VANGUARD FLORIDA
INSURED LONG-TERM
TAX-EXEMPT FUND
SEMIANNUAL
REPORT
MAY 31, 1999
[A MEMBER OF THE VANGUARD GROUP(R) LOGO]
<PAGE>
AT VANGUARD, WE BELIEVE
THAT TRADITION MATTERS
Our 9,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
Our report cover pays homage to three anniversaries, each of great significance
to The Vanguard Group:
o The 200th anniversary of the Battle of the Nile, which commenced on August
1, 1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto-- "Leading the way"--serves as a guiding principle
for our company.
o The 100th birthday, on July 23, 1998, of Walter L. Morgan, founder of
Wellington Fund, the oldest member of what became The Vanguard Group. Mr.
Morgan was friend and mentor to Vanguard founder John C. Bogle, and helped
to shape the standards and business principles that Mr. Bogle laid down for
Vanguard at its beginning nearly 25 years ago: a stress on balanced,
diversified investments; insistence on fair dealing and candor with
clients; and a focus on long-term investing. To our great regret, Mr.
Morgan died on September 2, 1998.
o The 70th anniversary, on December 28, 1998, of the incorporation of
Vanguard Wellington Fund. It is the nation's oldest balanced mutual fund,
and one of only a handful of funds created in the 1920s that are still in
operation. Although Vanguard constantly tackles new challenges, adopts new
technology, and develops new services, we treasure the traditions and
values that set us apart in a crowded, competitive industry. And we salute
our shareholders, whose support and trust we strive to earn each and every
day.
[COMPASS GRAPHIC]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
4
REPORT FROM
THE ADVISER
6
FUND PROFILE
8
PERFORMANCE SUMMARY
10
FINANCIAL STATEMENTS
11
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE>
DEAR SHAREHOLDER,
[PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
During the first half of the Vanguard Florida Insured Long-Term Tax-Exempt
Fund's 1999 fiscal year, municipal bond prices dipped in the face of rising
interest rates. These lower prices offset most of the interest income earned by
tax-exempt securities during the six months ended May 31, 1999, and resulted in
relatively modest total returns on municipal bonds for the period.
In this environment, our Insured Long-Term Tax-Exempt Fund earned a
six-month total return (capital change plus reinvested dividends) of +0.4%. The
table below presents the half-year return for our fund, along with that of its
average peer. As you can see, our return outpaced the return of similar mutual
funds, which had a slightly negative total return of -0.1%.
- ---------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
MAY 31, 1999
- ---------------------------------------------------------
Vanguard Florida Insured +0.4%
Long-Term Tax-Exempt Fund
Average Florida Tax-Exempt Bond Fund -0.1
- ---------------------------------------------------------
The total return of the Insured Long-Term Tax-Exempt Fund is based on a
decrease in net asset value from $11.54 per share on November 30, 1998, to
$11.23 per share on May 31, 1999, and is adjusted for dividends totaling $0.271
per share paid from net investment income and a distribution of $0.091 per share
paid from net realized capital gains. On May 31, the Insured Long-Term Fund's
yield stood at 4.60%.
For Florida residents, income earned by our fund is exempt from federal
income taxes, but may be subject to local taxes and the Alternative Minimum Tax.
THE PERIOD IN REVIEW
The U.S. economy steamed ahead during the half-year as consumers continued
spending at a breakneck pace and the manufacturing sector showed signs of
recovering from last fall's woes. Economic growth expanded at an annual rate of
4.3% during the first three months of 1999, while both unemployment and
inflation remained low. The Wilshire 5000 Equity Index, which tracks the entire
U.S. stock market, gained +13.2% for the six months.
While the strong growth pace was regarded enthusiastically by the stock
market, it was hardly welcome news in the bond market, where investors feared
that higher inflation would result from an overheated economy. These concerns
drove interest rates higher and bond prices lower. The yield of the benchmark
30-year U.S. Treasury bond climbed from its starting point of 5.06% on November
30, 1998, to 5.83% on May 31--a significant increase of 77 basis points. At the
shorter end of the bond spectrum, the yield of 3-month Treasury bills rose by 15
basis points to close the period at 4.63%.
Though yields of municipal bonds also rose, the climb was not as steep as
for Treasuries. Yields on high-grade long-term municipal bonds ended the
half-year at 5.16%, up from 4.89% when the period began. Yields on top-grade
(MIG-1) 3-month notes rose on balance to 3.15% from 2.95% six months earlier.
Municipal bonds continue to offer excellent value relative to U.S.
Treasuries, although they are not quite as attractive as they were six months
ago. On May 31,
1
<PAGE>
the yield of a high-grade, long-term municipal bond was equal to about 89% of
the yield of the 30-year U.S. Treasury bond, whose interest is subject to
federal income tax. This proportion has historically been about 84%. Early in
the period, however, it was about 97%, largely because Treasury yields had been
driven lower by heavy buying from investors who fled riskier securities.
PERFORMANCE OVERVIEW
The +0.4% total return achieved by the Florida Insured Long-Term Tax-Exempt Fund
consisted of a +2.3% income return and a price decline of -1.9%, which reflected
the rise in interest rates. The fund's performance was better than the -0.1%
return of the average Florida municipal bond fund but was half that of the
Lehman Brothers Municipal Bond Index. This national index, which exists outside
the "real world" of operating expenses and transaction costs, is a tough
standard for all state tax-exempt funds.
Of course, interest rate fluctuations--up and down--are to be expected. In
our letter to you six months ago, we explained that declining interest rates
gave a boost to bond prices, resulting in an excellent fiscal 1998 total return
of +8.0% for the Insured Long-Term Fund. Over time, however, the effects of rate
variations tend to be offsetting, leaving the rate of interest income as the
chief source of long-term bond returns.
A six-month period is too short to provide a complete picture of a bond
fund's return. This is because only half of the year's interest income is
accounted for, while the price changes engendered by shifts in interest rates
are fully reflected. Consequently, investors should consider a full year's
interest income as part of a semiannual review. During the twelve months ended
May 31, 1999, our Insured Long-Term Fund earned a total return of +4.4%,
consisting of an income return of +4.8% and a negative capital return of -0.4%.
Our low costs play a critical role in our success. Our fund has an
annualized expense ratio (expenses as a percentage of average net assets) of
0.18%, compared with 1.03% charged by the average long-term Florida tax-exempt
fund. Costs matter because they are deducted from the income earned by the fund.
Therefore, lower operating expenses mean that a higher percentage of the gross
interest income is passed along to shareholders.
Also instrumental in our long-term success is the skillful management of
Vanguard Fixed Income Group, which selects the securities for our funds. Our
Insured Long-Term Fund invests predominantly in bonds that carry private
insurance guaranteeing the payment of principal and interest in the event that a
bond issuer defaults on its debt obligations. Though these securities offer
slightly lower gross yields than noninsured bonds, our low costs historically
have made up the difference--and then some. This cost advantage has allowed our
fund to provide net returns that are fully competitive with those of
uninsured--and, thus, lower-quality--municipal bond portfolios.
IN SUMMARY
The swift rise in interest rates over the past several months is not an
aberration but rather a normal, if unpleasant, part of the cyclicality of the
financial markets. The variable nature of both bond and stock markets is the
reason we continuously counsel shareholders to hold balanced portfolios suitable
to their goals, time horizon for investing, and tolerance for risk. Building
such a program and then sticking with it through good times and bad is
2
<PAGE>
a prudent, and ultimately rewarding, method of confronting the ever-present
volatility of the financial markets.
We look forward to reporting to you on the full 1999 fiscal year six months
hence.
/S/ /S/
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
June 14, 1999
3
<PAGE>
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED MAY 31, 1999
Sentiment shifted on the world's financial markets during the six months ended
May 31, 1999. The period began amid lingering anxiety over the state of the
world economy. Japan was in recession, economic growth was only sluggish in
Europe, and many developing nations were crisis-ridden. The United States was
just about the sole bright spot.
However, as the period progressed and reports showed rapid growth in U.S.
business activity, there was an evident reduction in anxiety. Midway through the
period, leadership in the U.S. stock market shifted away from a relatively
narrow group of large growth stocks regarded as relatively recession-proof and
toward cyclical stocks that had been depressed by fears of recession and by
falling demand from overseas markets. As confidence in global economic growth
grew, interest rates rose and bond prices declined in the United States due to
expectations that the Federal Reserve Board would raise interest rates to ward
off a potential surge in inflation. Internationally, however, a growing
conviction that the worst was over led to solid gains for stock markets in Japan
and several emerging markets.
U.S. STOCK MARKETS
Stock prices climbed during the half-year, reflecting the healthy domestic
economy and investors' confidence in future growth of corporate profits. The
overall market, as measured by the Wilshire 5000 Index, rose 13.2% during the
period, while the S&P 500 Index, a barometer for large-capitalization stocks,
gained 12.6%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1999
-----------------------------
6 MONTHS 1 YEAR 5 YEARS*
- --------------------------------------------------------------------------------
STOCKS
<S> <C> <C> <C> <C>
S&P 500 Index 12.6% 21.0% 25.9%
Russell 2000 Index 11.0 -2.7 13.6
Wilshire 5000 Index 13.2 17.7 23.8
MSCI EAFE Index 4.2 4.7 8.0
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index -0.8% 4.4% 7.8%
Lehman 10 Year Municipal Bond Index 0.4 4.6 7.2
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.2 4.8 5.2
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.3% 2.1% 2.4%
- --------------------------------------------------------------------------------
*Annualized.
</TABLE>
During the early part of the semiannual period, stock investors favored
large-cap growth stocks--a group perceived as less subject to harm during an
economic downturn. In the United States, the Federal Reserve had already cut
short-term rates by a total of 0.75 percentage point in the autumn. Foreign
central banks continued cutting rates into the new year to combat sluggish
economic conditions in Europe, Asia, and Latin America. Late in the semiannual
period, U.S. investors were rewarded for their earlier optimism with a series of
surprisingly strong gains in corporate earnings--a record percentage of
companies in the S&P 500 reported earnings that beat analysts' estimates.
4
<PAGE>
Throughout the period, U.S. consumers provided support for the global
economy: Spending by consumers continued to set records, and American households
on average spent nearly every dollar of income they earned. The upbeat mood
stemmed from a bright employment picture (unemployment hovered near 30-year
lows) and rising incomes.
Improved prospects for global economic growth propelled several formerly
lackluster areas of the stock market, particularly commodity-related companies
and "cyclical" companies such as machinery, chemical, and paper manufacturers.
Higher oil prices, boosted by firmer demand and by agreement among oil-producing
nations to limit production, revived the "other energy" and integrated-oils
sectors, which gained about 36% and 16%, respectively. Technology stocks, up 26%
for the six months, were the market's leaders, but most of the sector's gains
came during the first three months of the period. Consumer-staples companies,
beset by tough price competition and hurt by the stronger U.S. dollar in Europe,
were the worst-performing group in the half-year, down about 7%.
U.S. BOND MARKETS
For bond investors, the powerful economic expansion evident during the half-year
was too much of a good thing. Although the inflation rate did not get out of
hand--consumer prices rose 1.3% during the six months and were up 2.1% for the
twelve months ended May 31--investors were worried that low unemployment (4.2%
of the labor force in May) would trigger an acceleration in wages and push up
prices.
Yields on U.S. Treasury bonds, which had fallen during the summer and early
fall of 1998 as investors flocked to what they regarded as a haven from
instability in other markets, rose by three-quarters of a percentage point or
more. The yield of the 30-year Treasury bond rose 77 basis points, to 5.83% on
May 31 from 5.06% on November 30, 1998. The yield of the 10-year Treasury rose
91 basis points, to 5.62% from 4.71%. Short-term rates didn't rise as far:
Yields on 3-month T-bills were up on balance by only 15 basis points, to 4.63%
on May 31. Bond prices, which move in the opposite direction from interest
rates, fell. The Lehman Aggregate Bond Index, a benchmark for investment-grade
taxable bonds, declined 0.8% on a total-return basis, as bond prices declined an
average of 3.8%, outweighing the 3.0% in interest income for the period.
Municipal bonds suffered only modest price declines and outperformed
Treasury securities during the period--a switch from the previous six months,
when Treasuries were the strongest segment of the bond market.
INTERNATIONAL STOCK MARKETS
Most overseas stock markets generated positive returns during the six months,
despite lingering economic weakness in Asia and sluggish growth in most of
Europe's developed economies. However, the strong rise in the value of the U.S.
dollar against European currencies negated most of the advances in that region
for U.S. investors. Emerging markets generally rebounded strongly, having
suffered steep losses in 1997 and 1998.
Overall, the developed markets outside the United States gained 4.2% in
U.S.-dollar terms, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index. The biggest increases were in the
Pacific region and in emerging markets, where investors saw hopeful signs of
economic recovery. The MSCI Pacific Index rose 14.2% in U.S.-dollar terms,
despite a continuing recession in Japan. The MSCI Select Emerging Markets Free
Index climbed 19.0%. European stocks were up a scant 0.3% in dollar terms, as
gains of about 8% in local currencies were diminished by the dollar's rise
against the euro--a common currency adopted by 11 nations--and other regional
currencies.
5
<PAGE>
REPORT FROM THE ADVISER
During the fiscal half-year ended May 31, 1999, interest rates rose as investors
became worried that the strong growth of the U.S. economy might lead to an
acceleration in the inflation rate. As the period progressed, the U.S. economy's
growth rate slowed, but remained strong.
On the inflation front, investors' fears seemed misplaced until May, when
the Consumer Price Index came in above expectations. Soon after, the Federal
Reserve Board announced that it had adopted a bias toward a tighter monetary
policy, meaning that it was more likely to raise interest rates in the coming
months than to lower them. A decision to raise short-term interest rates would,
if taken, be aimed at slowing growth and heading off increases in inflation. The
Fed's announcement marked the first time the agency had told the public
immediately about its adoption of a policy bias, rather than releasing the
information at a later date. As we reached the midpoint of our fiscal year,
interest rates were hovering around their highest levels of the period, and
market participants were waiting to see whether inflation and growth statistics
would prompt the Fed to act on its tightening bias.
Municipal bonds outperformed U.S. Treasury bonds with equivalent maturities
during the half-year. The benchmark 30-year U.S. Treasury bond's yield increased
by 77 basis points, from 5.06% on November 30, 1998, to 5.83% on May 31, 1999.
The yield of a 30-year AAA-rated general obligation municipal bond increased 27
basis points, from 4.89% to 5.16%, over the same period.
The municipal bond market's strong relative performance can be explained by
two factors. First, municipal bond yields at the start of the 1999 fiscal year
were very attractive compared with Treasury yields. The global forces that had
compelled investors to seek the safety of Treasuries during summer 1998 did not
carry over to the municipal market, which consequently underperformed Treasuries
last fiscal year. This set the stage for municipals' superior performance in the
ensuing six months. Second, there was a 24% decline in the issuance of municipal
bonds during the first five months of calendar year 1999 compared with the same
period a year earlier.
The supply of newly issued municipals varied widely by state. In Florida,
there was only a modest decline in new bond issuance compared with 1998. The
supply of new bonds declined for two reasons, both related to higher interest
rates. First, as rates rose, many issuers were no longer able to refinance
older, higher-coupon bonds by issuing new bonds at lower rates. Second, higher
interest rates made borrowing less attractive to bond issuers.
All in all, municipal bonds had a strong half-year compared with other
types of bonds. Even so, high-quality, long-term municipals continue to be
attractive investments, with yields as of May 31, 1999, equivalent to a
relatively high 89% of the yield on long-term U.S. Treasury bonds. Given that
interest on municipal bonds is generally exempt from federal income tax, while
interest on Treasuries and corporate bonds is not, municipals provide a better
after-tax yield than any taxable bond of similar credit quality.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
6
<PAGE>
Going forward, new municipal bond issuance is expected to remain low
through year-end. Also, as the outlook for growth and inflation becomes clearer,
the Fed should give more direction to the market. At the least, this should
reduce uncertainty and bring some comfort to the bond markets.
The Vanguard Florida Insured Long-Term Tax-Exempt Fund's low operating
costs and high credit quality should stand our shareholders in good stead during
this year's turbulent bond markets.
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
Kathryn Allen, Principal
Vanguard Fixed Income Group
June 11, 1999
7
<PAGE>
FUND PROFILE
FLORIDA INSURED LONG-TERM TAX-EXEMPT FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 9.
FINANCIAL ATTRIBUTES
- --------------------------------------------------------------------------------
FLORIDA INSURED LEHMAN
LONG-TERM INDEX*
- --------------------------------------------------------------------------------
Number of Issues 163 49,905
Yield 4.6% --
Yield to Maturity 4.7% --
Average Coupon 5.4% 5.5%
Average Maturity 12.0 years 13.2 years
Average Quality AAA AA+
Average Duration 8.0 years 7.2 years
Expense Ratio 0.18%** --
Cash Reserves 1.1% --
*Lehman Municipal Bond Index.
**Annualized.
VOLATILITY MEASURES
- --------------------------------------------------------------------------------
FLORIDA INSURED LEHMAN
LONG-TERM INDEX*
- --------------------------------------------------------------------------------
R-Squared 0.97 1.00
Beta 1.18 1.00
*Lehman Municipal Bond Index.
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- --------------------------------------------------------------------------------
Under 1 Year 5.5%
1-5 Years 7.9
5-10 Years 29.7
10-20 Years 42.3
20-30 Years 14.0
Over 30 Years 0.6
- --------------------------------------------------------------------------------
Total 100.0%
INVESTMENT FOCUS
- --------------------------------------------------------------------------------
[GRID]
AVERAGE MATURITY - Long
CREDIT QUALITY - High
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------------------------------------
AAA 94.5%
AA 5.5
A 0.0
BBB 0.0
BB 0.0
B 0.0
- --------------------------------------------------------------------------------
Total 100.0%
8
<PAGE>
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days and is annualized, or projected forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
9
<PAGE>
PERFORMANCE SUMMARY
FLORIDA INSURED LONG-TERM TAX-EXEMPT FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
TOTAL INVESTMENT RETURNS: SEPTEMBER 1, 1992-MAY 31, 1999
- --------------------------------------------------------------------------------
FLORIDA INSURED LONG-TERM
TAX-EXEMPT FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLORIDA INSURED LONG-TERM
TAX-EXEMPT FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1996 1.2% 5.3% 6.5% 5.9%
1997 1.3 5.2 6.5 7.2
1998 2.9 5.1 8.0 7.8
1999** -1.9 2.3 0.4 0.8
- --------------------------------------------------------------------------------
*Lehman Municipal Bond Index.
**Six months ended May 31, 1999.
See Financial Highlights table on page 18 for dividend and capital gains
information for the past five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1999*
- --------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Florida Insured Long-Term
Tax-Exempt Fund 9/1/1992 6.56% 7.73% 2.23% 5.33% 7.56%
- --------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
10
<PAGE>
FINANCIAL STATEMENTS
MAY 31, 1999 (UNAUDITED)
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 LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.9%)
- ---------------------------------------------------------------------------------------------------------------------
ISSUER INSURED (91.0%)
<S> <C> <C> <C> <C>
Alachua County FL Health Fac. Auth. (Shands Teaching Hosp.) 6.25% 12/1/2011 (1) 3,095 3,602
Alachua County FL Health Fac. Auth. (Shands Teaching Hosp.) 6.25% 12/1/2016 (1) 8,695 9,866
Boynton Beach FL Util. System Rev. 6.25% 11/1/2020 (3) 2,085 2,260
Boynton Beach FL Util. System Rev. 6.25% 11/1/2020 (3)(ETM) 415 475
Brevard County FL Health Fac. (Holmes Medical Center) 5.625% 10/1/2014 (1) 3,000 3,145
Broward County FL Airport System Rev. 5.125% 10/1/2018 (2) 6,060 6,005
Broward County FL Airport System Rev. 5.25% 10/1/2012 (1) 14,735 14,986
Broward County FL Solid Waste 5.75% 7/1/2013 (1) 4,130 4,407
Canaveral FL Port Auth. 6.00% 6/1/2006 (3) 1,000 1,073
Collier County FL COP 6.25% 2/15/2013 (4) 12,500 14,237
Coral Springs FL Improvement Dist. Water & Sewer GO 6.00% 6/1/2010 (1) 4,250 4,657
Dade County FL Health Fac. Auth. Rev. (Miami Baptist Hosp.) 5.25% 5/15/2013 (1) 5,500 5,604
Dade County FL School Board COP 5.25% 8/1/2008 (2) 8,430 8,881
Dade County FL School Board COP 5.25% 8/1/2011 (2) 12,790 13,260
Dade County FL School Board COP 5.60% 8/1/2006 (2)(Prere.)22,420 24,410
Dade County FL School Board COP 5.70% 8/1/2006 (2)(Prere.) 4,300 4,708
Dade County FL School Dist. GO 5.00% 2/15/2017 (1) 21,240 20,871
Dade County FL School Dist. GO 6.875% 8/1/2002 (1) 5,000 5,439
Dade County FL Seaport GO 6.25% 10/1/2001 (2)(Prere.) 2,000 2,133
Dade County FL Seaport GO 6.50% 10/1/2001 (2)(Prere.) 4,090 4,384
Dade County FL Solid Waste System Rev. 6.00% 10/1/2007 (2) 8,700 9,580
Dade County FL Water & Sewer System Rev. 5.25% 10/1/2011 (3) 4,000 4,148
Dade County FL Water & Sewer System Rev. 5.25% 10/1/2012 (3) 6,000 6,188
Dade County FL Water & Sewer System Rev. 5.25% 10/1/2026 (3) 10,140 10,171
Dade County FL Water & Sewer System Rev. 5.50% 10/1/2015 (3) 2,000 2,069
Dade County FL Water & Sewer System Rev. 6.25% 10/1/2009 (3) 1,500 1,706
Davie FL Water & Sewer Rev. 6.375% 10/1/2012 (2) 2,500 2,879
11
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FLORIDA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dunedin FL Util. System. Rev. 6.75% 10/1/2008 (3) 1,115 1,303
Dunedin FL Util. System. Rev. 6.75% 10/1/2010 (3) 2,465 2,908
Florida Board Regent Univ. System 5.375% 7/1/2017 (1) 4,195 4,272
Florida Board of Educ. Lottery Rev. 5.00% 7/1/2016 (3) 16,800 16,647
Florida Board of Educ. Lottery Rev. 5.00% 7/1/2017 (3) 8,000 7,878
Florida Board of Educ. Rev. (Capital Outlay) 5.00% 6/1/2015 (3) 11,205 11,156
Florida Board of Educ. Rev. (Capital Outlay) 5.00% 6/1/2016 (3) 11,745 11,626
Florida Board of Educ. Rev. (Capital Outlay) 5.00% 6/1/2017 (3) 12,380 12,178
Florida Dept. of General Services Rev.
(Dept. of Environmental Protection Preservation-2000) 5.00% 7/1/2011 (2) 6,500 6,595
Florida Dept. of General Services Rev.
(Dept. of Environmental Protection Preservation-2000) 5.25% 7/1/2010 (1) 6,500 6,742
Florida Dept. of General Services Rev.
(Dept. of Environmental Protection Preservation-2000) 5.50% 7/1/2000 (2) 14,095 14,430
Florida Dept. of General Services Rev.
(Dept. of Environmental Protection Preservation-2000) 5.75% 7/1/2013 (2) 2,585 2,769
Florida Gas Util. Rev. (Gas Project) 5.00% 12/1/2008 (4) 7,500 7,799
Florida Muni. Power Agency 6.25% 10/1/2002 (2)(Prere.) 4,500 4,916
Florida Muni. Power Agency (Tricity Project) 5.00% 10/1/2010 (2) 4,340 4,410
Florida Muni. Power Agency VRDO (Stanton Project) 3.10% 6/2/1999 (1) 4,385 4,385
Florida Turnpike Auth. Rev. 5.00% 7/1/2014 (1) 5,000 5,012
Florida Turnpike Auth. Rev. 5.00% 7/1/2015 (1) 7,435 7,410
Florida Turnpike Auth. Rev. 5.00% 7/1/2017 (1) 8,165 8,040
Florida Turnpike Auth. Rev. 5.00% 7/1/2023 (1) 10,000 9,673
Greater Orlando FL Aviation Auth. 6.10% 10/1/2006 (2) 2,500 2,704
Hillsborough County FL IDA (Univ. Community Hosp.) 6.50% 8/15/2019 (1) 17,850 20,953
Hillsborough County FL School Board COP 5.25% 7/1/2017 (1) 12,000 12,070
Hillsborough County FL School Board COP 5.50% 7/1/2018 (1) 15,945 16,757
Hillsborough County FL School Board COP 5.625% 7/1/2005 (2)(Prere.) 6,500 7,101
Indian River County FL Water & Sewer Rev. 5.25% 9/1/2018 (3) 6,415 6,458
Indian River County FL Water & Sewer Rev. 6.50% 9/1/2008 (3) 2,540 2,917
Jacksonville FL Capital Improvement (Gator Bowl Project) 5.50% 10/1/2019 (2) 5,850 6,009
Jacksonville FL Entitlement Rev. 5.50% 10/1/2012 (2) 4,900 5,118
Lakeland FL Electric & Water Rev. 0.00% 10/1/2010 (1) 8,260 4,786
Lakeland FL Electric & Water Rev. 0.00% 10/1/2011 (1) 8,420 4,599
Lakeland FL Electric & Water Rev. 0.00% 10/1/2012 (1) 6,520 3,360
Lakeland FL Electric & Water Rev. 6.05% 10/1/2014 (3) 2,000 2,251
Lakeland FL Electric & Water Rev. 6.55% 10/1/2009 (3) 4,000 4,636
Lee County FL Local Option Gas Tax Rev. 5.50% 10/1/1999 (1)(Prere.) 2,000 2,015
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 6,840
Marion County FL Hosp. Dist. (Munroe Regional Medical Center) 6.20% 10/1/2007 (3) 1,000 1,085
Martin County FL Health Fac. Auth. Hosp. Rev.
(Martin Memorial Medical Center) 5.00% 11/15/2028 (2) 6,500 6,201
Melbourne FL Water & Sewer Rev. 6.375% 10/1/2012 (3) 1,000 1,086
Miami Beach FL Health Fac. Auth. (Mt. Sinai Medical Center) 6.125% 11/15/2014 (4) 1,250 1,351
Miami Beach FL Health Fac. Auth. (Mt. Sinai Medical Center) 6.25% 11/15/2008 (4) 2,000 2,177
Miami-Dade County FL Public Fac. Rev.(Jackson Memorial Hosp.) 5.25% 6/1/2010 (4) 2,815 2,903
Miami-Dade County FL Public Fac. Rev.(Jackson Memorial Hosp.) 5.25% 6/1/2011 (4) 2,950 3,014
Miami-Dade County FL Public Fac. Rev.(Jackson Memorial Hosp.) 5.25% 6/1/2012 (4) 3,120 3,172
Miami-Dade County FL Public Fac. Rev.(Jackson Memorial Hosp.) 5.25% 6/1/2013 (4) 3,160 3,200
Miami FL GO 5.90% 12/1/2008 (3) 1,000 1,107
Miami FL GO 6.00% 12/1/2009 (3) 1,380 1,540
Miramar FL Wastewater Improvement Assessment Refunding 5.00% 10/1/2019 (1) 4,850 4,693
Miramar FL Wastewater Improvement Assessment Refunding 5.00% 10/1/2025 (1) 2,500 2,408
Naples FL Hosp. Rev. 5.50% 10/1/2016 (1) 2,250 2,304
North Broward FL Hosp. Dist. Rev. 5.25% 1/15/2017 (1) 3,500 3,496
North Broward FL Hosp. Dist. Rev. 5.375% 1/15/2013 (1) 1,750 1,806
North Broward FL Hosp. Dist. Rev. 5.75% 1/15/2007 (1) 2,560 2,775
Ocala FL Water & Sewer 5.50% 10/1/2015 (2) 4,550 4,728
12
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ocala FL Water & Sewer 6.00% 10/1/2005 (2) 2,565 2,765
Ocala FL Water & Sewer 6.00% 10/1/2010 (2) 2,435 2,713
Orange County FL Health Fac. Auth.(Adventist for Sunbelt Group) 5.25% 11/15/2020 (2) 3,000 2,988
Orange County FL Health Fac. Auth.(Adventist for Sunbelt Group) 5.50% 11/15/2015 (2) 1,250 1,288
Orange County FL Health Fac. Auth.(Adventist for Sunbelt Group) 6.25% 11/15/2008 (2) 4,570 5,113
Orange County FL Health Fac. Auth.(Adventist for Sunbelt Group) 6.25% 11/15/2010 (2) 6,015 6,658
Orange County FL Health Fac. Auth.(Orlando Regional Health) 6.25% 10/1/2009 (1) 6,980 7,894
Orange County FL Health Fac. Auth.(Orlando Regional Health) 6.25% 10/1/2010 (1) 7,435 8,418
Orange County FL Health Fac. Auth.(Orlando Regional Health) 6.25% 10/1/2011 (1) 3,910 4,433
Orange County FL Health Fac. Auth.(Orlando Regional Health) 6.25% 10/1/2013 (1) 4,465 5,095
Orange County FL Health Fac. Auth.(Orlando Regional Health) 6.25% 10/1/2016 (1) 5,500 6,236
Orange County FL Health Fac. Auth.(Orlando Regional Health) 6.25% 10/1/2018 (1) 2,700 3,061
Orange County FL Sales Tax Rev. 5.125% 1/1/2028 (3) 8,000 7,852
Orange County FL School Dist. COP 5.375% 8/1/2017 (1) 7,590 7,713
Orange County FL School Dist. COP 5.375% 8/1/2022 (1) 6,880 6,946
Orange County FL School Dist. COP 6.00% 8/1/2011 (1) 6,000 6,669
Orange County FL Solid Waste Rev. 6.375% 10/1/2017 (3) 3,500 3,797
Orange County FL Tourist Dev. Rev. 5.90% 10/1/2010 (1) 1,250 1,390
Orange County FL Tourist Dev. Rev. 6.50% 10/1/2002 (2)(Prere.) 4,000 4,396
Orlando & Orange County FL Expressway Auth. Rev. 5.00% 7/1/2028 (3) 15,000 14,422
Orlando & Orange Counry FL Expressway Auth. Rev. 5.375% 7/1/2011 (2) 5,000 5,187
Orlando & Orange County FL Expressway Auth. Rev. 6.50% 7/1/2010 (3) 2,000 2,316
Osceola County FL Gas Tax Rev. 5.90% 4/1/2008 (3) 1,805 1,950
Palm Beach County FL Criminal Justice Fac. Rev. 5.375% 6/1/2008 (3) 2,375 2,535
Palm Beach County FL Criminal Justice Fac. Rev. 5.375% 6/1/2011 (3) 1,120 1,185
Palm Beach County FL Criminal Justice Fac. Rev. 7.20% 6/1/2015 (3) 3,000 3,743
Palm Beach County FL Solid Waste Auth. Rev. 6.00% 10/1/2007 (2) 10,000 11,062
Pinellas County FL Health Fac. Auth. (Morton Plant Hosp.) 5.25% 11/15/2012 (1) 2,705 2,757
Pinellas County FL Sewer Rev. 5.00% 10/1/2024 (3) 9,500 9,182
Sarasota County FL Util. System Rev. 5.75% 10/1/2012 (3) 4,325 4,604
Sarasota County FL Util. System Rev. 7.00% 10/1/2009 (3) 6,260 7,491
Seacoast FL Util. Auth. Water & Sewer Rev. 5.50% 3/1/2010 (3) 2,500 2,614
Seacoast FL Util. Auth. Water & Sewer Rev. 5.50% 3/1/2013 (3) 4,000 4,168
Seacoast FL Util. Auth. Water & Sewer Rev. 5.50% 3/1/2017 (3) 2,400 2,534
Seacoast FL Util. Auth. Water & Sewer Rev. 5.50% 3/1/2019 (3) 1,595 1,682
Seminole County FL School Board COP 6.125% 7/1/2004 (1)(Prere.) 3,500 3,883
Seminole County FL School Board COP 6.50% 7/1/2004 (1)(Prere.) 2,750 3,077
Seminole County FL Water & Sewer Rev. 6.00% 10/1/2009 (1) 1,800 2,010
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 8,370
South Miami FL Health Fac. Auth. Hosp. Rev.
(Baptist Health Systems Obligations Group) 5.00% 11/15/2028 (1) 10,000 9,541
St. Lucie County FL Util. System Rev. 5.50% 10/1/2015 (3)(ETM) 5,000 5,239
St. Lucie County FL Util. System Rev. 6.00% 10/1/2020 (3)(ETM)+ 3,165 3,498
St. Lucie County FL Util. System Rev. 6.50% 10/1/2008 (1)(ETM) 4,910 5,467
Sunrise FL Util. System Rev. 5.20% 10/1/2022 (2) 17,805 17,890
Sunrise FL Util. System Rev. 5.75% 10/1/2006 (2)(Prere.) 2,000 2,199
Tallahassee FL Energy System Rev. 5.00% 10/1/2028 (4) 11,590 11,142
Tallahassee FL Energy System Rev. 5.25% 10/1/2013 (4) 4,730 4,924
Tallahassee FL Energy System Rev. 5.25% 10/1/2014 (4) 3,980 4,137
Tallahassee FL Energy System Rev. 5.25% 10/1/2015 (4) 5,240 5,420
Tamarac FL Water & Sewer Util. Rev. 5.90% 10/1/2011 (3) 3,980 4,407
Tampa FL Health System Rev.
(Allegany Health System-St. Mary's Hosp.) 5.00% 12/1/2012 (1)(ETM) 7,380 7,437
Tampa FL Health System Rev. (Catholic Healthcare East) 5.00% 11/15/2010 (1) 3,990 4,046
Tampa FL Health System Rev. (Catholic Healthcare East) 5.25% 11/15/2011 (1) 4,575 4,698
Tampa FL Health System Rev. (Catholic Healthcare East) 5.25% 11/15/2012 (1) 3,385 3,458
Tampa FL Health System Rev. (Catholic Healthcare East) 5.25% 11/15/2013 (1) 4,615 4,694
Tampa FL Health System Rev. (Catholic Healthcare East) 5.50% 11/15/2004 (1) 1,000 1,064
Tampa FL Health System Rev. (Catholic Healthcare East) 5.50% 11/15/2012 (2) 2,000 2,119
13
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FLORIDA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tampa FL Health System Rev. (Catholic Healthcare East) 5.50% 11/15/2013 (2) 2,800 2,970
Tampa FL Health System Rev. (Catholic Healthcare East) 5.50% 11/15/2014 (2) 1,000 1,060
Tampa FL Hillsborough County Expressway Auth. Rev. 6.00% 7/1/2004 (2) 4,980 5,423
Tampa FL Hillsborough County Expressway Auth. Rev. 6.50% 7/1/2002 (2) 4,130 4,447
Tampa FL Water & Sewer Rev. 6.25% 10/1/2012 (3) 5,805 6,224
Titusville FL Water & Sewer Rev. 6.00% 10/1/2004 (1)(Prere.) 2,500 2,770
West Palm Beach FL Public Service Tax Rev. 6.125% 3/1/2002 (1)(Prere.) 1,560 1,667
-----------
827,071
-----------
NONINSURED (7.9%)
Collier County FL Health Fac. Auth. Hosp. Rev. VRDO
(Cleveland Clinic Obligated Group) 3.25% 6/2/1999 300 300
Florida Board of Educ. 5.00% 6/1/2012 6,000 6,000
Florida Board of Educ. 6.75% 6/1/2001(Prere.) 2,000 2,137
Florida Housing Finance Agency 6.25% 7/1/2011 1,490 1,579
Florida Housing Finance Agency 6.35% 7/1/2014 1,885 1,996
Gainesville FL Util. System Rev. 6.50% 10/1/2012 1,500 1,751
Hillsborough County FL IDA PCR VRDO (Tampa Electric Co. Project)3.30% 6/2/1999 305 305
Jacksonville FL Electric Auth. Rev. 5.00% 10/1/2023 14,940 14,429
Jacksonville FL Electric Auth. Rev. 5.10% 10/1/2032 5,500 5,328
Jacksonville FL PCR VRDO (Florida Power & Light Co. Project) 3.30% 6/2/1999 5,500 5,500
Orange County FL Health Fac. Auth. VRDO
(Adventist for Sunbelt Group) 3.20% 6/3/1999 LOC 8,300 8,300
Orlando FL Util. Comm. Rev. 6.75% 10/1/2017 11,700 13,970
St. Lucie County FL PCR VRDO (Florida Power & Light Co.) 3.30% 6/2/1999 8,145 8,145
Tallahassee FL Consolidated Util. System Rev. 6.20% 10/1/2019 2,000 2,179
-----------
71,919
-----------
</TABLE>
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $873,083) 898,990
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- --------------------------------------------------------------------------------
Other Assets--Note B 13,600
Liabilities (3,538)
-------
10,062
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 80,915,135 outstanding $.001 par value shares of
beneficial interest
(unlimited authorization) $909,052
================================================================================
NET ASSET VALUE PER SHARE $11.23
================================================================================
*See Note A in Notes to Financial Statements.
+Securities with a value of $1,547,000 have been segregated as initial margin
for open futures contracts. For key to abbreviations and other references, see
page 15.
- --------------------------------------------------------------------------------
AT MAY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
Paid in Capital $883,234 $10.91
Undistributed Net Investment Income -- --
Overdistributed Net Realized Gains--Note E (156) --
Unrealized Appreciation--Notes E and F
Investment Securities 25,907 .32
Futures Contracts 67 --
- --------------------------------------------------------------------------------
NET ASSETS $909,052 $11.23
================================================================================
14
<PAGE>
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 Assurance Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
15
<PAGE>
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 a
fund invested in futures contracts during the period, the results of these
investments are shown separately.
- --------------------------------------------------------------------------------
FLORIDA INSURED LONG-TERM TAX-EXEMPT FUND
SIX MONTHS ENDED MAY 31, 1999
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Interest $ 21,964
---------
Total Income 21,964
---------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 52
Management and Administrative 662
Marketing and Distribution 88
Custodian Fees 5
Auditing Fees 4
Shareholders' Reports 2
Trustees' Fees and Expenses 1
---------
Total Expenses 814
Expenses Paid Indirectly--Note C (5)
---------
Net Expenses 809
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 21,155
- --------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold 1,616
Futures Contracts 2,913
- --------------------------------------------------------------------------------
REALIZED NET GAIN 4,529
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (22,677)
Futures Contracts 715
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (21,962)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,722
================================================================================
16
<PAGE>
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 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 LONG-TERM
TAX-EXEMPT FUND
-------------------------------
SIX MONTHS YEAR
ENDED ENDED
MAY 31, 1999 NOV. 30, 1998
(000) (000)
- ------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
OPERATIONS
<S> <C> <C>
Net Investment Income $ 21,155 $ 34,425
Realized Net Gain 4,529 8,021
Change in Unrealized Appreciation (Depreciation) (21,962) 11,900
-------------------------------
Net Increase in Net Assets Resulting from Operations 3,722 54,346
-------------------------------
DISTRIBUTIONS
Net Investment Income (21,155) (34,425)
Realized Capital Gain (6,988) --
-------------------------------
Total Distributions (28,143) (34,425)
-------------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 236,128 351,784
Issued in Lieu of Cash Distributions 19,088 22,335
Redeemed (139,259) (193,595)
-------------------------------
Net Increase from Capital Share Transactions 115,957 180,524
- ------------------------------------------------------------------------------------------
Total Increase 91,536 200,445
- ------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 817,516 617,071
-------------------------------
End of Period $ 909,052 $ 817,516
==========================================================================================
1Shares Issued (Redeemed)
Issued 20,584 30,858
Issued in Lieu of Cash Distributions 1,671 1,958
Redeemed (12,174) (17,015)
-------------------------------
Net Increase in Shares Outstanding 10,081 15,801
==========================================================================================
</TABLE>
17
<PAGE>
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 LONG-TERM TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.54 $11.21 $11.07 $10.94 $9.61 $10.86
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .271 .551 .561 .550 .560 .550
Net Realized and Unrealized Gain (Loss)
on Investments (.219) .330 .140 .130 1.330 (1.180)
----------------------------------------------------------------------------
Total from Investment Operations .052 .881 .701 .680 1.890 (.630)
----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.271) (.551) (.561) (.550) (.560) (.550)
Distributions from Realized Capital Gains (.091) -- -- -- -- (.070)
----------------------------------------------------------------------------
Total Distributions (.362) (.551) (.561) (.550) (.560) (.620)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.23 $11.54 $11.21 $11.07 $10.94 $9.61
============================================================================================================================
TOTAL RETURN 0.44% 8.03% 6.54% 6.45% 20.05% -6.08%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $909 $818 $617 $515 $423 $284
Ratio of Total Expenses to
Average Net Assets .18%* 0.20% 0.19% 0.19% 0.21% 0.22%
Ratio of Net Investment Income to
Average Net Assets 4.75%* 4.83% 5.10% 5.09% 5.33% 5.31%
Portfolio Turnover Rate 8%* 21% 13% 19% 20% 43%
============================================================================================================================
*Annualized.
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Vanguard Florida Insured Long-Term Tax-Exempt 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 over
60 days to maturity, are valued using the latest bid prices or using valuations
based on a matrix system (which considers such factors as security prices,
yields, maturities, and ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued by methods deemed by the Board of Trustees to
represent fair 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. The fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At May 31, 1999, the fund had contributed
capital of $140,000 to Vanguard (included in Other Assets), representing 0.02%
of the fund's net assets and 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
six months ended May 31, 1999, custodian fee offset arrangements reduced
expenses by $5,000.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
D. During the six months ended May 31, 1999, the fund purchased $135,818,000 of
investment securities and sold $32,732,000 of investment securities, other than
temporary cash investments.
E. Capital gain distributions are determined on a tax basis and may differ from
realized gains for financial reporting purposes due to differences in the timing
of realization of gains. The fund had realized losses totaling $5,262,000
through November 30, 1998, which are deferred for tax purposes and reduce the
amount of unrealized appreciation on investment securities for tax purposes (see
Note F).
F. At May 31, 1999, net unrealized appreciation of investment securities for
federal income tax purposes was $20,645,000, consisting of unrealized gains of
$26,981,000 on securities that had risen in value since their purchase and
$6,336,000 in unrealized losses on securities that had fallen in value since
their purchase.
At May 31, 1999, the aggregate settlement value of open futures contracts
expiring in September 1999 and the related unrealized appreciation were:
- --------------------------------------------------------------------------------
(000)
-------------------------------------
NUMBER OF AGGREGATE
SHORT SETTLEMENT UNREALIZED
FUTURES CONTRACTS CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
U.S. Treasury Bond 194 $22,789 $67
- --------------------------------------------------------------------------------
20
<PAGE>
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and
Director/Trustee of The Vanguard Group, Inc.,
and each of the investment companies in
The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer,
and Director/Trustee of The Vanguard Group, Inc.,
and each of the investment companies in
The Vanguard Group.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson
& Johnson; Director of Johnson & JohnsonoMerck
Consumer Pharmaceuticals Co., Women First
HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and
Women's Research and Education
Institute.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of
Economics, Princeton University; Director of
Prudential Insurance Co. of America, Banco Bilbao
Gestinova, Baker Fentress & Co., The Jeffrey Co.,
and 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., NACCO Industries, and Newfield
Exploration Co.
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.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.;
Treasurer 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(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company is
the owner of trademarks and copyrights relating to the Russell Indexes.
"Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates.
<PAGE>
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer,
died six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[SHIP LOGO]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the fund's
shareholders. It may not be distributed
to prospective investors unless it
is preceded or accompanied by the
current fund prospectus.
Q182-07/23/1999
(C) 1999 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.
