 1]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------
<S> <C>
Aaa 94.1%
Aa 5.9
A --
Baa --
Ba --
B --
Not Rated --
- -------------------------------------------
Total 100.0%
</TABLE>
8
<PAGE> 11
AVERAGE COUPON. The average interest rate, expressed as a percentage of face
value, paid on the securities held by a portfolio.
AVERAGE DURATION. An estimate of how much a portfolio's share price will
fluctuate in response to a change in interest rates. To estimate the price
sensitivity of a portfolio, multiply its duration by the change in rates. If
interest rates rise by one percentage point, the share price of a portfolio with
an average duration of five years would decline by about 5%. If rates decrease
by a percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by the portfolio
reach maturity and are repaid. In general, the longer the average maturity, the
more a portfolio's share price will fluctuate in response to changes in market
interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
credit ratings assigned to the portfolio's securities holdings by credit-rating
agencies. Agencies assign credit ratings after appraising an issuer's ability to
meet its obligations.
Quality is graded on a scale, with Aaa indicating the most creditworthy bond
issuers.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the fluctuations in the overall market (or appropriate market
index). The market, or index, has a beta of 1.00, so a portfolio with a beta of
1.20 would have seen its share price rise or fall by 12% when the overall market
rose or fell by 10%.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or other
credit problems on securities held by the portfolio.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors. The average expense ratio in 1995 for state tax-free bond
funds was 1.01%; for state tax-free money market funds, the figure was 0.59%.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of a portfolio's net asset value, is based on income earned by the
portfolio over the past 30 days (7 days for money market portfolios) and is
annualized, or projected forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
9
<PAGE> 12
PERFORMANCE SUMMARY: FLORIDA INSURED TAX-FREE 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 so that an investment in the Fund
could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 9/1/92-11/30/96
- ----------------------------------------------
FLORIDA INSURED TAX-FREE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------
<S> <C> <C> <C> <C>
1992 1.6% 1.2% 2.8% 1.8%
1993 6.9 5.5 12.4 11.1
1994 -11.0 4.9 -6.1 -5.2
- ----------------------------------------------
<CAPTION>
- ----------------------------------------------
FLORIDA INSURED TAX-FREE FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------
<S> <C> <C> <C> <C>
1995 13.8% 6.3% 20.1% 18.9%
1996 1.2 5.3 6.5 5.9
- ----------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 17 for dividend and capital gains
information since the Fund's inception.
CUMULATIVE PERFORMANCE: 9/1/92-11/30/96
<TABLE>
<S> <C> <C> <C>
1992 09 10000 10000 10000
1992 11 10284 10196 10179
1993 02 11020 10901 10778
1993 05 11087 10930 10833
1993 08 11489 11382 11257
1993 11 11558 11442 11307
1994 02 11621 11463 11375
1994 05 11403 11063 11100
1994 08 11500 11145 11277
1994 11 10855 10475 10716
1995 02 12057 11514 11593
1995 05 12475 12077 12115
1995 08 12465 12008 12278
1995 11 13031 12592 12742
1996 02 13230 12645 12874
1996 05 12950 12475 12669
1996 08 13241 12614 12921
1996 11 13872 13183 13492
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Insured Tax-Free Fund 6.45% 8.01% $13,872
Average Florida Municipal Fund 4.69 6.72 13,183
Lehman Municipal Bond Index 5.88 7.31 13,492
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- ---------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Florida Insured Tax-Free Fund 9/1/92 6.90% 2.04% 5.41% 7.45%
- ---------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Fund's fiscal year end.
10
<PAGE> 13
[PHOTO]
FINANCIAL STATEMENTS
NOVEMBER 30, 1996
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the 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).
Securities are grouped and subtotaled according to their insured or non-insured
status. Other assets are added to, and liabilities are subtracted from, the
value of Total Municipal Bonds to calculate the 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>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FLORIDA INSURED TAX-FREE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.4%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (89.8%)
Alachua County FL Health Fac. (Shands Teaching Hosp.) 3.50% 12/4/96 (1) $ 3,000 $ 3,000
Alachua County FL Health Fac. (Shands Teaching Hosp.) 6.25% 12/1/11 (1) 3,095 3,424
Alachua County FL Health Fac. (Shands Teaching Hosp.) 6.25% 12/1/16 (1) 8,695 9,764
Allegany FL Health System Rev. (St. Mary's Hosp.) 5.00% 12/1/12 (1) 7,380 7,120
Boynton Beach FL Utilities System 6.25% 11/1/20 (3) 2,085 2,203
Boynton Beach FL Utilities System 6.25% 11/1/20 (3)(ETM) 415 452
Brevard County FL Health Fac. (Holmes Medical Center) 5.625% 10/1/14 (1) 3,000 3,052
Broward County FL Solid Waste 5.75% 7/1/13 (1) 4,130 4,234
Canaveral FL Port Auth. 6.00% 6/1/06 (3) 1,000 1,074
Charlotte County FL Utility System 5.25% 10/1/11 (3) 1,070 1,065
Charlotte County FL Utility System 5.625% 10/1/21 (3)+ 3,000 3,014
Charlotte County FL Utility System 6.75% 10/1/13 (3) 2,750 3,158
Charlotte County FL Utility System 6.875% 10/1/21 (3) 8,500 9,824
Collier County FL COP 6.25% 2/15/13 (4) 12,500 13,939
Coral Springs FL Improvement Dist. GO 6.00% 6/1/10 (1) 2,300 2,514
Dade County FL Health Fac. Auth. (Baptist Hosp. Miami) 5.25% 5/15/13 (1) 5,500 5,375
Dade County FL School GO 6.125% 6/1/14 (1) 6,660 7,089
Dade County FL School GO 6.875% 8/1/02 (1) 5,000 5,620
Dade County FL Seaport GO 5.125% 10/1/26 (1) 6,000 5,739
Dade County FL Seaport GO 6.25% 10/1/01 (2)(Prere.) 2,000 2,190
Dade County FL Seaport GO 6.50% 10/1/01 (2)(Prere.) 4,090 4,524
Dade County FL Water & Sewer System Rev. VRDO 3.50% 12/4/96 (3) 9,145 9,145
Dade County FL Water & Sewer System Rev. 5.50% 10/1/15 (3) 2,000 2,003
Dade County FL Water & Sewer System Rev. 6.25% 10/1/07 (3) 1,000 1,122
Dade County FL Water & Sewer System Rev. 6.25% 10/1/09 (3) 1,500 1,685
Davie FL Water & Sewer 6.375% 10/1/12 (2) 2,500 2,832
Dunedin FL Utility System 6.75% 10/1/08 (3) 1,115 1,305
Dunedin FL Utility System 6.75% 10/1/10 (3) 2,465 2,881
Florida Dept. of General Services Fac. 5.70% 9/1/20 (2) 3,000 3,044
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FLORIDA INSURED TAX-FREE FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.4%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida Municipal Power Agency (Tricity Project) 5.00% 10/1/10 (2) $ 4,340 $ 4,255
Florida Turnpike Auth. 5.00% 7/1/16 (3) 3,700 3,518
Florida Turnpike Auth. 5.50% 7/1/17 (3) 12,025 12,042
Fort Pierce FL Utilities Auth. 5.25% 10/1/16 (2) 9,000 8,783
Greater Orlando FL Aviation Auth. 6.10% 10/1/06 (2) 2,500 2,705
Gulf Breeze FL Local Govt. Pooled Loan Program VRDO 3.55% 12/5/96 (3) 10,495 10,495
Hillsborough County FL IDA (Univ. Community Hosp.) 6.50% 8/15/19 (1) 14,600 16,875
Hillsborough County FL School Board COP 5.25% 7/1/17 (1) 12,000 11,851
Hillsborough County FL School Board COP 5.625% 7/1/15 (2) 6,500 6,512
Indian River County FL Water & Sewer 5.25% 9/1/18 (3) 6,415 6,268
Indian River County FL Water & Sewer 6.50% 9/1/08 (3) 2,540 2,914
Jacksonville FL Capital Improvement (Gator Bowl Project) 5.50% 10/1/19 (2) 5,850 5,797
Jacksonville FL Water & Sewer 5.00% 10/1/20 (1) 3,000 2,832
Kissimee FL Utility Auth. Electric System 5.25% 10/1/18 (3) 2,500 2,424
Lakeland FL Electric & Water 6.00% 10/1/14 (3) 2,000 2,187
Lakeland FL Electric & Water 6.50% 10/1/09 (3) 5,000 5,735
Lee County FL School Board COP 6.00% 8/1/07 (4) 5,820 6,337
Lee County FL School Board COP 6.00% 8/1/08 (4) 6,180 6,710
Marion County FL Hosp. Dist. (Monroe Regional Medical Center) 6.20% 10/1/07 (3) 1,000 1,082
Melbourne FL Water & Sewer 6.375% 10/1/12 (3) 1,000 1,079
Miami Beach FL Health Fac. Auth. (Mt. Sinai Medical Center) 6.125% 11/15/14 (4) 1,250 1,316
Miami Beach FL Health Fac. Auth. (Mt. Sinai Medical Center) 6.25% 11/15/08 (4) 2,000 2,178
Miami FL GO 5.90% 12/1/08 (3) 1,000 1,093
Miami FL GO 6.00% 12/1/09 (3) 1,380 1,519
Naples FL Hosp. Rev. 5.50% 10/1/16 (1) 4,250 4,224
Naples FL Hosp. Rev. 5.50% 10/1/26 (1) 5,180 5,105
Ocala FL Water & Sewer 5.50% 10/1/15 (2) 4,550 4,558
Ocala FL Water & Sewer 6.00% 10/1/05 (2) 2,565 2,819
Ocala FL Water & Sewer 6.00% 10/1/10 (2) 2,435 2,666
Orange County FL Health Auth. Hosp. (Adventist for Sunbelt Group) 5.50% 11/15/15 (2) 1,250 1,243
Orange County FL Health Auth. Hosp. (Adventist for Sunbelt Group) 6.25% 11/15/08 (2) 4,570 5,051
Orange County FL Health Auth. Hosp. (Adventist for Sunbelt Group) 6.25% 11/15/10 (2) 6,015 6,557
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/09 (1) 6,980 7,785
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/10 (1) 7,435 8,276
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/11 (1) 3,910 4,352
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/13 (1) 2,465 2,738
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/16 (1) 5,500 6,158
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/18 (1) 2,700 3,029
Orange County FL Solid Waste 6.375% 10/1/17 (3) 3,500 3,773
Orange County FL Tourist Dev. 5.90% 10/1/10 (1) 1,250 1,353
Orange County FL Tourist Dev. 6.50% 10/1/19 (2) 4,000 4,425
Orlando & Orange County FL Expressway Auth. 5.375% 7/1/11 (2) 5,000 5,019
Orlando & Orange County FL Expressway Auth. 6.50% 7/1/10 (3) 2,000 2,285
Osceola County FL Gas Tax Rev. 5.90% 4/1/08 (3) 1,805 1,920
Palm Beach County FL Criminal Justice Fac. 5.375% 6/1/07 (3) 5,280 5,510
Palm Beach County FL Criminal Justice Fac. 5.375% 6/1/08 (3) 2,375 2,478
Palm Beach County FL Criminal Justice Fac. 5.375% 6/1/11 (3) 1,120 1,148
Palm Beach County FL Criminal Justice Fac. 7.20% 6/1/15 (3) 3,000 3,699
Pinellas County FL Health Fac. Auth. (Morton Plant Hosp.) 5.25% 11/15/12 (1) 2,705 2,679
Pinellas County FL Water 4.50% 10/1/97 (2) 7,185 7,242
Port of Palm Beach FL 5.50% 9/1/19 (1) 1,370 1,371
Reedy Creek FL Improvement 5.00% 6/1/19 (2) 2,000 1,897
St. Lucie County FL Utility System 5.50% 10/1/15 (3)(ETM) 5,000 5,031
St. Lucie County FL Utility System 6.00% 10/1/20 (3)(ETM) 3,165 3,323
St. Lucie County FL Utility System 6.00% 9/1/24 (3) 11,750 12,206
St. Lucie County FL Utility System 6.50% 10/1/08 (1)(ETM) 4,910 5,533
Sarasota County FL Utility System 5.75% 10/1/12 (3) 4,325 4,440
Sarasota County FL Utility System 7.00% 10/1/09 (3) 6,260 7,475
Seacoast FL Utility Auth. 5.00% 3/1/19 (3) 7,450 7,020
Seacoast FL Utility Auth. 5.50% 3/1/10 (3) 2,500 2,533
Seacoast FL Utility Auth. 5.50% 3/1/17 (3) 2,400 2,450
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seacoast FL Utility Auth. 5.50% 3/1/19 (3) $ 1,595 $ 1,630
Seminole County FL School Board COP 6.125% 7/1/14 (1) 1,000 1,061
Seminole County FL School Board COP 6.125% 7/1/19 (1) 2,500 2,628
Seminole County FL School Board COP 6.50% 7/1/21 (1) 2,750 3,110
Seminole County FL Water & Sewer Rev. 6.00% 10/1/09 (1) 1,800 1,980
Seminole County FL Water & Sewer Rev. 6.00% 10/1/12 (1) 5,000 5,462
Seminole County FL Water & Sewer Rev. 6.00% 10/1/19 (1) 7,500 8,180
Sunrise FL Utility System 5.75% 10/1/16 (2) 2,000 2,048
Sunrise FL Utility System 5.75% 10/1/21 (2) 5,300 5,407
Tamarac FL Water & Sewer Utility 5.90% 10/1/11 (3) 3,980 4,302
Tampa FL Water & Sewer 6.25% 10/1/02 (3)(Prere.) 7,395 8,174
Tampa FL Water & Sewer 6.25% 10/1/12 (3) 5,805 6,151
Titusville FL Water & Sewer 6.00% 10/1/24 (1) 2,500 2,617
West Palm Beach FL Public Service Tax 6.125% 3/1/10 (1) 1,560 1,644
--------
462,663
--------
NON-INSURED (9.6%)
Florida Board of Educ. 5.00% 6/1/12 6,000 5,805
Florida Board of Educ. 6.75% 4/1/01 (Prere.) 2,000 2,220
Florida State Housing Finance Agency 6.25% 7/1/11 1,830 1,890
Florida State Housing Finance Agency 6.35% 7/1/14 2,295 2,376
Gainesville FL Utility System 6.50% 10/1/12 1,500 1,715
Hillsborough County FL IDA PCR VRDO (Tampa Electric Co. Project) 4.10% 12/3/96 7,080 7,080
Hillsborough County FL IDA PCR VRDO (Tampa Electric Co. Project) 4.15% 12/3/96 100 100
Orlando FL Utilities Comm. 6.75% 10/1/17 11,700 13,906
Palm Beach County FL VRDO (Norton Gallery of Art) 3.55% 12/4/96 LOC 3,000 3,000
St. Lucie County FL PCR VRDO (Florida Power & Light) 4.10% 12/31/96 9,300 9,300
Tallahassee FL Consolidated Utility System 6.20% 10/1/19 2,000 2,113
--------
49,505
--------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $485,874) 512,168
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.6%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 7,305
Liabilities (4,424)
--------
2,881
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 46,521,135 outstanding shares of beneficial interest
(unlimited authorization--no par value) $515,049
=========================================================================================================================
NET ASSET VALUE PER SHARE $11.07
=========================================================================================================================
*See Note A in Notes To Financial Statements.
For explanations of abbreviations and other references, see page 14 .
- -------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $492,284 $10.58
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (3,529) (.08)
Unrealized Appreciation--Note F 26,294 .57
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $515,049 $11.07
=========================================================================================================================
</TABLE>
13
<PAGE> 16
KEY TO ABBREVIATIONS
BAN--Bond Anticipation Note.
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation.
IDA--Industrial Development Authority Bond.
IDR--Industrial Development Revenue Bond.
PCR--Pollution Control Revenue.
RAN--Revenue Anticipation Note.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
TRAN--Tax Revenue Anticipation Note.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
+Security purchased on a when-issued or delayed delivery basis for which the
Fund has not taken delivery as of November 30, 1996.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association).
(2) AMBAC (AMBAC Indemnity Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
(5) BIGI (Bond Investors Guaranty Insurance).
(6) Connie Lee Inc.
(7) FHA (Federal Housing Authority).
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
14
<PAGE> 17
STATEMENT OF OPERATIONS
This Statement shows interest earned by the 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 the
Fund invested in futures contracts during the period, the results of these
investments are shown separately.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FLORIDA INSURED TAX-FREE FUND
YEAR ENDED NOVEMBER 30, 1996
(000)
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interest $ 24,598
--------
Total Income 24,598
--------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 58
Management and Administrative 689
Marketing and Distribution 107
Custodian Fees 13
Auditing Fees 7
Shareholders' Reports 23
Annual Meeting and Proxy Costs 3
Trustees' Fees and Expenses 1
--------
Total Expenses 901
Expenses Paid Indirectly--Note C (13)
--------
Net Expenses 888
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 23,710
- -------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold 919
Futures Contracts 957
- -------------------------------------------------------------------------------
REALIZED NET GAIN 1,876
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 2,956
Futures Contracts 1,355
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 4,311
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 29,897
===============================================================================
</TABLE>
15
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the Fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information that is
detailed in the Statement of Operations. Because the 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 capi-tal 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
FLORIDA INSURED TAX-FREE FUND
YEAR ENDED NOVEMBER 30,
----------------------------
1996 1995
(000) (000)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 23,710 $ 19,041
Realized Net Gain (Loss) 1,876 (5,245)
Change in Unrealized Appreciation (Depreciation) 4,311 49,211
----------------------------
Net Increase in Net Assets Resulting from Operations 29,897 63,007
----------------------------
DISTRIBUTIONS
Net Investment Income (23,710) (19,041)
Realized Capital Gain -- --
----------------------------
Total Distributions (23,710) (19,041)
----------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 207,879 178,020
Issued in Lieu of Cash Distributions 15,310 12,044
Redeemed (137,644) (94,400)
----------------------------
Net Increase from Capital Share Transactions 85,545 95,664
- --------------------------------------------------------------------------------------------
Total Increase 91,732 139,630
- --------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 423,317 283,687
----------------------------
End of Year $515,049 $423,317
============================================================================================
(1)Shares Issued (Redeemed)
Issued 19,106 17,155
Issued in Lieu of Cash Distributions 1,413 1,144
Redeemed (12,696) (9,131)
----------------------------
Net Increase in Shares Outstanding 7,823 9,168
============================================================================================
</TABLE>
16
<PAGE> 19
FINANCIAL HIGHLIGHTS
This table summarizes the 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FLORIDA INSURED TAX-FREE FUND
YEAR ENDED NOVEMBER 30,
---------------------------------------------- SEP. 1* TO
- ------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1996 1995 1994 1993 NOV. 30, 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.94 $ 9.61 $10.86 $10.16 $10.00
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .550 .560 .550 .537 .122
Net Realized and Unrealized Gain (Loss) on Investments .130 1.330 (1.180) .700 .160
- ------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .680 1.890 (.630) 1.237 .282
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.550) (.560) (.550) (.537) (.122)
Distributions from Realized Capital Gains -- -- (.070) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (.550) (.560) (.620) (.537) (.122)
==============================================================================================================================
NET ASSET VALUE, END OF PERIOD $11.07 $ 10.94 $ 9.61 $10.86 $10.16
==============================================================================================================================
TOTAL RETURN 6.45% 20.05% -6.08% 12.38% 2.84%
==============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $515 $423 $284 $269 $63
Ratio of Total Expenses to Average Net Assets 0.19% 0.21% 0.22% 0.21% 0.24%**
Ratio of Net Investment Income to Average Net Assets 5.09% 5.33% 5.31% 5.01% 5.10%**
Portfolio Turnover Rate 19% 20% 43% 34% 15%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
17
<PAGE> 20
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, or mutual fund. The 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 Florida.
A. The following significant accounting policies conform with generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Bonds, and temporary cash investments acquired more
than 60 days to maturity, are valued using the latest bid prices or using
valuations based on a matrix system (which considers such factors as security
prices, yields, maturities, and credit ratings), both as furnished by
independent pricing services. Other temporary cash investments are valued at
amortized cost, which approximates market value.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. FUTURES CONTRACTS: The 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.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Trustees. At November 30, 1996, the Fund had contributed capital of $45,000 to
Vanguard (included in Other Assets), representing 0.2% of Vanguard's
capitalization. The Fund's trustees and officers are also directors and officers
of Vanguard.
C. The Fund's custodian bank has agreed to reduce its fees when the Fund
maintains cash on deposit in the non-interest-bearing custody account. For the
year ended November 30, 1996, custodian fee offset arrangements reduced expenses
by $13,000.
18
<PAGE> 21
D. During the year ended November 30, 1996, the Fund purchased $144,172,000 of
investment securities and sold $80,631,000 of investment securities, other than
temporary cash investments.
E. Capital gains (losses) may be realized in a different time period for tax
purposes than for financial reporting purposes. At November 30, 1996, the Fund
had available a capital loss carryforward of $304,000 to offset future net
capital gains through November 30, 2003.
F. At November 30, 1996, net unrealized appreciation of investment securities
for financial reporting and federal income tax purposes was $26,294,000,
consisting of unrealized gains of $26,450,000 on securities that had risen in
value since their purchase and $156,000 in unrealized losses on securities that
had fallen in value since their purchase.
19
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Trustees of
Vanguard Florida Insured Tax-Free Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard Florida Insured Tax-Free Fund (the "Fund") at November 30, 1996, and
the results of its operations, the changes in its net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 31, 1996
SPECIAL 1996 TAX INFORMATION (UNAUDITED)
VANGUARD FLORIDA INSURED TAX-FREE FUND
This information for the fiscal year ended November 30, 1996, is included
pursuant to provisions of the Internal Revenue Code.
The Fund designates 100% of its income dividends as exempt-interest
dividends.
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
20
<PAGE> 23
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer Inc.;
Director of Sun Company, Inc. and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and
Massa-chusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corp., Baker Fentress & Co., The Jeffrey Co., and Southern New
England Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co.,
and The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey &
Co. and President of New York University; Director of Pacific Gas and
Electric Co., Procter & Gamble Co., and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment
companies in The Vanguard Group.
RICHARD F. HYLAND, Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of
each of the investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President, Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President, Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[VANGUARD LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
[email protected] http://www.vanguard.com
All Vanguard Funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses may
be obtained directly from The Vanguard Group.
(c) 1996 Vanguard Marketing Corporation, Distributor
<PAGE> 24
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity-International
Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q180-11/96
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