<PAGE> 1
VANGUARD
FLORIDA INSURED
TAX-FREE FUND
Annual Report
November 30, 1997
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 2
[PHOTO]
OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 6,000 highly motivated
men and women--who form the cornerstone of our operations. As with any
cornerstone, we could not survive long--let alone prosper--without it. That's
why we chose this fiscal year's annual report to celebrate the spirit,
enthusiasm, and achievements of our crew. (We call those who work at Vanguard
crew members, not employees, because they operate as a team to accomplish our
mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving you
in the years ahead.
[PHOTO]
John J. Brennan
President
[PHOTO]
John C. Bogle
Chairman
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
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
DEAR SHAREHOLDER,
During the twelve months ended November 30--Vanguard Florida Insured Tax-Free
Fund's 1997 fiscal year--the prices of tax-exempt bonds edged higher, reflecting
a modest decline in long-term interest rates in the face of continued mild
inflation. Short-term interest rates, on the other hand, moved slightly higher.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
COMPONENTS OF TOTAL RETURN
FISCAL YEAR ENDED NOVEMBER 30, 1997
-----------------------------------
INCOME CAPITAL TOTAL
- --------------------------------------------------------------------
<S> <C> <C> <C>
Insured Tax-Free Fund +5.2% +1.3% +6.5%
- --------------------------------------------------------------------
</TABLE>
In this environment, our Fund's +6.5% return matched that of its average
peer. The table at right presents our twelve-month return, as well as its income
and capital components.
Our total return (capital change plus reinvested dividends) is based on a
change in net asset value from $11.07 per share on November 30, 1996, to $11.21
per share on November 30, 1997, adjusted for dividends totaling $0.561 per share
from net investment income. At the end of the fiscal year, the Fund's yield
stood at 4.70%.
FISCAL 1997 PERFORMANCE OVERVIEW
Steady economic growth teamed with low inflation to create a near-perfect
environment for investors over the past twelve months. Interest rates began the
period heading higher, a climb that was punctuated in March when the Federal
Reserve Board raised its target for short-term rates by 25 basis points.
However, that small increase was the only Fed action of the year. After peaking
in mid-April, the yield on the benchmark U.S. Treasury long-term bond headed
down to end the twelve months at 6.05%, more than one full percentage point
lower than its apex of 7.17% on April 14. Yields on high-grade, long-term
municipal bonds ended the period at 5.36%, down from 5.66% at the end of
November 1996.
While the economic environment was kind to bonds, it truly worked wonders
for equities. Low inflation, continued strong growth in corporate earnings, and
a record level of consumer confidence combined to drive stocks upward. Despite a
severe shock in late October, the Standard & Poor's 500 Composite Stock Price
Index posted a return of +28.5% for the fiscal year ended November 30.
This year's generally placid interest-rate environment marked the second
straight year of relative tranquillity in the bond market. However, we need not
look far back for evidence that calm is by no means a constant in the bond
market. During fiscal 1995, bond prices soared as interest rates fell sharply.
Just the opposite was true during 1994 when the bond market suffered one of its
worst years ever. For bond fund investors, the important lesson is that
fluctuations in bond (and bond fund) prices, which can have a significant impact
on bond fund returns from year to year, tend to wash away over longer periods,
leaving the rate of interest income--the coupon--as the dominant source of
long-term returns.
The +6.5% annual total return for the Florida Insured Tax-Free Fund equaled
that of the average Florida municipal bond fund, but fell behind the +7.2%
return of the Lehman Brothers Municipal Bond Index. This "all-state" Index is a
tough standard for any single state tax-free fund existing, as it does, outside
the real world of operating expenses and transaction costs. Our total return
received a slight boost from the price
1
<PAGE> 4
increase engendered by the decrease in interest rates, but the lion's share of
our return during the twelve months came from interest income.
THE MUNICIPAL BOND TAX ADVANTAGE
Because the income earned by our Fund is exempt from federal income taxes,
investors in the Florida Insured Tax-Free Fund who are taxed at the highest
marginal tax rate can earn 46% more after-tax income than they could in a
comparable long-term taxable bond fund. Put another way, a yield of 5.4% on a
tax-exempt long-term portfolio would be the equivalent of a 8.9% taxable yield
to Florida taxpayers subject to the highest tax rate. This advantage is truly
remarkable as reflected in the adjacent table, which generally compares the
annual net income earned on tax-exempt and taxable securities as of November 30,
1997, assuming a $100,000 investment.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
- -----------------------------------------------------------------
<S> <C>
Taxable gross income $6,100
Less taxes (39.6%) (2,400)
Net after-tax income 3,700
- ----------------------------------------------------------------
Tax-exempt income $5,400
- ----------------------------------------------------------------
Tax-exempt income advantage $1,700
- ----------------------------------------------------------------
Percentage advantage 46%
- ----------------------------------------------------------------
</TABLE>
The illustration assumes current yields (as of November 30, 1997) of 6.1% for
long-term U.S. Treasury bonds and 5.4% for long-term municipals. The tax
adjustment assumes the top federal tax rate of 39.6%; local taxes are not
considered. The illustration is not intended to represent future results.
We emphasize that these examples ignore two important differences in credit
quality between state-specific municipal bond funds and U.S. Treasury bond
funds: (1) Treasuries 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 assets in securities from a particular economic region.
For our Fund, the added credit risk is 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.
LONG-TERM PERFORMANCE OVERVIEW
The accompanying table compares the Fund's performance with that of its average
peer over the more than five years since the Fund's inception. It also
illustrates our performance edge over our competitors--a difference we call the
"Vanguard Advantage."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
TOTAL RETURNS
SEPTEMBER 1, 1992,* TO NOVEMBER 30, 1997
------------------------------------------------------------
AVERAGE FINAL VALUE OF A
ANNUAL RATE $10,000 INITIAL INVESTMENT**
--------------------- -----------------------------------
AVERAGE AVERAGE
VANGUARD COMPETING VANGUARD COMPETING VANGUARD
FUND FUND FUND FUND ADVANTAGE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insured Tax-Free Fund +7.7% +6.7% $14,779 $14,036 $743
- -------------------------------------------------------------------------------------
</TABLE>
*Fund inception.
**Total Return, assuming reinvestment of all income dividends and capital gains
distributions.
Our expense-ratio advantage over our typical competitor plays a key role in
our performance advantage. Our Fund maintains an expense ratio (annual expenses
as a percentage of average net assets) of about 0.20%, compared with the 1.04%
expense ratio of the average competitive long-term state tax-free fund. This
cost savings versus our competitors, which flows directly to our shareholders,
has been available year after year, and we expect it to continue to aid us
2
<PAGE> 5
in our goal of providing returns that exceed those of our average competitor.
Vanguard Fixed Income Group plays a key role too, managing the Fund ably and
maintaining a level of investment quality that we believe is without peer in the
industry.
Over the past several years--indeed, on balance for more than 15
years--bond investors have benefited from returns that are above longer-term
averages. Because long-term yields are at lower levels today than for most of
the recent past, it is virtually certain that returns for the next decade will
not match those of the past decade.
IN SUMMARY
Bond investors have enjoyed a long period of generally declining interest rates,
while stock investors have experienced a stretch that is nothing short of
remarkable. But a sensible investor understands that the financial markets are
not a one-way street. Risk is an ever-present element of investing, even when
the markets are providing generous rewards.
That said, the greatest risk is not investing in the first place. We
believe that a sound method for dealing with risk is to construct a balanced
investment program of stock funds, bond funds, and reserves, one that is suited
to your objectives, financial situation, tolerance for risk, and time horizon.
If you have such a program in place, you should be prepared to "stay the course"
toward your investment goals, no matter what lies ahead.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
December 17, 1997
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE
Year Ended November 30, 1997
U.S. EQUITY MARKETS
The fiscal year ended November 30 tested investors' mettle on a number of
occasions, but most ended on a positive note. The increasingly global nature of
investing has rarely been more in evidence than it was over the period. Turmoil
in Southeast Asia raised serious questions about future growth in the region
and, significantly, called into question the earnings outlook for U.S. companies
with exposure there.
Over the 12 months, large-capitalization stocks continued their advance,
propelling the S&P 500 Index to a 28.5% gain. Small-cap stocks also fared well,
as illustrated by the 23.4% increase of the Russell 2000 Index. These gains
withstood a rocky October, when the sharp declines in Asian markets led many
investors to question their expectations regarding U.S. equities. Although the
domestic market dropped substantially--the Dow Jones Industrial Average fell 554
points, or 7.2%, on October 27--it then rebounded smartly over the next few
days.
Among large-cap stocks, the financial services sector was again one of the
best performers, with an increase of 34.8% in fiscal 1997. Also noteworthy was a
November surge in utility stocks, which brought that sector's 12-month return up
to 34.5%. Utilities, those seemingly perennial cellar-dwellers, were boosted by
a drop in interest rates and by a general consensus that their valuations at
last adequately reflected the risks associated with the new competitive
landscape. In the final quarter of the fiscal year, utility stocks jumped 23.6%,
roughly three times the return generated by the S&P 500 Index (6.7%). In sharp
contrast were a number of market sectors that felt the brunt of the disarray in
Asian economies and--while showing positive gains for the year--turned in
negative fourth fiscal quarters. As the fiscal year ended, there were growing
indications from technology and manufacturing companies that the economic
distress in Southeast Asia would likely reduce their current and future
earnings.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1997
---------------------------------
1 YEAR 3 YEARS 5 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 28.5% 31.1% 20.2%
Russell 2000 Index 23.4 22.7 16.8
MSCI EAFE Index -0.1 6.5 11.6
- -----------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 7.6% 10.3% 7.6%
Lehman 10-Year Municipal Bond Index 7.1 10.3 7.5
Salomon Brothers Three-Month
U.S. Treasury Bill Index 5.2 5.4 4.7
- -----------------------------------------------------------------------------
OTHER
Consumer Price Index 1.8% 2.6% 2.6%
- -----------------------------------------------------------------------------
</TABLE>
While small-company stocks failed to match the outsized advance of the S&P
500 Index, their performance grew notably stronger in the second half of the
fiscal year. For the year, the Russell 2000 Index gained 23.4%. During the
second six months, the Russell 2000's 13.8% essentially matched the S&P 500's
13.6%. The improved performance of smaller companies cannot be attributed to any
single factor, but is, rather, due to a combination of attractive valuations and
good earnings.
4
<PAGE> 7
U.S. FIXED-INCOME MARKETS
Bonds were overshadowed by stocks for much of the year. Investors' returns from
bonds, however, were quite respectable. As the year progressed, investors grew
more confident that four seemingly strange bedfellows--strong economic growth,
reasonable inflation, low unemployment, and stable wage growth--would continue
to coexist peacefully. As a result, when interest rates dipped noticeably toward
the fiscal year's end, they fell furthest for issues with the longest
maturities. The yield on the 30-year U.S. Treasury bond closed the fiscal year
at 6.05%, compared to 6.35% on November 30, 1996. Falling rates flattened the
yield curve considerably: Only 0.85% separated the yield on Treasury bills from
the yield on the 30-year issue, down from a spread of 1.22% at the previous
fiscal year-end.
The positive effect of the yield drop on bond prices was apparent in the
7.6% return of the Lehman Aggregate Bond Index, the broadest measure of
investment-grade issues. Investors in lower-quality securities fared even
better, as shown by the 12.6% gain of the Lehman High Yield Bond Index. The
strength of the economy, together with the lack of inflationary pressure,
produced an ideal environment for junk bonds.
INTERNATIONAL EQUITY MARKETS
Arguably, investors' greatest disappointments were in international
markets--and, of course, Asian markets in particular. During the fiscal year,
the Morgan Stanley Capital International (MSCI) Pacific Index declined by 26.3%
in U.S. dollar terms; the index fell 17.3% in the fourth quarter alone. Among
individual markets, the fiscal year saw sharp declines (in U.S. dollar terms) in
Japan, down 24.5%, including a 16.1% drop in the fourth quarter; Hong Kong, down
25%; Malaysia, down 68%; and Singapore, down 23%. The general slump in Asian
markets began in midsummer with currency devaluations by a number of countries.
Because the values of many of these currencies had been linked to the U.S.
dollar, their fall caused it to appreciate greatly--so much so that Asian
businesses soon found it difficult to purchase American-made products and to
repay dollar-denominated loans. This situation raised questions about how the
region's economic growth would be affected. Related worries focused on imprudent
aspects of various countries' financial systems and the probability of corporate
bankruptcies. In short, there was no place to hide.
By contrast, the European markets continued to provide U.S. investors with
solid returns, although they, too, stumbled in late October and recovered in
November. The MSCI Europe Index posted a gain of 21.8% for the 12 months. The
robust character of the European markets reflects strong corporate earnings and
optimism that the European Monetary Union will provide a solid framework for
future fiscal responsibility and economic growth.
5
<PAGE> 8
REPORT FROM THE ADVISER
Long-term tax-exempt bonds enjoyed a light tailwind in the 12 months ended
November 30, 1997, the fiscal year for Vanguard Florida Insured Tax-Free Fund. A
slight decline in bond yields raised the prices of existing bonds, augmenting
returns from interest income.
As in the previous fiscal year, most of our return represented coupon
income derived from Fund holdings. Because of Vanguard's characteristically low
expense ratio--0.19% of average net assets in fiscal 1997--the vast majority of
the gross interest collected by the Fund flows through to shareholders.
During the fiscal year, yields on 30-year high-quality municipal securities
fell 0.20 percentage point, from 5.45% to 5.25%. In comparison, the yield on the
30-year U.S. Treasury bond declined 0.30 percentage point, from 6.35% to 6.05%.
Despite the relatively narrow difference between yields at the beginning and end
of the year, the path was far from direct.
During the first half of the year, robust expansion of the U.S. economy and
steady job growth caused concern among fixed-income investors that inflation
would accelerate. Yields rose, and in April the yield on the 30-year Treasury
bond peaked at 7.17%. However, inflation remained in check, and investors came
to welcome the economy's steady growth as sustainable without upward price
pressure. This led to a rally in bond prices after midyear. Later, the bond
market got an additional boost from a dramatic meltdown in Asian currency and
equity markets. This instability triggered a "flight to quality" in which many
investors bought U.S. Treasury securities, pushing yields even lower. (A "flight
to quality" is a movement of capital to the safest investments as people seek to
protect themselves from loss during an unsettling period in a market.)
Two factors in the tax-exempt bond market have led to tightened yield
differentials between bond sectors. First, the current environment of low
interest rates has prompted many fixed-income investors to stretch for
additional yield by purchasing low-quality securities. This additional demand
has reduced the interest-rate premium that investors normally require before
they will buy bonds of poorer credit quality. Second, the increased use of
municipal bond insurance by issuers to boost the credit quality of their
securities reduced the availability of low-investment-grade securities. Today,
approximately 50% of all new municipal bond issues are insured and carry an AAA
rating.
The combination of increased demand for and diminished supply of
lower-quality securities has caused a dramatic decline in the yield spreads
between tax-exempt bonds of higher and lower credit quality. For example, at the
beginning of fiscal 1997, an investor could receive 0.75 percentage point of
additional income for purchasing the lowest-quality investment-grade municipal
bond rather than the highest-quality bond. By November 30, that spread had
fallen to only 0.35 percentage point. We do not expect a continued tightening of
quality spreads, but we cannot predict when spreads might widen. In the
meantime, shareholders in the Fund are getting the highest credit quality while
giving up very little in incremental yield.
6
<PAGE> 9
Vanguard's low-cost structure proved its value during the fiscal year as
investors tended to stretch further for yield and reduced their credit
protection. The powerful advantage of our low expense ratio--0.19% versus 1.04%
for the average long-term state tax-free fund--allows more tax-exempt investment
income to flow directly to shareholders without requiring us to incur higher
credit risk. Cost has been especially important in recent years when income, not
capital change, has accounted for the majority of return for fixed-income
investments. Over the long-term, low expenses correlate directly with superior
portfolio performance.
In summary, we think that the current environment bodes well for tax-exempt
investors. With moderate economic growth and subdued inflation, fixed-income
investments offer a consistent, durable return, which provides an important
anchor to windward in a diversified portfolio. In this realm, the Fund offers
the advantages of low expenses, high credit quality, and income that is exempt
from both state and federal taxes. It is a combination difficult to surpass.
Ian A. MacKinnon, Managing Director
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Christopher M. Ryon, Principal
Vanguard Fixed Income Group
December 19, 1997
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.
7
<PAGE> 10
PORTFOLIO PROFILE
Florida Insured Tax-Free Fund
This Profile provides a snapshot of the Fund's characteristics as of November
30, 1997, 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 129
Yield 4.7%
Yield to Maturity 4.8%
Average Coupon 5.8%
Average Maturity 10.8 years
Average Quality AAA
Average Duration 7.5 years
Expense Ratio 0.19%
Cash Reserves 0.0%
- ----------------------------------------------------------
</TABLE>
INVESTMENT FOCUS
- ----------------------------------------------------------
[CHART]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
FLORIDA INSURED LEHMAN
TAX-FREE FUND INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 1.22 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
AAA 93.9%
AA 6.1
A 0.0
BBB 0.0
BB 0.0
B 0.0
Not Rated 0.0
- ----------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
Under 1 Year 3.8%
1-5 Years 13.3
5-10 Years 36.5
10-20 Years 38.1
20-30 Years 8.3
Over 30 Years 0.0
- ----------------------------------------------------------
Total 100.0%
</TABLE>
8
<PAGE> 11
AVERAGE COUPON. The average interest rate paid on the securities held by a
portfolio. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond portfolio's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the portfolio's duration by the change in rates. If interest
rates rise by one percentage point, the share price of a portfolio with an
average duration of five years would decline by about 5%. If rates decrease by a
percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity (or are called) 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
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. Quality is graded on a scale, with Aaa or AAA indicating the
most creditworthy bond issuers and SP-1 or MIG-1 indicating the most
creditworthy issuers of money market securities.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a 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%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a portfolio's securities by
credit rating can help in gauging the risk that returns could be affected by
defaults or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a 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.
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 the portfolio's net asset value, is based on income earned over
the past 30 days 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.
TOTAL INVESTMENT RETURNS: SEPTEMBER 1, 1992-NOVEMBER 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------
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
1995 13.8 6.3 20.1 18.9
1996 1.2 5.3 6.5 5.9
1997 1.3 5.2 6.5 7.2
- -------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 17 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: SEPTEMBER 1, 1992-NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
[CHART]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Florida Insured
Tax-Free Average Florida Lehman Municipal
Fund Municipal Fund Bond Index
- ---------------------------------------------------------------
<S> <C> <C> <C>
1992 08 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
1997 02 13921 13187 13584
1997 05 14066 13405 13718
1997 08 14440 13685 14116
1997 11 14779 14036 14459
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida Insured Tax-Free Fund 6.54% 7.52% 7.73% $14,779
Average Florida Municipal Fund 6.47 6.60 6.67 14,036
Lehman Municipal Bond Index 7.17 7.27 7.28 14,459
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1997*
- -------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Florida Insured Tax-Free Fund 9/1/1992 9.21% 7.71% 2.38% 5.42% 7.80%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
10
<PAGE> 13
FINANCIAL STATEMENTS
November 30, 1997
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 noninsured
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 (100.2%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (93.4%)
Alachua County FL Health Fac. (Shands Teaching Hosp.) 6.25% 12/1/2011 (1) $ 3,095 $ 3,532
Alachua County FL Health Fac. (Shands Teaching Hosp.) 6.25% 12/1/2016 (1) 8,695 9,843
Alachua County FL Health Fac. VRDO (Shands Teaching Hosp.) 3.85% 12/3/1997 (1) 3,000 3,000
Allegany FL Health System Rev. (St. Mary's Hosp.) 5.00% 12/1/2012 (1) 7,380 7,372
Boynton Beach FL Utilities System 6.25% 11/1/2020 (3) 2,085 2,265
Boynton Beach FL Utilities System 6.25% 11/1/2020 (3)(ETM) 415 460
Brevard County FL Health Fac. (Holmes Medical Center) 5.625% 10/1/2014 (1) 3,000 3,120
Broward County FL School 5.75% 7/1/2005 (2) 4,615 4,995
Broward County FL Solid Waste 5.75% 7/1/2013 (1) 4,130 4,308
Canaveral FL Port Auth. 6.00% 6/1/2006 (3) 1,000 1,076
Charlotte County FL Utility System 6.75% 10/1/2013 (3) 2,750 3,130
Charlotte County FL Utility System 6.875% 10/1/2021 (3) 8,500 9,728
Collier County FL COP 6.25% 2/15/2013 (4) 12,500 14,222
Coral Springs FL Improvement Dist. GO 6.00% 6/1/2010 (1) 2,300 2,557
Dade County FL Health Fac. Auth. (Baptist Hosp. Miami) 5.25% 5/15/2013 (1) 5,500 5,547
Dade County FL School Board Certificates 5.70% 8/1/2016 (2) 4,300 4,460
Dade County FL School GO 5.00% 2/15/2017 (1) 21,240 20,676
Dade County FL School GO 5.50% 8/1/2014 (1) 5,980 6,141
Dade County FL School GO 6.125% 6/1/2014 (1) 6,660 7,147
Dade County FL School GO 6.875% 8/1/2002 (1) 5,000 5,558
Dade County FL Seaport GO 6.25% 10/1/2001 (2)(Prere.) 2,000 2,162
Dade County FL Seaport GO 6.50% 10/1/2001 (2)(Prere.) 4,090 4,458
Dade County FL Solid Waste System Rev. 6.00% 10/1/2005 (2) 5,000 5,484
Dade County FL Solid Waste System Rev. 6.00% 10/1/2007 (2) 9,000 9,935
Dade County FL Water & Sewer System Rev. 5.25% 10/1/2011 (3) 4,000 4,099
Dade County FL Water & Sewer System Rev. 5.25% 10/1/2012 (3) 6,000 6,111
Dade County FL Water & Sewer System Rev. 5.50% 10/1/2015 (3) 2,000 2,055
Dade County FL Water & Sewer System Rev. 6.25% 10/1/2007 (3) 1,000 1,128
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FLORIDA INSURED TAX-FREE FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dade County FL Water & Sewer System Rev. 6.25% 10/1/2009 (3) $ 1,500 $ 1,705
Dade County FL Water & Sewer System Rev. VRDO 3.80% 12/3/1997 (3) 3,393 3,393
Davie FL Water & Sewer 6.375% 10/1/2012 (2) 2,500 2,880
Dunedin FL Utility System 6.75% 10/1/2008 (3) 1,115 1,314
Dunedin FL Utility System 6.75% 10/1/2010 (3) 2,465 2,916
Florida Dept. of Environmental Protection 5.00% 7/1/1998 (2) 6,000 6,042
Florida Dept. of Environmental Protection 5.50% 7/1/2000 (2) 14,095 14,592
Florida Dept. of Environmental Protection 5.75% 7/1/2013 (2) 2,585 2,715
Florida Muni. Power Agency 6.25% 10/1/2002 (2)(Prere.) 4,500 4,963
Florida Muni. Power Agency VRDO (Stanton Project) 3.90% 12/3/1997 (1) 1,800 1,800
Florida Muni. Power Agency (Tricity Project) 5.00% 10/1/2010 (2) 4,340 4,359
Greater Orlando FL Aviation Auth. 6.10% 10/1/2006 (2) 2,500 2,709
Gulf Breeze FL Local Govt. Pooled Loan Program VRDO 4.00% 12/4/1997 (3) 13,845 13,845
Hillsborough County FL IDA (Univ. Community Hosp.) 6.50% 8/15/2019 (1) 14,600 17,168
Hillsborough County FL School Board COP 5.25% 7/1/2017 (1) 12,000 12,013
Hillsborough County FL School Board COP 5.625% 7/1/2015 (2) 6,500 6,751
Indian River County FL Water & Sewer 5.25% 9/1/2018 (3) 6,415 6,390
Indian River County FL Water & Sewer 6.50% 9/1/2008 (3) 2,540 2,936
Jacksonville FL Capital Improvement (Gator Bowl Project) 5.50% 10/1/2019 (2) 5,850 5,923
Jacksonville FL Rev. 5.50% 10/1/2012 (2) 4,900 5,040
Jacksonville FL Water & Sewer 5.00% 10/1/2020 (1) 2,650 2,751
Lakeland FL Electric & Water 6.00% 10/1/2014 (3) 2,000 2,226
Lakeland FL Electric & Water 6.50% 10/1/2009 (3) 4,000 4,644
Lee County FL Local Option Gas Tax Rev. 5.50% 10/1/2009 (1) 2,000 2,054
Lee County FL School Board COP 6.00% 8/1/2007 (4) 5,820 6,445
Lee County FL School Board COP 6.00% 8/1/2008 (4) 6,180 6,792
Marion County FL Hosp. Dist. (Munroe Regional Medical Center) 6.20% 10/1/2007 (3) 1,000 1,088
Melbourne FL Water & Sewer 6.375% 10/1/2012 (3) 1,000 1,092
Miami Beach FL Health Fac. Auth. (Mt. Sinai Medical Center) 6.125% 11/15/2014 (4) 1,250 1,330
Miami Beach FL Health Fac. Auth. (Mt. Sinai Medical Center) 6.25% 11/15/2008 (4) 2,000 2,183
Miami FL GO 5.90% 12/1/2008 (3) 1,000 1,103
Miami FL GO 6.00% 12/1/2009 (3) 1,380 1,532
Naples FL Hosp. Rev. 5.50% 10/1/2016 (1) 2,250 2,292
North Broward FL Hosp. Dist. Rev. 5.25% 1/15/2017 (1) 3,500 3,479
North Broward FL Hosp. Dist. Rev. 5.375% 1/15/2013 (1) 1,750 1,792
North Broward FL Hosp. Dist. Rev. 5.75% 1/15/2007 (1) 2,560 2,773
Ocala FL Water & Sewer 5.50% 10/1/2015 (2) 4,550 4,700
Ocala FL Water & Sewer 6.00% 10/1/2005 (2) 2,565 2,829
Ocala FL Water & Sewer 6.00% 10/1/2010 (2) 2,435 2,708
Orange County FL COP 5.375% 8/1/2017 (1) 7,590 7,675
Orange County FL COP 6.00% 8/1/2011 (1) 6,000 6,526
Orange County FL Health Auth. Hosp. (Adventist for Sunbelt Group) 5.25% 11/15/2020 (2) 3,000 2,957
Orange County FL Health Auth. Hosp. (Adventist for Sunbelt Group) 5.50% 11/15/2015 (2) 1,250 1,288
Orange County FL Health Auth. Hosp. (Adventist for Sunbelt Group) 6.25% 11/15/2008 (2) 4,570 5,076
Orange County FL Health Auth. Hosp. (Adventist for Sunbelt Group) 6.25% 11/15/2010 (2) 6,015 6,564
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/2009 (1) 6,980 7,899
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/2010 (1) 7,435 8,405
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/2011 (1) 3,910 4,427
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/2013 (1) 2,465 2,796
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/2016 (1) 5,500 6,244
Orange County FL Health Fac. Auth. (Orlando Regional Health) 6.25% 10/1/2018 (1) 2,700 3,080
Orange County FL Solid Waste 6.375% 10/1/2017 (3) 3,500 3,837
Orange County FL Tourist Dev. 5.90% 10/1/2010 (1) 1,250 1,381
Orange County FL Tourist Dev. 6.50% 10/1/2019 (2) 4,000 4,455
Orlando & Orange County FL Expressway Auth. 5.375% 7/1/2011 (2) 5,000 5,133
Orlando & Orange County FL Expressway Auth. 6.50% 7/1/2010 (3) 2,000 2,318
Osceola County FL Gas Tax Rev. 5.90% 4/1/2008 (3) 1,805 1,937
Palm Beach County FL Criminal Justice Fac. 5.375% 6/1/2007 (3) 5,280 5,596
Palm Beach County FL Criminal Justice Fac. 5.375% 6/1/2008 (3) 2,375 2,523
Palm Beach County FL Criminal Justice Fac. 5.375% 6/1/2011 (3) 1,120 1,178
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Palm Beach County FL Criminal Justice Fac. 7.20% 6/1/2015 (3) $ 3,000 $ 3,756
Palm Beach County FL Solid Waste Auth. 6.00% 10/1/2007 (2) 10,000 11,106
Palm Beach County FL Solid Waste Auth. 6.00% 10/1/2008 (2) 17,395 19,391
Pinellas County FL Health Fac. Auth. (Morton Plant Hosp.) 5.25% 11/15/2012 (1) 2,705 2,742
St. Lucie County FL Utility System 5.50% 10/1/2015 (3)(ETM) 5,000 5,163
St. Lucie County FL Utility System 6.00% 10/1/2020 (3)(ETM)+ 3,165 3,422
St. Lucie County FL Utility System 6.00% 9/1/2024 (3) 11,750 12,838
St. Lucie County FL Utility System 6.50% 10/1/2008 (1)(ETM) 4,910 5,598
Sarasota County FL Utility System 5.75% 10/1/2012 (3) 4,325 4,511
Sarasota County FL Utility System 7.00% 10/1/2009 (3) 6,260 7,537
Seacoast FL Utility Auth. 5.00% 3/1/2019 (3) 7,450 7,176
Seacoast FL Utility Auth. 5.50% 3/1/2010 (3) 2,500 2,570
Seacoast FL Utility Auth. 5.50% 3/1/2013 (3) 4,000 4,080
Seacoast FL Utility Auth. 5.50% 3/1/2017 (3) 2,400 2,526
Seacoast FL Utility Auth. 5.50% 3/1/2019 (3) 1,595 1,679
Seminole County FL School Board COP 6.125% 7/1/2014 (1) 1,000 1,076
Seminole County FL School Board COP 6.125% 7/1/2019 (1) 2,500 2,680
Seminole County FL School Board COP 6.50% 7/1/2004 (1)(Prere.) 2,750 3,098
Seminole County FL Water & Sewer Rev. 6.00% 10/1/2009 (1) 1,800 2,009
Seminole County FL Water & Sewer Rev. 6.00% 10/1/2012 (1) 5,000 5,575
Seminole County FL Water & Sewer Rev. 6.00% 10/1/2019 (1) 7,500 8,372
Sunrise FL Utility System 5.75% 10/1/2016 (2) 2,000 2,092
Tamarac FL Water & Sewer Utility 5.90% 10/1/2011 (3) 3,980 4,397
Tampa FL Hillsborough County Expressway Auth. 6.00% 7/1/2004 (2) 4,980 5,440
Tampa FL Hillsborough County Expressway Auth. 6.50% 7/1/2002 (2) 4,130 4,521
Tampa FL Hillsborough County Expressway Auth. 6.50% 7/1/2003 (2) 4,770 5,282
Tampa FL Water & Sewer 6.25% 10/1/2002 (3)(Prere.) 7,395 8,065
Tampa FL Water & Sewer 6.25% 10/1/2012 (3) 5,805 6,263
Titusville FL Water & Sewer 6.00% 10/1/2024 (1) 2,500 2,662
West Palm Beach FL Public Service Tax 6.125% 3/1/2002 (1)(Prere.) 1,560 1,688
----------
576,446
----------
NONINSURED (6.8%)
Florida Board of Educ. 5.00% 6/1/2012 6,000 5,994
Florida Board of Educ. 6.75% 4/1/2001 (Prere.) 2,000 2,183
Florida State Housing Finance Agency 6.25% 7/1/2011 1,680 1,778
Florida State Housing Finance Agency 6.35% 7/1/2014 2,115 2,238
Gainesville FL Utility System 6.50% 10/1/2012 1,500 1,741
Hillsborough County FL IDA PCR VRDO (Tampa Electric Co. Project) 3.80% 12/2/1997 1,100 1,100
Jacksonville FL Electric Auth. 6.00% 10/1/2004 6,150 6,737
Orlando FL Utilities Comm. 6.75% 10/1/2017 11,700 14,058
Tallahassee FL Consolidated Utility System 6.20% 10/1/2019 2,000 2,167
OUTSIDE FLORIDA:
Puerto Rico Govt. Dev Bank VRDO 3.80% 12/3/1997 LOC 3,800 3,800
----------
41,796
----------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $582,203) 618,242
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.2%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 10,075
Liabilities (11,246)
----------
(1,171)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 55,033,463 outstanding shares of beneficial interest
(unlimited authorization--no par value) $617,071
==========================================================================================================================
NET ASSET VALUE PER SHARE $11.21
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Securities with a value of $1,514,000 have been segregated as initial margin
for open futures contracts.
For explanations of abbreviations and other references, see page 14.
13
<PAGE> 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
FLORIDA INSURED TAX-FREE FUND (000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $586,753 $10.66
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (5,718) (.10)
Unrealized Appreciation (Depreciation)--Note F
Investment Securities 36,039 .65
Futures Contracts (3) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $617,071 $11.21
==========================================================================================================================
</TABLE>
KEY TO ABBREVIATIONS
COP--Certificate of Participation.
GO--General Obligation.
IDA--Industrial Development Authority Bond.
PCR--Pollution Control Revenue.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association).
(2) AMBAC (AMBAC Indemnity Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
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, 1997
(000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interest $29,386
-----------
Total Income 29,386
-----------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 82
Management and Administrative 785
Marketing and Distribution 137
Custodian Fees 11
Auditing Fees 7
Shareholders' Reports 14
Trustees' Fees and Expenses 1
-----------
Total Expenses 1,037
Expenses Paid Indirectly--Note C (11)
-----------
Net Expenses 1,026
- ------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 28,360
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 479
Futures Contracts (2,668)
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (2,189)
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 9,745
Futures Contracts (3)
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 9,742
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $35,913
========================================================================================================================
</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 capital gains
shown in the Operations section, because distributions are determined on a tax
basis and may be made in a period different from the one in which the gains were
realized on the financial statements. The Capital Share Transactions section
shows the amount shareholders invested in the Fund, either by purchasing shares
or by reinvesting distributions, and the amounts redeemed. The corresponding
numbers of Shares Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FLORIDA INSURED TAX-FREE FUND
YEAR ENDED NOVEMBER 30,
------------------------------
1997 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 28,360 $ 23,710
Realized Net Gain (Loss) (2,189) 1,876
Change in Unrealized Appreciation (Depreciation) 9,742 4,311
------------------------------
Net Increase in Net Assets Resulting from Operations 35,913 29,897
------------------------------
DISTRIBUTIONS
Net Investment Income (28,360) (23,710)
Realized Capital Gain -- --
------------------------------
Total Distributions (28,360) (23,710)
------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 238,250 207,879
Issued in Lieu of Cash Distributions 18,246 15,310
Redeemed (162,027) (137,644)
------------------------------
Net Increase from Capital Share Transactions 94,469 85,545
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 102,022 91,732
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 515,049 423,317
------------------------------
End of Year $617,071 $515,049
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 21,630 19,106
Issued in Lieu of Cash Distributions 1,654 1,413
Redeemed (14,772) (12,696)
------------------------------
Net Increase in Shares Outstanding 8,512 7,823
=========================================================================================================================
</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,
-----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.07 $10.94 $ 9.61 $10.86 $10.16
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .561 .550 .560 .550 .537
Net Realized and Unrealized Gain (Loss) on Investments .140 .130 1.330 (1.180) .700
-----------------------------------------------------------
Total from Investment Operations .701 .680 1.890 (.630) 1.237
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.561) (.550) (.560) (.550) (.537)
Distributions from Realized Capital Gains -- -- -- (.070) --
-----------------------------------------------------------
Total Distributions (.561) (.550) (.560) (.620) (.537)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.21 $11.07 $10.94 $ 9.61 $10.86
=========================================================================================================================
TOTAL RETURN 6.54% 6.45% 20.05% -6.08% 12.38%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $617 $515 $423 $284 $269
Ratio of Total Expenses to Average Net Assets 0.19% 0.19% 0.21% 0.22% 0.21%
Ratio of Net Investment Income to Average Net Assets 5.10% 5.09% 5.33% 5.31% 5.01%
Portfolio Turnover Rate 13% 19% 20% 43% 34%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 to 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, 1997, the Fund had contributed capital of $41,000 to
Vanguard (included in Other Assets), representing 0.2% of Vanguard's
capitalization. The Fund's Trustees and officers are also Directors and officers
of Vanguard.
C. The Fund's custodian bank has agreed to reduce its fees when the Fund
maintains cash on deposit in the non-interest-bearing custody account. For the
year ended November 30, 1997, custodian fee offset arrangements reduced expenses
by $11,000.
18
<PAGE> 21
D. During the year ended November 30, 1997, the Fund purchased $178,413,000 of
investment securities and sold $66,707,000 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, 1997, the Fund
had available a capital loss carryforward of $1,422,000 to offset future net
capital gains through November 30, 2005.
F. At November 30, 1997, net unrealized appreciation of investment securities
for financial reporting and federal income tax purposes was $36,039,000,
consisting entirely of unrealized gains on securities that had risen in value
since their purchase.
At November 30, 1997, the aggregate settlement value of open futures
contracts expiring in March 1998 and the related unrealized depreciation were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(000)
---------------------------------
AGGREGATE
NUMBER OF SETTLEMENT UNREALIZED
FUTURES CONTRACTS SHORT CONTRACTS VALUE DEPRECIATION
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond 10 $1,190 $(3)
----------------------------------------------------------------------------------------------
</TABLE>
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, 1997, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the 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, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures where securities purchased had not been settled, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 1998
SPECIAL 1997 TAX INFORMATION (UNAUDITED) FOR VANGUARD FLORIDA INSURED TAX-FREE
FUND
This information for the fiscal year ended November 30, 1997, is included
pursuant to provisions of the Internal Revenue Code.
The Fund designates 100% of its income dividends as exempt-interest
dividends.
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.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
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 Telecommunications 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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director 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
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's 500," "S&P 500(R)," "Standard & Poor's(R)," "S&P(R)," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company
is the owner of trademarks and copyrights relating to the Russell Indexes.
"Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates.
<PAGE> 24
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
Global Equity Portfolio
Index Trust
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Small Capitalization Stock
Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
International Growth Portfolio
International Value Portfolio
Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
BOND FUNDS
Admiral Funds
Intermediate-Term U.S.
Treasury Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term U.S. Treasury
Portfolio
Bond Index Fund
Intermediate-Term Bond
Portfolio
Long-Term Bond Portfolio
Short-Term Bond Portfolio
Total Bond Market Portfolio
Fixed Income Securities Fund
GNMA Portfolio
High Yield Corporate Portfolio
Intermediate-Term Corporate
Portfolio
Intermediate-Term U.S.
Treasury Portfolio
Long-Term Corporate
Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term Corporate
Portfolio
Short-Term Federal Portfolio
Short-Term U.S. Treasury
Portfolio
Municipal Bond Fund
High-Yield Portfolio
Insured Long-Term Portfolio
Intermediate-Term Portfolio
Limited-Term Portfolio
Long-Term Portfolio
Short-Term Portfolio
Preferred Stock Fund
State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
MONEY MARKET FUNDS
Admiral Funds
U.S. Treasury Money Market
Portfolio
Money Market Reserves
Federal Portfolio
Prime Portfolio
Municipal Bond Fund
Money Market Portfolio
Treasury Money Market Portfolio
State Tax-Free Funds
(CA, NJ, NY, OH, PA)
Q180-11/97
(C) 1998 Vanguard Marketing
Corporation, Distributor
[VANGUARD GROUP LOGO]
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
www.vanguard.com
[email protected]
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 you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
