<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO. 33-2908) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 13
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 15
VANGUARD NEW YORK
TAX-FREE FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
IT IS HEREBY REQUESTED THAT THIS FILING BECOME EFFECTIVE
on September 2, 1997, pursuant to paragraph (a) of Rule 485.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.
WE HAVE ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES PURSUANT TO
REGULATION 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. WE FILED OUR RULE
24f-2 NOTICE FOR THE YEAR ENDED NOVEMBER 30, 1996 ON JANUARY 31, 1996.
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<PAGE> 2
VANGUARD NEW YORK TAX-FREE FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <C>
Item 1. Cover Page.................................... Cover Page
Item 2. Synopsis...................................... Not Applicable
Item 3. Condensed Financial Information............... Financial Highlights
Item 4. General Description of Registrant............. The Fund's Objectives; Who Should
Invest; Investment Strategies;
Investment Policies; Investment
Limitations; Investment Performance;
General Information
Item 5. Management of the Fund........................ The Fund and Vanguard; Investment
Adviser
Item 6. Capital Stock and Other Securities............ Buying Shares; Redeeming Shares;
Share Price; Dividends, Capital Gains
and Taxes; Distribution Options;
General Information
Item 7. Purchase of Securities Being Offered.......... Cover Page; Buying Shares
Item 8. Redemption or Repurchase...................... Redeeming Shares
Item 9. Pending Legal Proceedings..................... Not Applicable
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Cover Page
Item 12. General Information and History............... Management of the Fund
Item 13. Investment Objective and Policies............. Investment Limitations; Investment
Policies
Item 14. Management of the Fund........................ Management of the Fund; Investment
Management
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund
Item 16. Investment Advisory and Other Services........ Management of the Fund; Investment
Management
Item 17. Brokerage Allocation.......................... Not Applicable
Item 18. Capital Stock and Other Securities............ Financial Statements
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption of
Shares
Item 20. Tax Status.................................... Appendix
Item 21. Underwriters.................................. Not Applicable
Item 22. Calculations of Yield Quotations of Money
Market Fund................................... Calculation of Yield
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE> 3
Subject to Completion.
Preliminary Prospectus Dated June 19, 1997.
VANGUARD
NEW YORK
TAX-FREE FUND
Prospectus
September 2, 1997
MONEY MARKET
PORTFOLIO
INSURED LONG-TERM
PORTFOLIO
This prospectus
contains financial data
for the Fund through
the fiscal year ended
November 30, 1996,
and the six months
ended May 31, 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. The Money
Market Portfolio of Vanguard New York Tax-Free Fund may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This communication shall not constitute an offer to sell or
solicitation of an offer to buy, nor shall there be any sale of these securities
in the state of New York in which such offer, solicitation, or sale would be
unlawful prior to registration qualification under the securities laws of the
state of New York. To obtain a currently effective prospectus of Vanguard
Insured Tax-Free Fund please contact Vanguard's Investor Information Department
at 1-800-662-7447.
[GRAPHIC OF SHIP]
[VANGUARD LOGO]
<PAGE> 4
VANGUARD NEW YORK A FEDERAL AND NEW YORK STATE
TAX-FREE FUND TAX-EXEMPT INCOME MUTUAL FUND
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Portfolio Expenses 3
Financial Highlights 4
A Word About Risk 5
The Portfolios'
Objectives 5
Who Should Invest 5
Investment Strategy 6
Investment Policies 10
Investment Limitations 11
Investment
Performance 11
Share Price 12
Dividends, Capital
Gains, and Taxes 13
The Fund and
Vanguard 13
Investment Adviser 14
General Information 14
Investing
with Vanguard 15
Services and
Account Features 15
Types of Accounts 16
Distribution Options 16
Buying Shares 17
Redeeming Shares 19
Fund and Account
Updates 21
Prospectus Postscript 23
Risk Quiz 24
Glossary Inside Back Cover
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
Vanguard New York Tax-Free Fund (the "Fund") is a non-diversified, open-end
investment company that includes two separate mutual fund portfolios: the Money
Market Portfolio and the Insured Long-Term Portfolio (the "Portfolios"). The
Insured Long-Term Portfolio was formerly known as Vanguard New York Insured
Tax-Free Fund.
Each Portfolio, intended for New York State residents only, seeks to provide
income that is exempt from both federal and New York State personal income
taxes. The Money Market Portfolio emphasizes stability; the Insured Long-Term
Portfolio emphasizes income over stability.
IT IS IMPORTANT TO NOTE THAT THE MONEY MARKET PORTFOLIO SEEKS TO MAINTAIN,
BUT DOES NOT GUARANTEE, A STABLE NET ASSET VALUE OF $1.00 PER SHARE. IN
ADDITION, NEITHER OF THE PORTFOLIOS' SHARES ARE GUARANTEED OR INSURED BY THE
FDIC OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT OR NEW YORK STATE. ALTHOUGH THE
INTEREST AND PRINCIPAL PAYMENTS FOR AT LEAST 80% OF THE BONDS IN THE INSURED
LONG-TERM PORTFOLIO ARE GUARANTEED, THE VALUE OF THE BONDS THEMSELVES IS NOT
GUARANTEED. AS WITH ANY INVESTMENT IN BONDS, WHICH ARE SENSITIVE TO CHANGES IN
INTEREST RATES, YOU COULD LOSE MONEY BY INVESTING IN EITHER OF THE PORTFOLIOS.
FEES AND EXPENSES
The Portfolios are offered on a no-load basis, which means that you pay no sales
commissions or 12b-1 marketing fees. You will, however, incur expenses for
investment advisory, management, administrative, and distribution services,
which are included in each Portfolio's expense ratio.
ADDITIONAL INFORMATION ABOUT THE FUND
A Statement of Additional Information (dated September 2, 1997)
containing more information about the Portfolios is, by reference, part of this
prospectus and may be obtained along with other information about the Portfolio,
without charge by writing to Vanguard, calling our Investor Information
Department at 1-800-662-7447, or visiting the Securities and Exchange
Commission's website (http://www.sec.gov).
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objectives, risks, and strategy of each Portfolio
of the Vanguard Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk" explanations along the way.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 5
PORTFOLIO PROFILE VANGUARD NEW YORK TAX-FREE FUND
WHO SHOULD INVEST (PAGE 5)
- - New York State residents seeking a municipal bond mutual fund as part of a
balanced and diversified investment program.
- - Income-oriented New York State residents in a high tax bracket.
WHO SHOULD NOT INVEST
- - Investors primarily seeking growth of their investment over time.
- - Investors unwilling to accept significant fluctuations in share price (Insured
Long-Term Portfolio).
- - Investors in a retirement account.
RISKS OF THE PORTFOLIOS (PAGES 5-11)
Both Portfolios are subject to income risk (the chance that falling interest
rates will cause a Portfolio's income to decline), and objective risk (the
chance that a particular segment of the municipal bond market -- such as
long-term or New York State-issued bonds -- will trail returns from the overall
municipal bond market). The Insured Long-Term Portfolio is also subject to
interest rate risk (the chance that bond prices will decline because of rising
interest rates).
The Money Market Portfolio seeks to maintain, but does not guarantee, a
constant net asset value of $1.00 per share. THE MONEY MARKET PORTFOLIO MAY
INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN A SINGLE ISSUER. AS A RESULT, THE
PORTFOLIO IS RISKIER THAN OTHER TYPES OF MONEY MARKET FUNDS THAT REQUIRE GREATER
DIVERSIFICATION AMONG ISSUERS. The Insured Long-Term Portfolio's total return
will fluctuate within a wide range, so an investor could lose money over short
or even extended periods. More detailed information about risk -- including
risks specific to each Portfolio -- is provided beginning on page 5.
DIVIDENDS AND CAPITAL GAINS (PAGE 13)
Dividends are declared daily and paid on the first business day of each month.
Capital gains, if any, are paid annually in December.
INVESTMENT ADVISER (PAGE 14)
Vanguard Fixed Income Group, Valley Forge, PA, manages both Portfolios.
MINIMUM INITIAL INVESTMENT: $3,000; $1,000 for custodial accounts for minors
ACCOUNT FEATURES (page 15)
- - Telephone Redemption
- - Checkwriting
- - Vanguard Direct Deposit Service(sm)
- - Vanguard Automatic Exchange Service(sm)
- - Vanguard Fund Express(R)
- - Vanguard Dividend Express(sm)
AVERAGE ANNUAL TOTAL RETURNS --
PERIODS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
-----------------------------
<S> <C> <C> <C>
New York Insured
Long-Term Portfolio* (-) (-) (-)
Lipper New York Insured
Municipal Bond Average (-) (-) (-)
</TABLE>
*Formerly known as Vanguard New York Insured Tax-
Free Fund.
In evaluating past performance, remember that it is not indicative of future
performance. Performance figures include the reinvestment of any dividends and
capital gains distributions. The returns shown are net of expenses. Note, too,
that both the return and (except for the Money Market Portfolio) principal value
of an investment will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost.
1
<PAGE> 6
PORTFOLIO PROFILE (CONTINUED) VANGUARD NEW YORK TAX-FREE FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Money Market Insured Long-Term
Portfolio Portfolio*
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Inception Date: 9/2/97 4/7/86
Net Assets as of 5/31/97: None (-) million
Portfolio's Expense Ratio for
the Period Ended 5/31/97 (Annualized): N/A (-)
Loads, 12b-1 Marketing Fees: None None
Suitable for IRAs: No No
Newspaper Abbreviation: VangNY** NYIns
Vanguard Fund Number: (-) 076
- ---------------------------------------------------------------------------------------
</TABLE>
*Formerly known as Vanguard New York Insured Tax-Free Fund.
**Money market funds are listed separately from the daily mutual fund listings.
2
<PAGE> 7
PLAIN TALK ABOUT
THE COSTS OF INVESTING
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with buying, selling, or exchanging shares. These costs can
erode a substantial portion of the gross income or capital appreciation a fund
achieves. Even seemingly small differences in fund expenses can, over time, have
a dramatic impact on a fund's performance.
PORTFOLIO EXPENSES
The examples below are designed to help you understand the various costs you
would bear, directly or indirectly, as an investor in one or both of the
Portfolios.
As noted in this table, you do not pay fees of any kind when you buy, sell, or
exchange shares of the Portfolios:
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
</TABLE>
The next table illustrates the operating expenses that you would incur as a
shareholder of either Portfolio. These expenses are deducted from the
Portfolio's income before it is paid to you. Expenses include investment
advisory fees as well as the costs of maintaining accounts, administering a
Portfolio, providing shareholder services, and other activities. The expenses
for the Insured Long-Term Portfolio, as shown in the table, are for the year
ended May 31, 1997. The expenses shown for the Money Market Portfolio are
estimates for the Portfolio's first full year of operations.
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
<CAPTION>
MONEY MARKET INSURED LONG-
PORTFOLIO TERM PORTFOLIO
<S> <C> <C> <C> <C>
Management and
Administrative Expenses: (-)% (-)%
Investment Advisory Expenses: (-)% (-)%
12b-1 Marketing Fees: None None
Other Expenses
Marketing and
Distribution Costs: (-)% (-)%
Fund Insurance: 0% 0%
Miscellaneous Expenses
(e.g., Taxes, Auditing): (-)% (-)%
--- ---
Total Other Expenses: (-)% (-)%
--- ---
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): (-)% (-)%
=== ===
</TABLE>
The following example illustrates the hypothetical expenses that you would
incur on a $1,000 investment over various periods. The example assumes (1) that
the Portfolio provides a return of 5% a year and (2) that you redeem your
investment at the end of each period.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR. 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market $(-) $(-) - -
Insured Long-Term $(-) $(-) $(-) $(-)
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. For example, the Insured Long-Term Portfolio's annualized expense
ratio for the six-month period ended May 31, 1997, was (-)%, or $(-) per $1,000
of average net assets. The average tax-exempt bond mutual fund (excluding money
market funds) had expenses in 1996 of 1.01%, or $10.10 per $1,000 of average net
assets, according to Lipper Analytical Services, Inc., which reports on the
mutual fund industry.
3
<PAGE> 8
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
The Insured Long-Term Portfolio began fiscal 1997 with a net asset value (price)
of $l per share. During the six months ended May 31, 1997, the Portfolio earned
$l per share from investment income (interest and dividends) and $(-) per share
from investments that had appreciated in value or that were sold for higher
prices than the Portfolio paid for them. Of those total earnings of $(-) per
share, $(-) per share was returned to shareholders in distributions ($(-) in
dividends, $(-) in capital gains). The earnings ($(-) per share) less
distributions ($(-) per share) resulted in a share price of $(-) at the end of
six months ended May 31, 1997, a decrease of $l per share (from $(-) at the
beginning of the period to $(-) at the end of the period). Assuming that the
shareholder had reinvested the distributions in the purchase of more shares,
total return from the Portfolio was (-)% for the six months ended May 31, 1997.
As of and for the period ended May 31, 1997, the Portfolio had $(-) million
in net assets; an annualized expense ratio of (-)% ($(-) per $1,000 of net
assets); and net investment income amounting to (-)% of its average net assets.
It sold and replaced securities valued at (-)% of its total net assets.
FINANCIAL HIGHLIGHTS
The following financial highlights table shows the results for a share
outstanding of the Insured Long-Term Portfolio for each of the last ten years
ended November 30, 1996, and the six months ended May 31, 1997. The financial
highlights, insofar as they relate to each of the five years in the period ended
November 30, 1996, were audited by Price Waterhouse LLP, independent
accountants. The information for the six-month period ended May 31, 1997, has
not been audited by independent accountants. You should read this information in
conjunction with the Insured Long-Term Portfolio's financial statements and
accompanying notes, which appear, along with the audit report from Price
Waterhouse, in the Fund's most recent Annual Report and Semiannual Report to
shareholders. The Annual Report and Semiannual Report are incorporated by
reference in the Statement of Additional Information and in this prospectus, and
contain a more complete discussion of the Fund's performance. You may have the
Reports sent to you without charge by writing to Vanguard or by calling our
Investor Information Department. The Money Market Portfolio did not begin
operations until September 2, 1997.
<TABLE>
<CAPTION>
SIX MONTHS INSURED LONG-TERM PORTFOLIO*
ENDED Year Ended November 30,
MAY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $(-) $11.01 $ 9.70 $10.97 $10.45 $10.04 $ 9.66 $9.73 $9.26 $8.87 $10.08
---------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income (-) .569 .581 .588 .594 .631 .639 .629 .635 .618 .628
Net Realized and
Unrealized Gain (Loss)
on Investments (-) .045 1.310 (1.258) .665 .410 .380 (.070) .470 .390 (1.210)
---------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS (-) .614 1.891 (.670) 1.259 1.041 1.019 .559 1.105 1.008 (.582)
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (-) (.569) (.581) (.588) (.594) (.631) (.639) (.629) (.635) (.618) (.628)
Distributions from
Realized Capital Gains (-) (.065) -- (.012) (.145) -- -- -- -- -- --
---------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (-) (.634) (.581) (.600) (.739) (.631) (.639) (.629) (.635) (.618) (.628)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $(-) $10.99 $11.01 $ 9.70 $10.97 10.45 $10.04 $ 9.66 $9.73 $9.26 $ 8.87
=================================================================================================================================
TOTAL RETURN (-)% 5.84% 19.90% - 6.37% 12.42% 10.63% 10.87% 5.99% 12.25% 11.62% - 5.82%
=================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $(-) $959 $859 $695 $807 $574 $408 $241 $167 $103 $76
Ratio of Expenses to
Average Net Assets (-)% 0.20% 0.22%** 0.22% 0.19% 0.23%+ 0.27%+ 0.31%+ 0.34%+ 0.40%+ 0.35%+
Ratio of Net Investment
Income to Average
Net Assets (-)% 5.28% 5.51% 5.60% 5.47% 6.11% 6.48% 6.60% 6.64% 6.75% 6.80%
Portfolio Turnover Rate (-)% 5% 10% 20% 10% 28% 19% 17% 10% 4% 31%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Formerly known as Vanguard New York Insured Tax-Free Fund.
**Beginning in fiscal year 1995, this figure does not include expense reductions
from directed brokerage and custodian fee offset arrangements. The expense
ratio for 1995 including these reductions would be 0.21%.
+ For 1992 and the preceding years shown, insurance expenses represent 0.01%,
0.01%, 0.02%, 0.04%, 0.07%, and 0.08%, respectively.
4
<PAGE> 9
From time to time, the Vanguard funds advertise yield and total return
figures. Yield is an historical measure of dividend income, and total return is
a measure of past dividend income (assuming that it has been reinvested) plus
realized and unrealized capital appreciation (or depreciation). Neither yield
nor total return should be used to predict the future performance of a fund.
A WORD ABOUT RISK
This prospectus describes the risks you will face as an investor in the
Portfolios of Vanguard New York Tax-Free Fund. It is important to keep in mind
one of the main axioms of investing: the higher the risk of losing money, the
higher the potential reward. The reverse, also, is generally true: the lower the
risk, the lower the potential reward. However, as you consider an investment in
one or both of the Fund's Portfolios, you should take into account your need to
protect your investment, as well as your desire for current income.
Look for this "warning flag" symbol [FLAG] throughout the prospectus. It is
used to mark detailed information about each type of risk that you, as a
shareholder of one or both of the Portfolios, will confront.
THE PORTFOLIOS' OBJECTIVES
Both Portfolios seek to provide varying amounts of income that is
exempt from federal and New York State personal income taxes. The Money Market
Portfolio also seeks to maintain, but does not guarantee, a constant net asset
value of $1.00 per share. These objectives are fundamental, which means that
they cannot be changed unless a majority of Portfolio shareholders vote to do
so.
[FLAG] BECAUSE OF THE SEVERAL TYPES OF RISKS DESCRIBED ON THE FOLLOWING PAGES,
YOUR INVESTMENT IN ONE OR BOTH OF THE PORTFOLIOS, AS WITH ANY INVESTMENT
IN BONDS, COULD LOSE MONEY.
WHO SHOULD INVEST
Either of the Portfolios may be a suitable investment for you if you are a New
York State resident and . . .
- - You wish to add a municipal bond income fund to your existing holdings, which
could include other tax-exempt -- as well as stock, money market, and taxable
bond -- investments.
- - You seek income that is exempt from federal and New York State income taxes.
However, one Portfolio may more closely meet your personal investment
objectives than the other. For instance, the Money Market Portfolio may be
suitable for you if:
PLAIN TALK ABOUT
TAXABLE VERSUS
TAX-EXEMPT INVESTMENTS
You may not always profit from a state tax-exempt investment; sometimes a
taxable investment can serve you better. To determine which is more suitable for
you, figure out the state tax-exempt portfolio's taxable equivalent yield. You
do this by...
- - First figuring out your effective state and local bracket. Simply subtract
your federal tax bracket from 100%; then multiply that number by your state
and local bracket. For example, if you are in a 6.85% state tax bracket, a
3.91% local tax bracket, and a 36% federal tax bracket, your effective state
and local tax bracket would be 6.89% ([100% - 36%] x [6.85% + 3.91%]).
- - Then add your federal tax bracket and effective state and local tax bracket
together for your combined tax bracket. In this example, your combined tax
bracket would be 42.89% (36% + 6.89%).
- - Finally, divide the portfolio's tax-exempt yield by the difference of 100%
minus your combined tax bracket. Continuing with this example and assuming
that you are considering a state tax-exempt portfolio with a 5% yield, your
taxable equivalent yield would be 8.76% (5% [DIVIDED BY] [100% - 42.89%] ).
In this example, you would choose the state tax-exempt portfolio if its
taxable equivalent yield of 9.42% were greater than the yield of a similar,
though taxable, investment.
Remember that we have used assumed tax brackets in this example. Please
verify your actual tax brackets -- both federal, state and local -- before
calculating taxable equivalent yields of your own.
5
<PAGE> 10
- - You do not want fluctuation in the share price of your investment.
- - You are seeking a short-term investment vehicle. The Insured Long-Term
Portfolio may be suitable for you if:
- - You are seeking a potentially greater amount of tax-exempt income and are
willing to accept significant fluctuations in share price.
Neither Portfolio is an appropriate investment if you are a market-timer.
Investors who engage in excessive in-and-out trading activity generate
additional costs that are borne by all of the shareholders in a Portfolio. To
minimize such costs, which reduce the ultimate returns achieved by you and other
shareholders, the Fund has adopted the following policies:
- - Each Portfolio reserves the right to reject any purchase request -- including
exchanges from other Vanguard funds -- that it regards as disruptive to the
efficient management of the Portfolios. This could be because of the timing
of the investment or because of a history of excessive trading by the
investor.
- - There is a limit on the number of times you can exchange into or out of a
Portfolio (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).
- - The Fund reserves the right to stop offering shares at any time.
INVESTMENT STRATEGY
This section explains how the Portfolios' investment adviser seeks to provide
income that is exempt from federal and New York state income taxes. It also
explains important risks -- interest rate risk, income risk, call risk,
objective risk, and manager risk -- faced by the Portfolios' shareholders.
Unlike the Portfolios' investment objectives, the adviser's investment
strategies are not fundamental and can be changed by the Fund's board of
trustees without shareholder approval. However, before making any important
change in its strategies, the Fund will give shareholders 30-days notice, in
writing.
MARKET EXPOSURE
Both Portfolios invest primarily in tax-exempt New York state and local
municipal bonds that, depending on their maturity and quality, provide varying
amounts of tax-exempt income.
[FLAG] EACH PORTFOLIO IS SUBJECT TO INCOME RISK, WHICH IS THE POSSIBILITY
THAT A PORTFOLIO'S DIVIDENDS (INCOME) WILL DECLINE DUE TO FALLING
INTEREST RATES. INCOME RISK IS GENERALLY THE GREATEST FOR SHORT-TERM
BONDS (LIKE THOSE IN THE MONEY MARKET PORTFOLIO) AND THE LEAST FOR
LONG-TERM BONDS (LIKE THOSE IN THE INSURED LONG-TERM PORTFOLIO).
Changes in interest rates can affect bond prices as well as bond income.
PLAIN TALK ABOUT
INVESTING FOR THE LONG TERM
The Insured Long-Term Portfolio is intended to be a long-term investment vehicle
and is not designed to provide investors with a means of speculating on
short-term fluctuations in the bond market.
PLAIN TALK ABOUT
MUNICIPAL BONDS
Municipal bonds are securities issued by state and local governments and
regional government authorities as a way of raising money for public
construction projects (for example, highways, airports, housing); for operating
expenses or for loans to public institutions and facilities.
PLAIN TALK ABOUT
BONDS AND INTEREST RATES
When interest rates rise, bond prices fall. The opposite is also true: Bond
prices go up when interest rates fall. Why do bond prices and interest rates
move in opposite directions? Let's assume that you hold a bond offering a 5%
yield. A year later, interest rates are on the rise and bonds are offered with a
6% yield. With higher-yielding bonds available, you would have trouble selling
your 5% bond for the price you paid -- causing you to lower your asking price.
On the other hand, if interest rates were falling and 4% bonds were being
offered, you would be able to sell your 5% bond for more than you paid.
6
<PAGE> 11
PLAIN TALK ABOUT
BOND MATURITIES
A bond is issued with a specific maturity date -- the date when the bond's
issuer must pay back the bond's principal (known as its "face value"). Bond
maturities generally range from less than one year (short term) to 30 years
(long term). The longer a bond's maturity, the more risk you, as a bond
investor, face as interest rates rise -- but also the more interest you could
receive. Long-term bonds are more suitable for investors willing to take greater
risks in hope of higher yields; short-term bond investors should be willing to
accept lower yields in return for less fluctuation in the value of their
investment.
PLAIN TALK ABOUT
CALLABLE BONDS
Although bonds are issued with clearly defined maturities, a bond issuer may be
able to redeem, or call, a bond earlier than its maturity date. The bond holder
must now replace the called bond with a bond that may have a lower yield than
the original. One way for bond investors to protect themselves against call risk
is to purchase a bond early in its lifetime, when it is less likely to be
called. Another way is to buy bonds with call protection -- that is, assurance
that a bond will not be called for a specific time period, such as ten years.
[FLAG] THE INSURED LONG-TERM PORTFOLIO IS PARTICULARLY SUBJECT TO INTEREST
RATE RISK, WHICH IS THE POSSIBILITY THAT BOND PRICES OVERALL WILL
DECLINE OVER SHORT OR EVEN EXTENDED PERIODS DUE TO RISING INTEREST
RATES. INTEREST RATE RISK SHOULD BE MODEST FOR SHORTER-TERM BONDS,
MODERATE FOR INTERMEDIATE-TERM BONDS, AND HIGH FOR LONGER-TERM BONDS.
In the past, bond investors have seen the value of their investment rise and
fall -- sometimes significantly -- with changes in interest rates. Between
December 1976 and September 1981, for instance, rising interest rates caused
long-term bond prices to fall by almost 48%.
Because the Insured Long-Term Portfolio invests mainly in longer-term bonds,
changes in interest rates will have a significant impact on the value of that
Portfolio's assets. To illustrate how much of an impact, the table below shows
the effect of a 1% change and a 2% change (both up and down) in interest rates
on a bond with a face value of $1,000, similar to those held by the Insured
Long-Term Portfolio on May 31, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
HOW INTEREST RATE CHANGES AFFECT INVESTMENT
- ------------------------------------------------------------------------------------------------------
VALUE OF A $1,000 INVESTMENT
----------------------------------------------------------------------
YIELD/AVERAGE INITIAL 1% 1% 2% 2%
MATURITY INVESTMENT INCREASE DECREASE INCREASE DECREASE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(-)/(-) years $(-) $(-) $(-) $(-) $(-)
- ------------------------------------------------------------------------------------------------------
</TABLE>
These figures are for illustration only and should not be regarded as an
indication of future returns from the municipal bond market as a whole or any
Portfolio in particular.
Falling interest rates can cause other problems for bond portfolio
shareholders.
[FLAG] THE INSURED LONG-TERM PORTFOLIO AND, TO A MUCH LESSER EXTENT, THE MONEY
MARKET PORTFOLIO ARE SUBJECT TO CALL RISK, WHICH IS THE POSSIBILITY
THAT DURING PERIODS OF FALLING INTEREST RATES, A BOND ISSUER WILL
"CALL" -- OR REPAY -- ITS HIGH-YIELDING BOND BEFORE ITS MATURITY DATE.
FORCED TO INVEST THE UNANTICIPATED PROCEEDS AT LOWER INTEREST RATES,
THE PORTFOLIO WOULD EXPERIENCE A DECLINE IN INCOME -- AND THE POTENTIAL
FOR TAXABLE CAPITAL GAINS.
Longer-term bonds, like those held by the Insured Long-Term Portfolio,
generally have "call protection" -- that is, assurance that a bond will not be
called for a specific period, such as ten years.
SECURITY SELECTION
Vanguard Fixed Income Group, adviser to the Portfolios, selects bonds issued by
New York state and local governments. The municipal bonds held by the two
Portfolios, though, differ significantly in terms of maturity and quality.
7
<PAGE> 12
PLAIN TALK ABOUT
CREDIT QUALITY
A bond's credit quality depends on the issuer's ability to pay interest on the
bond and, ultimately, to repay the debt. The lower the rating by one of the
independent bond-rating agencies (for example, Moody's or Standard & Poor's),
the greater the chance (in the rating agency's opinion) the bond issuer will
default, or fail to meet its payment obligations. Most bond-rating agencies use
a descending alphabet scale to rate bonds (for example, Aaa is among the highest
ratings, C among the poorest quality). Bonds in the top four quality ratings are
known as investment-grade bonds.
[FLAG] THE PORTFOLIOS ARE SUBJECT TO OBJECTIVE RISK, WHICH IS THE POSSIBILITY
THAT RETURNS FROM A PARTICULAR BOND MARKET SEGMENT (FOR EXAMPLE,
LONG-TERM BONDS OR BONDS ISSUED BY NEW YORK STATE) WILL TRAIL RETURNS
FROM THE OVERALL BOND MARKET.
The MONEY MARKET PORTFOLIO invests at least 80% of its assets in a variety
of high-quality, short-term New York municipal securities. The Portfolio seeks
to provide a stable net asset value of $1.00 per share by investing in
securities with an effective maturity of 13 months or less and by maintaining an
average weighted maturity of 90 days or less. An investment in a money market
fund is neither insured nor guaranteed by the U.S. government, and there can be
no assurance that the portfolio will be able to maintain a stable net asset
value of $1.00 per share.
Under unusual circumstances, such as a national financial emergency, up to
20% of the Money Market Portfolio's assets may be invested in securities other
than New York municipal obligations.
The INSURED LONG-TERM PORTFOLIO buys longer-term municipal bonds issued by
New York State, its local governments, and public financing authorities (and
possibly, by certain U.S. territories). The Portfolio may also buy industrial
revenue bonds and bonds issued by hospitals and universities.
Normally, a fund that concentrates its assets in one state would be exposed
to considerable credit risk. (Details of the risks of investing in one state can
be found in the Statement of Additional Information.) To provide a level of
credit protection, at least 80% of the Insured Long-Term Portfolio's assets are
invested in New York municipal bonds whose principal and interest payments are
guaranteed by top-rated insurance companies at the time of purchase. This
insurance coverage may take one of several forms:
- - A new issue insurance policy, which is purchased by a bond issuer at the time
the security is issued. This insurance is likely to increase the credit rating
of the security, as well as its purchase price and resale value.
- - A mutual fund insurance policy, which is used to guarantee specific bonds only
while held by a mutual fund. For the Insured Long-Term Portfolio (which has
obtained a policy from Financial Guaranty Insurance Company), the annual
premiums for the policy may reduce the Portfolio's current yield.
- - A secondary market insurance policy, which is purchased by an investor (such
as the Insured Long-Term Portfolio) after a bond has been issued and insures
the bond until its maturity date.
Typically, an insured municipal bond in the Portfolio will be covered by
only one of the three policies. For instance, if a bond is covered by a new
issue insurance policy or a secondary market insurance policy, the security will
probably not be insured under the Portfolio's mutual fund insurance policy.
8
<PAGE> 13
The remaining 20% of the Insured Long-Term Portfolio's assets may be
invested in municipal securities with a minimum quality rating of Aa by Moody's
Investors Services, Inc. and AA by Standard & Poor's Corporation. Although the
Portfolio has no limitations as to maturity, its dollar-weighted maturity is
expected to be between 15 and 25 years.
In addition, up to 20% of either Portfolio may be invested in bonds that are
subject to the Alternative Minimum Tax (AMT).
Certain tax-exempt bonds whose proceeds are used to fund private, for-profit
organizations are subject to the Alternative Minimum Tax (AMT) -- a special tax
system that ensures that individuals pay at least some federal taxes. Although
AMT bond income is exempt from federal income tax, a very limited number of
taxpayers who have many tax deductions may have to pay Alternative Minimum Tax
on the income from bonds considered "tax-preference items."
As tax-advantaged investments, the Portfolios are particularly vulnerable to
federal and New York state tax law changes (for instance, if the Internal
Revenue Service ruled that the income from certain types of bonds could no
longer be considered tax-exempt).
[FLAG] THE PORTFOLIOS ARE SUBJECT TO CREDIT RISK, WHICH IS THE POSSIBILITY THAT
A BOND ISSUER WILL FAIL TO REPAY INTEREST AND PRINCIPAL IN A TIMELY
MANNER.
The Money Market Portfolio invests primarily in high-quality, short-term New
York municipal securities, and the Insured Long-Term Portfolio invests primarily
in bonds insured by top-rated insurance companies against the possible default
of an issuer. Therefore, credit risk should be low for the Money Market
Portfolio and very low for the Insured Long-Term Portfolio. The average quality
of the Insured Long-Term Portfolio, as rated by Moody's on May 31, 1997, was *.
The average quality of the Money Market Portfolio as rated by Moody's is
expected to be *.
The Portfolios try to minimize credit risk by purchasing a wide selection of
New York municipal securities. As a result, there is less chance that a
Portfolio will be hurt significantly by a particular bond issuer's failure to
repay either principal or interest.
[FLAG] THE PORTFOLIOS ARE SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY THAT
VANGUARD FIXED INCOME GROUP WILL DO A POOR JOB OF SELECTING SECURITIES.
9
<PAGE> 14
PLAIN TALK ABOUT
PORTFOLIO TURNOVER
Before investing in a mutual fund, you should review its portfolio turnover rate
for an indication of the potential effect of transaction costs on the fund's
future returns. In general, the greater the volume of buying and selling by the
fund, the greater the impact that brokerage commissions and other transaction
costs will have on its return. Also, funds with high portfolio turnover rates
may be more likely than low-turnover funds to generate capital gains that must
be distributed to shareholders as taxable income. The average turnover rate for
actively managed tax-exempt bond funds (excluding money market funds) is 48%
(Source: Lipper Analytical Services, Inc.).
PLAIN TALK ABOUT
DERIVATIVES
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new, exotic types of derivatives -- some of which
can carry considerable risks.
To help you distinguish between the two Portfolios and their various risks,
a summary table is presented below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
INCOME INTEREST CALL CREDIT
PORTFOLIO RISK RATE RISK RISK RISK
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market High Low Negligible Low
Insured Long-Term Low High High Very Low
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIO TURNOVER
Although the Insured Long-Term Portfolio generally seeks to invest for the long
term, it retains the right to sell securities regardless of how long they have
been held. The Insured Long-Term Portfolio's average turnover rate for the past
ten years has been about 15%. (A portfolio turnover rate of 100% would occur,
for example, if the Portfolio sold and replaced securities valued at 100% of its
total net assets within a one-year period.) The Money Market Portfolio will have
a much higher turnover rate because of the short-term nature of money market
instruments. This high turnover rate should not increase Portfolio costs,
however, since brokerage commissions are not usually charged for the purchase or
sale of money market instruments.
INVESTMENT POLICIES
Besides investing in longer-term municipal bonds, each Portfolio may follow a
number of other investment policies to achieve its objectives.
[FLAG] EACH OF THE FUND'S PORTFOLIOS MAY INVEST, TO A LIMITED EXTENT, IN
DERIVATIVES.
The Money Market Portfolio may invest in partnership and grantor trust type
derivatives. Ownership of derivative securities allows the purchaser to receive
principal and interest payments on underlying municipal bonds or municipal
notes. There are many types of derivatives, including derivatives in which the
tax-exempt interest rate is determined by an index, a swap agreement, or some
other formula.
The Money Market Portfolio intends to use derivatives to increase the
diversification of, as well as maintain the quality of, securities held by the
Portfolio. Derivative securities are subject to certain structural risks that,
in unexpected circumstances, could cause the Portfolio's shareholders to lose
money or receive taxable income. However, the Portfolio will invest in
derivatives only when these securities are judged consistent with the
Portfolio's objective of maintaining a stable $1.00 share price and producing
tax-exempt income.
The Insured Long-Term Portfolio may invest in bond (interest rate) futures
and options contracts and other types of derivatives. Losses (or gains)
involving futures can sometimes be substantial -- in
10
<PAGE> 15
part because a relatively small price movement in a futures contract may result
in an immediate and substantial loss (or gain) for a portfolio. The Portfolio
will keep separate cash reserves or other liquid portfolio securities in the
amount of the obligation underlying the futures contract. Only a limited
percentage of the Portfolio's assets -- up to 5% if required for deposit, and no
more than 20% of total assets -- may be committed to such contracts.
The reasons for which the Insured Long-Term Portfolio may use futures and
options are:
- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in bonds.
- - To make it easier to trade.
- - To reduce costs by buying futures instead of actual bonds when futures are
cheaper.
The Insured Long-Term Portfolio will not use futures and options for
speculative purposes or as leveraged investments that magnify the gains or
losses of an investment. The Statement of Additional Information offers a
detailed explanation of the other types of derivatives in which the Fund may
invest.
The Insured Long-Term Portfolio will usually hold only a small percentage of
its assets in cash reserves, although if the investment adviser believes that
market conditions warrant a temporary defensive measure, the Portfolio may hold
cash reserves without limit.
Either Portfolio may purchase tax-exempt securities on a "when-issued"
basis.
INVESTMENT LIMITATIONS
To reduce risk, the Portfolios have adopted limits on some of their investment
policies. Specifically, each Portfolio will not:
- - Invest more than 25% of its assets in the securities of a single issuer,
except the U.S. government and cash reserves.
- - Invest more than 50% of its assets in bonds that make up more than 5% of the
Fund's total assets.
- - Borrow money, except for the purpose of meeting shareholder requests to redeem
shares, and not in amounts to exceed 10% of the Portfolio's net assets.
The limitations listed in this prospectus and in the Statement of Additional
Information are fundamental and may be changed only by approval of a majority of
a Portfolio's shareholders.
INVESTMENT PERFORMANCE
The Portfolios of Vanguard New York Tax-Free Fund invest in bonds with a variety
of maturities from a variety of issuers in New York State, so their performance
will differ depending on the performance of specific bond market segments.
Historically, changes in interest rates have been -- and remain -- the strongest
influence on bond market performance.
11
<PAGE> 16
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 5/31/97
[GRAPH]
The results shown above represent the Insured Long-Term Portfolio's "average
annual total return" performance, which assumes that any distributions of
capital gains and dividends were reinvested for the indicated periods. Also
included is comparative information for the Insured Long-Term Portfolio's
unmanaged benchmark index. (Note that, prior to September 2, 1997, the Insured
Long-Term Portfolio was known as Vanguard New York Insured Tax-Free Fund.)
The Money Market Portfolio began operations on September 2, 1997.
SHARE PRICE
Each Portfolio's share price, called its net asset value, is calculated each
business day after the close of trading (generally 4 p.m. Eastern time) of the
New York Stock Exchange. The net asset value per share is calculated by adding
up the total assets of the Portfolio, subtracting all of its liabilities, or
debts, and then dividing by the total number of Portfolio shares outstanding:
TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = --------------------------------
NUMBER OF SHARES OUTSTANDING
The daily net asset value, or NAV, is useful to you as a shareholder because
the NAV, multiplied by the number of Portfolio shares you own, gives you the
dollar amount you would have received had you sold all of your shares back to
the Portfolio that day.
The Insured Long-Term Portfolio's share price can be found daily in the
mutual fund listings of most major newspapers under the heading Vanguard Group.
Different newspapers use different abbreviations of the Portfolio's name, but
the most common is NYIns. (Note that, prior to September 2, 1997, the Insured
Long-Term Portfolio was known as Vanguard New York Insured Tax-Free Fund.) The
Money Market Portfolio is listed, along with other money market funds,
separately from other mutual funds; its abbreviation is VangNY. The Money Market
Portfolio's share price is expected -- although not guaranteed -- to remain at a
constant $1.00.
PLAIN TALK ABOUT
PAST PERFORMANCE
Whenever you see information on a fund's performance, do not consider the
figures to be an indication of the performance you could expect by making an
investment in the fund today. The past is an imperfect guide to the future;
history does not repeat itself in neat, predictable patterns.
PLAIN TALK ABOUT
DISTRIBUTIONS
As a shareholder, you are entitled to your share of a portfolio's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or capital gains distribution. Income
dividends come from interest the portfolio earns from its money market and bond
investments. Capital gains are realized whenever the portfolio sells securities
for higher prices than it paid for them. These capital gains are either
short-term or long-term depending on whether the portfolio held the securities
for less than or more than one year.
12
<PAGE> 17
DIVIDENDS, CAPITAL GAINS, AND TAXES
The Portfolios' dividends accrue daily. On the first business day of every
month, the Portfolios distribute to shareholders virtually all of their income
from interest and dividends as dividend distributions. These dividend
distributions are expected to be free from federal, New York State, and (to the
extent relevant) New York City income taxes. Any capital gains realized from the
sale of securities are distributed annually in December. Your distributions of
income and capital gains are automatically invested in more shares of the
Portfolio unless you elect to receive the distributions in cash. In either case,
distributions of capital gains (but not dividends) that are declared in December
- -- even if paid to you in January -- are taxed as if they had been paid to you
in December. Vanguard will process your dividend distributions and send you a
statement each year showing the tax status of all your distributions.
- - The short-term capital gains that you receive are taxable to you as ordinary
dividend income for federal income tax purposes. Any distributions of net
long-term capital gains by a Portfolio are taxable to you as long-term capital
gains, no matter how long you've owned shares in the Portfolio. Capital gains
distributions are taxable to you whether received in cash or reinvested in
additional shares. Although the Portfolios do not seek to realize any
particular amount of capital gains during a year, such gains are realized from
time to time as byproducts of the ordinary investment activities of the
Portfolios.
- - If you sell or exchange shares of a Portfolio, any gain or loss you have is a
taxable event, which means that you may have a capital gain to report as
income, or a capital loss to report as a deduction, when you complete your
federal income tax return.
- - Distributions of capital gains, and capital gains or losses from your sale or
exchange of shares of a Portfolio, may be subject to state and local income
taxes as well.
The tax information in this prospectus is provided as general information.
You should consult your own tax adviser about the tax consequences of an
investment in either of the Portfolios.
THE FUND AND VANGUARD
Vanguard New York Tax-Free Fund is a member of The Vanguard Group, a family of
more than 30 investment companies with more than 90 distinct investment
portfolios and total net assets of more than $260 billion. All of the Vanguard
funds share in the expenses associated with business operations, such as
personnel, office space, equipment, and advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each fund
pays its allocated share of The Vanguard Group's costs.
A list of the Fund's trustees and officers and their present positions and
principal occupations during the past five years, can be found in the Statement
of Additional Information.
PLAIN TALK ABOUT
"BUYING A CAPITAL GAIN"
It is not to your advantage to buy shares of a portfolio shortly before it makes
a capital gains distribution, because part of your investment will come back to
you as a taxable distribution. This is known as "buying a capital gain." For
example: on December 15, you invest $5,000, buying 250 shares for $20 each. If
the portfolio pays a capital gains distribution of $1 per share on December 16,
its share price would drop to $19 (not counting market change). You would still
have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250 shares x $1
= $250 in capital gains distributions), but you would owe tax on the $250
capital gain you received, even if you had reinvested it in more shares. To
avoid "buying a capital gain," check the portfolio's distribution schedule
before you invest.
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE
The Vanguard Group, Inc. is the only MUTUAL mutual fund company. It is owned
jointly by the funds it oversees and by the shareholders in those funds. Other
mutual funds are operated by for-profit management companies that may be owned
by one person, by a group of individuals, or by investors who bought the
management company's publicly traded stock. Because of its structure, Vanguard
operates its funds at cost. Instead of distributing profits from operations to a
separate management company, Vanguard returns profits to fund shareholders in
the form of lower operating expenses.
13
<PAGE> 18
PLAIN TALK ABOUT
THE FUND'S ADVISER
Vanguard Fixed Income Group currently manages more than $(-) billion in assets
invested in more than 40 Vanguard Portfolios.
The managers responsible for the Fund are:
IAN A. MACKINNON, Senior Vice President; 22 years fixed income investment
experience, 16 years primary responsibility for Vanguard's internal fixed income
policy and strategy; B.A. from Lafayette College, M.B.A. from Pennsylvania State
University.
CHRISTOPHER M. RYON, CFA, Principal and (since January 1997) Insured
Long-Term Portfolio manager; 17 years investment experience; B.S. from Villanova
University, M.B.A. from Drexel University.
JOHN M. CARBONE, Principal and Money Market Portfolio manager (since its
inception on September 2,1997); 11 years investment experience; B.S. from Babson
College, M.B.A. from Southern Methodist University.
INVESTMENT ADVISER
Vanguard Fixed Income Group, P.O. Box 2600, Valley Forge, PA 19482, provides
investment advisory services to the Portfolios of Vanguard New York Tax-Free
Fund on an at-cost basis, subject to the control of the trustees and officers of
the Fund.
The Fixed Income Group chooses brokers or dealers to handle the purchase and
sale of the Portfolios' securities, and is responsible for getting the best
available price and most favorable execution for all transactions. When the
Portfolios purchase a newly issued security at a fixed price, the Group may
designate certain members of the underwriting syndicate to receive compensation
associated with that transaction. Certain dealers have agreed to rebate a
portion of such compensation directly to the Portfolios to offset their
management expenses.
GENERAL INFORMATION
Vanguard New York Tax-Free Fund is a Pennsylvania business trust. Shareholders
of the Fund have rights and privileges similar to those enjoyed by corporate
shareholders. If any matters are to be voted on by shareholders (such as a
change in a fundamental investment objective or the election of trustees), each
share outstanding at that point would be entitled to one vote. Annual meetings
will not be held by the Portfolios except as required by the Investment Company
Act of 1940. A meeting will be scheduled (for example, to vote on the removal of
a trustee) if the holders of at least 10% of the Fund's shares request a meeting
in writing.
14
<PAGE> 19
INVESTING WITH VANGUARD
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services we
offer you as a shareholder of one of the Portfolios of Vanguard New York
Tax-Free Fund. Booklets providing detailed information are available on the
services marked with a [BOOK ICON]. Please call us to request copies.
SERVICES AND ACCOUNT FEATURES
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares.
<TABLE>
<S> <C>
TELEPHONE REDEMPTIONS Automatically set up for each Portfolio unless you notify us
(SALES AND EXCHANGES) otherwise.
CHECKWRITING Method for drawing money from your account by writing a
check for $250 or more.
VANGUARD DIRECT DEPOSIT Automatic method for depositing your paycheck or U.S. gov-
SERVICE ernment payment (including Social Security and government
[BOOK ICON] pension checks) into your account.
VANGUARD AUTOMATIC EXCHANGE Automatic method for moving a fixed amount of money from
SERVICE one Vanguard fund account to another.*
[BOOK ICON]
VANGUARD FUND EXPRESS Electronic method for buying or selling shares. You can trans-
[BOOK ICON] fer money between your Vanguard fund account and an ac-
count at your bank, savings and loan, or credit union on a
systematic schedule or whenever you wish.*
VANGUARD DIVIDEND EXPRESS Electronic method for transferring dividend and/or capital
[BOOK ICON] gains distributions directly from your Vanguard fund account
to your bank, savings and loan, or credit union account, or to
another Vanguard fund account.
VANGUARD BROKERAGE SERVICES A cost-effective way to trade stocks, bonds, and options on
(VBS) major exchanges, the Nasdaq Stock Market, and other do-
[BOOK ICON] mestic over-the-counter markets at reduced rates, and to buy
and sell shares of non-Vanguard mutual funds. Call VBS
(1-800-992-8327) for additional information and the
appropriate forms.
</TABLE>
*Can be used to "dollar-cost average" [BOOK ICON].
15
<PAGE> 20
TYPES OF ACCOUNTS
INDIVIDUAL OR OTHER ENTITY
Vanguard's account registration form can be used to establish a variety of
accounts.
<TABLE>
<S> <C>
FOR ONE OR MORE PEOPLE To open an account in the name of one (individual) or more
(joint tenants) people. $3,000 minimum initial investment.
FOR A MINOR CHILD To open an account as an UGMA/UTMA (Uniform Gifts/
[BOOK ICON] Transfers to Minors Act). Age of majority and other re-
quirements are set by state law. $1,000 minimum initial
investment.
FOR HOLDING TRUST ASSETS To invest assets held in an existing trust. $3,000 minimum
[BOOK ICON] initial investment.
FOR AN ORGANIZATION To open an account as a corporation, partnership, or other
entity. These accounts may require a corporate resolution
or other documents to name the individuals authorized to act.
$3,000 minimum initial investment.
</TABLE>
DISTRIBUTION OPTIONS
You can receive your distributions of dividends and/or capital gains in a number
of ways:
<TABLE>
<S> <C>
REINVESTMENT Dividends and capital gains are automatically reinvested in ad-
ditional shares of the Portfolio unless you request a different
distribution method.
DIVIDENDS IN CASH Dividends are paid by check and mailed to your account's
address of record, and capital gains are reinvested in addi-
tional shares of the Portfolio.
DIVIDENDS AND CAPITAL GAINS Both dividends and capital gains are paid by check and mailed
IN CASH to your account's address of record.
</TABLE>
To electronically transfer cash dividends and/or capital gains to your bank,
savings and loan, or credit union account, or to another Vanguard fund
account, see Vanguard Dividend Express under "Services and Account Features."
16
<PAGE> 21
BUYING SHARES
If we receive your check (or electronic transfer) before 4 p.m. Eastern time on
a regular business day, your investment in the Insured Long-Term Portfolio will
be converted to federal funds and credited to your account at that day's closing
price, the next-determined net asset value. You will begin earning dividends on
your investment the following calendar day. (Federal funds are Federal Reserve
deposits that banks and other financial institutions "borrow" from one another
to meet short-term cash needs; portfolio advisers must use federal funds to pay
for the securities they buy).
Your investment in the Money Market Portfolio will also be converted to
federal funds and credited to your account; however, the conversion to federal
funds for Money Market Portfolio investments takes one business day. Because of
this conversion period, your Money Market Portfolio account will be credited on
the business day following the day we receive your check. You will begin earning
dividends on your investment on the next calendar day. For example, if we
receive your check before 4 p.m. on a Thursday, your account will be credited
the next business day (Friday) and you will begin earning dividends on Saturday.
Each of the Fund's Portfolios is offered on a no-load basis, meaning that you
do not pay sales commissions or 12b-1 marketing fees.
<TABLE>
<CAPTION>
OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT
<S> <C> <C>
MINIMUM INVESTMENT $3,000 (regular account); $1,000 $100 by mail or exchange; $1,000
(custodial accounts for minors). by wire.
BY MAIL Complete and sign the applica- Mail your check with an Invest-
[ENVELOPE ICON] tion form. By-Mail form detached from
FIRST-CLASS mail to: your confirmation statement to
The Vanguard Group the address listed on the form.
P.O. Box 2600
Valley Forge, PA 19482 Make your check payable to: Make your check payable to:
The Vanguard Group-(appropriate The Vanguard Group-(appropriate
EXPRESS or REGISTERED mail to: Portfolio number; see below) Portfolio number; see below)
The Vanguard Group Money Market -- Money Market --
455 Devon Park Drive Insured Long-Term 76 Insured Long-Term 76
Wayne, PA 19087
All purchases must be made in All purchases must be made in
U.S. dollars, and checks must be U.S. dollars, and checks must be
drawn on U.S. banks. drawn on U.S. banks.
</TABLE>
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
17
<PAGE> 22
BUYING SHARES (continued)
<TABLE>
<CAPTION>
OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT
<S> <C> <C>
BY TELEPHONE Call Vanguard Tele-Account* 24 Call Vanguard Tele-Account* 24
[TELEPHONE ICON] hours a day--or Client Services hours a day--or Client Services
1-800-662-6273 during business hours--to ex- during business hours--to ex-
Vanguard Tele-Account(R) change from another Vanguard change from another Vanguard
1-800-662-2739 fund account with the same reg- fund account with the same reg-
Client Services istration (name, address, taxpay- istration (name, address, taxpay-
er I.D., and account type). er I.D., and account type).
Use Vanguard Fund Express (see
"Services and Account Features")
to transfer assets from your bank
account. Call Client Services be-
fore your first use to verify that
this option is in place.
*You must obtain a Personal Identification Number through Tele-Account at
least seven days before you request your first exchange.
</TABLE>
FOR THE MONEY MARKET PORTFOLIO ONLY: If you buy Portfolio shares through an
exchange from another Vanguard fund by 4 p.m. Eastern time, your investment does
not have to be converted to federal funds; you begin earning dividends the next
calendar day.
IMPORTANT NOTE: Once a telephone transaction has been approved by you and a
confirmation number assigned, it cannot be revoked. We reserve the right to
refuse any purchase.
<TABLE>
<S> <C> <C>
BY WIRE Call Client Services to arrange your Call Client Services to arrange your
[WIRE ICON] wire transaction. wire transaction.
Wire to:
CoreStates Bank, N.A.
ABA 031000011
CoreStates No 01019897
[Temporary Account Number]
Vanguard New York Tax-Free Fund
[Portfolio Name]
[Account Registration]
Attention: Vanguard
</TABLE>
FOR THE MONEY MARKET PORTFOLIO ONLY: If you buy Portfolio shares through a
federal funds wire, your investment begins earning dividends the next calendar
day. You can begin earning dividends immediately if you notify Vanguard by 10:45
a.m. Eastern time that you intend to make a wire purchase that day.
<TABLE>
<S> <C> <C>
AUTOMATICALLY -- Vanguard offers a variety of ways
[ARROW ICON] that you can add to your account
automatically. See "Services and
Account Features."
</TABLE>
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
NOTE: If you buy Portfolio shares through a registered broker-dealer or
investment adviser, the broker-dealer or adviser may charge you a service fee.
18
<PAGE> 23
BUYING SHARES (continued)
It is important that you call Vanguard before you invest a large dollar
amount by wire or check. We must consider the interests of all Portfolio
shareholders and so reserve the right to delay or refuse any purchase that will
disrupt the Portfolio's operation or performance.
REDEEMING SHARES
IMPORTANT TAX NOTE: Any sale or exchange of Portfolio shares could result in a
taxable gain or a loss. However, because the Money Market Portfolio seeks to
maintain a stable net asset value of $1.00 per share, you will not incur a
taxable gain or loss when you sell or exchange shares of this Portfolio.
The ability to redeem (that is, sell or exchange) Portfolio shares by telephone
is automatically established for your account unless you tell us in writing that
you do not want this option.
To protect your account from unauthorized or fraudulent telephone
instructions, Vanguard follows specific security procedures. When we receive a
call requesting an account transaction, we require the caller to provide:
[CHECKMARK ICON] Portfolio name.
[CHECKMARK ICON] 10-digit account number.
[CHECKMARK ICON] Name and address exactly as registered on that account.
[CHECKMARK ICON] Social Security or employer identification number as
registered on that account.
If you call to sell shares, the sale proceeds will be made payable to you, as
the registered shareholder, and mailed to your account's address of record.
If we follow reasonable security procedures, neither the Fund nor Vanguard
will be responsible for the authenticity of transaction instructions received by
telephone. We believe that these procedures are reasonable and that, if we
follow them, you bear the risk of any losses resulting from unauthorized or
fraudulent telephone transactions on your account.
HOW TO SELL SHARES
You may withdraw any part of your account, at any time, by selling shares.
One way to sell shares is the checkwriting option (established when you set
up your account or by calling Client Services). Your personalized Vanguard
checks work in much the same way as bank checks, except that Vanguard checks are
considered drafts and cannot be cashed immediately like a bank check. You cannot
write a Vanguard check to redeem shares that you purchased by check within the
previous ten days.
When you sell shares by telephone or mail, sale proceeds are normally mailed
within two business days after Vanguard receives your request. The sale price of
your shares will be the Portfolio's next-determined net asset value after
Vanguard receives your request in good order. Good order means that the request
includes:
[CHECKMARK ICON] Portfolio name and account number.
[CHECKMARK ICON] Amount of the transaction (in dollars or shares).
[CHECKMARK ICON] Signatures of all owners exactly as registered on the
account.
[CHECKMARK ICON] Signature guarantees (if required).
[CHECKMARK ICON] Any supporting legal documentation that may be required.
[CHECKMARK ICON] Any certificates you are holding for the account.
Sales or exchange requests received after the close of trading on the New
York Stock Exchange (generally 4 p.m. Eastern time) are processed the next
business day.
The Portfolios reserve the right to close any account whose balance falls
below the minimum initial investment. The Portfolios will deduct a $10 annual
fee if your account balance falls
19
<PAGE> 24
REDEEMING SHARES (continued)
below $2,500 or if your UGMA/UTMA account balance falls below $500. The fee is
waived if your total Vanguard account assets are $50,000 or more.
Some written requests require a signature guarantee from a bank, broker, or
other acceptable financial institution. A notary public cannot provide a
signature guarantee.
HOW TO EXCHANGE SHARES
An exchange is the selling of shares of one Vanguard fund to purchase shares of
another.
Although we make every effort to maintain the exchange privilege, Vanguard
reserves the right to revise or terminate the exchange privilege, limit the
amount of an exchange, or reject any exchange, at any time, without notice.
Because excessive exchanges can potentially disrupt the management of the
Portfolios and increase transaction costs, Vanguard limits exchange activity to
two substantive exchange redemptions (at least 30 days apart) from each
Portfolio (except the Money Market Portfolio) during any 12-month period.
"Substantive" means either a dollar amount large enough to have a negative
impact on a Portfolio or a series of movements between Vanguard funds.
Before you exchange into a new Vanguard fund, be sure to read its prospectus.
For a copy and for answers to questions you might have, call Investor
Information.
<TABLE>
<CAPTION>
SELLING OR EXCHANGING SHARES INSTRUCTIONS
<S> <C>
BY TELEPHONE Call Vanguard Tele-Account* 24 hours a day--or Client Ser-
[TELEPHONE ICON] vices during business hours--to sell or exchange shares. You
1-800-662-6273 can exchange shares from either Portfolio to open an account
Vanguard Tele-Account in another Vanguard fund or to add to an existing Vanguard
1-800-662-2739 fund account with an identical registration.
Client Services
*You must obtain a Personal Identification Number through Tele-Account at
least seven days before you request your first redemption.
BY MAIL Send a letter of instruction signed by all registered account hold-
[ENVELOPE ICON] ers. Include the Portfolio name and account number and (if you
First-class mail to: are selling) a dollar amount or number of shares OR (if you
The Vanguard Group are exchanging) the name of the portfolio you want to exchange
Vanguard New York Tax-Free Fund into and a dollar amount or number of shares.
P.O. Box 1120
Valley Forge, PA 19482
Express or Registered mail to:
The Vanguard Group
Vanguard New York Tax-Free Fund
455 Devon Park Drive
Wayne, PA 19087
BY CHECK You can sell shares by writing a check for $250 or more.
[CHECK ICON]
</TABLE>
20
<PAGE> 25
REDEEMING SHARES (continued)
<TABLE>
<CAPTION>
SELLING OR EXCHANGING SHARES INSTRUCTIONS
<S> <C>
EXCHANGING SHARES ON-LINE You may use your personal computer to exchange shares of
[COMPUTER ICON] most Vanguard funds by accessing Vanguard's website
(http://www.vanguard.com). To establish this service for your
account, you must first register through our website. We will
then send to you, by mail, an account access password that
will enable you to make on-line exchanges.
The Vanguard funds that you cannot purchase or sell through
on-line exchange are VANGUARD INDEX TRUST, VANGUARD BAL-
ANCED INDEX FUND, VANGUARD INTERNATIONAL EQUITY INDEX
FUND, VANGUARD REIT INDEX PORTFOLIO, VANGUARD TOTAL
INTERNATIONAL PORTFOLIO, and VANGUARD GROWTH AND INCOME
PORTFOLIO (formerly known as Vanguard Quantitative Portfo-
lios). These funds do permit on-line exchanges within IRAs
and other retirement accounts.
AUTOMATICALLY Vanguard offers several ways to sell or exchange shares auto-
[ARROW ICON] matically (see "Services and Account Features"). Call Investor
Information for the appropriate booklet and application if you
did not elect a feature when you opened your account.
</TABLE>
It is important that you call Vanguard before you redeem a large dollar
amount. We must consider the interests of all Portfolio shareholders and so
reserve the right to delay your redemption proceeds--up to seven days--if the
amount will disrupt a Portfolio's operation or performance.
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the United States
Securities and Exchange Commission. If you experience difficulty making a
telephone redemption during periods of drastic economic or market change, you
can send us your request by regular or express mail. Follow the instructions on
selling or exchanging shares by mail in the "Redeeming Shares" section.
FUND AND ACCOUNT UPDATES
STATEMENTS AND REPORTS
We will send you clear, concise account and tax statements to help you keep
track of your Portfolio account throughout the year as well as when you are
preparing your income tax returns.
In addition, you will receive financial reports about each Portfolio twice a
year. These comprehensive reports include an assessment of each Portfolio's
performance (and a comparison with its industry benchmark), an overview of the
markets, a report from the adviser, as well as a listing of its holdings and
other financial statements.
21
<PAGE> 26
FUND AND ACCOUNT UPDATES (continued)
<TABLE>
<S> <C>
CONFIRMATION STATEMENT Sent each time you buy, sell, or exchange shares; confirms
the date and the amount of your transaction.
PORTFOLIO SUMMARY Mailed quarterly; shows the market value of your account at
the close of the statement period, as well as distributions,
purchases, sales, and exchanges for the current calendar year.
FUND FINANCIAL REPORTS Mailed in January and July for each Portfolio.
TAX STATEMENTS Generally mailed in January; report previous year's taxable
distributions and proceeds from the sale of Portfolio shares.
AVERAGE COST STATEMENT Issued quarterly (accompanies your Portfolio Summary);
[BOOK ICON] shows the average cost of shares that you redeemed during the
calendar year, using the average cost single category method.
</TABLE>
AUTOMATED TELEPHONE ACCESS
<TABLE>
<S> <C>
VANGUARD TELE-ACCOUNT Toll-free access to Vanguard fund and account information--
1-800-662-6273 as well as some transactions--through any Touch-Tone(TM) tele-
Any time, seven days a week, phone. Tele-Account provides total return, share price, price
from anywhere in the continental change, and yield quotations for all Vanguard funds; gives
United States and Canada. your account balances and history (e.g., last transaction, lat-
[BOOK ICON] est dividend distribution, redemptions by check during the
last three months); and allows you to sell or exchange fund
shares.
COMPUTER ACCESS
Vanguard on the Use your personal computer to visit Vanguard's education-
World Wide Web oriented website, which provides timely news and in-
http://www.vanguard.com formation about Vanguard funds and services; an on-line
"university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own in-
vestment and retirement strategies.
</TABLE>
22
<PAGE> 27
PROSPECTUS POSTSCRIPT
This prospectus is designed to provide you with pertinent information about the
Portfolios of Vanguard New York Tax-Free Fund, including their investment
objectives, risks, strategy, and expenses, as well as services available to you
as a shareholder.
It is important that you understand these facts so that you can decide
whether an investment in a Portfolio is right for you. The following questions
offer a quick review of some of the subjects covered by this prospectus.
IN READING THE PROSPECTUS, DID YOU LEARN . . .
[ ] Each Portfolio's objective? (page 5)
[ ] Each Portfolio's investment strategy? (page 6)
[ ] Who should invest in each Portfolio? (page 5)
[ ] The risks associated with each Portfolio? (pages 5-11)
[ ] Whether each Portfolio is federally insured? (inside front cover)
[ ] Each Portfolio's expenses? (page 3)
[ ] The background of the Portfolios' investment managers? (page 14)
[ ] How to open an account? (page 17)
[ ] How to sell or exchange shares? (page 19)
[ ] How often you'll receive statements and financial reports? (page 21)
PLAIN TALK ABOUT
Keeping Your Prospectus
Reading this prospectus will help you to decide whether one or both of the
Portfolios is suitable for your investment goals. If you decide to invest, don't
throw the prospectus out; you will no doubt need it for future reference.
23
<PAGE> 28
A SIMPLE RISK QUIZ
A. I HAVE BEEN INVESTING IN STOCK AND BOND MUTUAL FUNDS (OR IN INDIVIDUAL STOCKS
OR BONDS) FOR . . .
1. Less than a year
2. 1-2 years
3. 3-4 years
4. 5-9 years
5. 10 years or more
B. WHEN IT COMES TO INVESTING IN STOCK OR BOND MUTUAL FUNDS (OR INDIVIDUAL
STOCKS OR BONDS), I WOULD SAY I'M . . .
1. A very inexperienced investor
2. A somewhat inexperienced investor
3. A somewhat experienced investor
4. An experienced investor
5. A very experienced investor
C. I AM COMFORTABLE WITH INVESTMENTS THAT MAY LOSE MONEY FROM TIME TO TIME IF
THEY OFFER THE POTENTIAL FOR HIGHER RETURNS.
1. I strongly disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
D. I WILL KEEP AN INVESTMENT EVEN IF IT LOSES 10% OF ITS VALUE OVER THE COURSE
OF A YEAR.
1. I strongly disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
E. IN ADDITION TO MY LONG-TERM INVESTMENTS, I HAVE EMERGENCY SAVINGS EQUAL TO
____ MONTHS OF MY TAKE-HOME PAY.
1. Zero
2. One
3. Two
4. Three
5. Four or more
F. I FIND IT EASY TO PAY MY MONTHLY BILLS FROM MY CURRENT PAY.
1. I strongly disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
G. OVERALL, MY PERSONAL FINANCIAL SITUATION IS SECURE.
1. I strongly disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
ABOUT THE QUIZ
Knowing your risk tolerance is important when you are making an investment
decision. To give you a general idea of your comfort level with investing,
circle the response that most closely matches your personal situation. Keep in
mind, though, that there is no "foolproof" way to accurately gauge your risk
tolerance. Scoring for the quiz is below.
HOW TO SCORE THE QUIZ
Use the number of your answer as the number of points scored. For instance, if
you chose answer #3 to a question, that's worth three points. Add up your points
and check below for the type of investor you are. (Note: If you chose answer #1
or #2 to Question C, subtract five points from your total score.)
- - If you scored between 0 and 25 points, you are considered a conservative
investor.
- - If you scored between 26 and 32 points, you are considered a moderate
investor.
- - If you scored between 33 and 35 points, you are considered an aggressive
investor.
24
<PAGE> 29
GLOSSARY OF INVESTMENT TERMS
ALTERNATIVE MINIMUM TAX (AMT)
A separate tax system designed to assure that individuals pay at least a minimum
amount of Federal income taxes. Certain securities used to fund private,
for-profit activities are subject to AMT.
BOND
A debt security (IOU) issued by a corporation, government, or government agency
in exchange for the money you lend it. In most instances, the issuer agrees to
pay back the loan by a specific date and make regular interest payments until
that date.
CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized during the year on
securities that the fund has sold at a profit, minus any realized losses.
CASH RESERVES
Cash deposits as well as short-term bank deposits, money market instruments,
bank CDs, repurchase agreements, and U.S. Treasury bills.
DIVIDEND INCOME
Payment to shareholders of net income from interest or dividends generated by a
fund's investments.
DURATION
A measure of the sensitivity of bond -- and bond fund -- prices to interest rate
movements. For example, if a bond has a duration of two years, its price would
fall by about 2% when interest rates rose one percentage point. On the other
hand, the bond's price would rise by about 2% when interest rates fell by one
percentage point.
EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
marketing fees.
FACE VALUE
The amount to be paid at maturity of a bond; the par value or principal.
FIXED-INCOME SECURITIES
Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.
INSURED BONDS
Bonds whose payments of both principal and interest are guaranteed. The
insurance does not guarantee the value of the bonds, only that bond payments
will be made in a timely fashion.
INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a portfolio's
investments.
INVESTMENT GRADE
Bonds whose credit quality is considered by independent bond-rating agencies to
be among the highest.
MATURITY
The date when a bond issuer agrees to return the bond's principal, or face
value, to the bond's buyer.
MUNICIPAL BOND
A bond issued by a state or local government. Dividend income from municipal
bonds is generally free from federal income taxes, as well as taxes in the state
in which it was issued.
NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
VOLATILITY
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
YIELD
Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE> 30
[VANGUARD LOGO]
Post Office Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT
1-800-662-7447 (SHIP)
TEXT TELEPHONE:
1-800-952-3335
For information on our funds,
fund services, and retirement accounts; requests for
literature
CLIENT SERVICES DEPARTMENT
1-800-662-2739 (CREW)
TEXT TELEPHONE:
1-800-662-2738
For information on your
account, account transactions,
account statements
VANGUARD BROKERAGE
SERVICES
1-800-992-8327
For information on trading
stocks, bonds, and options
at reduced commissions
VANGUARD TELE-ACCOUNT(R)
1-800-662-6273 (ON-BOARD)
For 24-hour automated access
to price and yield, information
on your account, certain
transactions
ELECTRONIC ACCESS TO THE
VANGUARD MUTUAL FUND
EDUCATION AND INFORMATION
CENTER
World Wide Web
http://www.vanguard.com
E-mail
[email protected]
(C) 1997 Vanguard Marketing
Corporation, Distributor
P076N
<PAGE> 31
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE MONEY MARKET PORTFOLIO SHARES MAY
NOT BE SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL
INFORMATION DOES NOT CONSTITUTE A PROSPECTUS. TO OBTAIN A CURRENTLY
EFFECTIVE PROSPECTUS OF VANGUARD INSURED NEW YORK TAX-FREE FUND PLEASE
CONTACT VANGUARD'S INVESTOR INFORMATION DEPARTMENT AT 1-800-662-7447.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 19, 1997
PART B
VANGUARD NEW YORK TAX-FREE FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 2, 1997
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus dated September 2, 1997. To obtain this
Prospectus, please call:
VANGUARD'S INVESTOR INFORMATION DEPARTMENT
1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Limitations.................................................................... B-1
Investment Policies....................................................................... B-3
New York Risk Factors..................................................................... B-6
Yield and Total Return.................................................................... B-7
Performance Measures...................................................................... B-8
Investment Management..................................................................... B-9
Fund Transactions......................................................................... B-10
Purchase of Shares........................................................................ B-10
Redemption of Shares...................................................................... B-11
Management of the Fund.................................................................... B-13
Description of Shares and Voting Rights................................................... B-16
Financial Statements...................................................................... B-16
Appendix A -- Description of Municipal Bonds and their Ratings............................ B-17
</TABLE>
INVESTMENT LIMITATIONS
The following limitations cannot be changed without the consent of the
holders of a majority of the Fund's outstanding shares (as defined in the
Investment Company Act of 1940 (the "1940 Act")).
1. Each Portfolio will not invest in securities other than municipal
bonds, except that it may make temporary investments in (a) notes issued by
or on behalf of municipal or corporate issuers, obligations of the United
States Government and its agencies or instrumentalities, commercial paper
and bank certificates of deposit; (b) any investment companies investing in
such securities which have investment objectives and policies consistent
with those of the Portfolio, to the extent permitted by the 1940 Act; and
(c) any such securities or municipal bonds subject to short-term repurchase
agreements;
2. Each Portfolio will limit the aggregate value of all issuers
(except U.S. Government and cash items, as defined under Subchapter M of
the Internal Revenue Code (the "Code")), each of which exceeds 5% of the
Portfolio's total assets, to an aggregate amount of 50% of such assets;
3. Each Portfolio will limit the aggregate value of holdings of a
single issuer (except U.S. Government and cash items, as defined in the
Code) to a maximum of 25% of the Portfolio's total assets;
4. Each Portfolio will not borrow money except for temporary or
emergency purposes and then only in an amount not exceeding 10% of the
value of the total assets of that Portfolio. The Portfolio will repay all
borrowing before making additional investments. Interest paid on such
borrowings will reduce income;
5. Each Portfolio will not pledge, mortgage or hypothecate its assets
to any extent greater than 10% of the value of the total assets of the
Portfolio;
B-1
<PAGE> 32
6. Each Portfolio will not issue senior securities as defined in the
1940 Act;
7. Each Portfolio will not engage in the business of underwriting any
issue of securities issued by other persons, except to the extent that it
may technically be deemed to be an underwriter under the Securities Act of
1933, as amended, in disposing of Portfolio securities;
8. Each Portfolio will not purchase or sell real estate, but this
shall not prevent investments in municipal bonds secured by real estate or
interests therein;
9. Each Portfolio will not make loans to other persons, except by the
purchase of bonds, debentures or similar obligations which are publicly
distributed. In addition, although the Portfolios have no present intention
to do so, each Portfolio reserves the right to lend its investment
securities to qualified institutions in accordance with guidelines of the
Securities and Exchange Commission;
10. Each Portfolio will not purchase on margin or sell short, except
as specified below in Investment Limitation No. 12;
11. The Insured Long-Term Portfolio will not purchase or retain
securities of an issuer if those Trustees of the Fund, each of whom owns
more than 1/2 of 1% of such securities, together own more than 5% of the
securities of such issuer;
12. Each Portfolio will not purchase or sell commodities or
commodities contracts, except that the New York Insured Long-Term Portfolio
may invest in bond futures contracts, bond options and options on bond
futures contracts to the extent that not more than 5% of the Portfolio's
assets are required as deposit on futures contracts and not more than 20%
of the Portfolio's assets are invested in futures contracts and/or options
transactions at any time;
13. Each Portfolio will not invest in securities of other investment
companies except as they may be acquired as part of a merger, consolidation
or acquisition of assets or otherwise to the extent permitted by Section 12
of the 1940 Act;
14. Each Portfolio will not invest in put, call, straddle or spread
options (except as described above in investment limitation No. 12) or
interests in oil, gas or other mineral exploration or development programs;
15. The Insured Long-Term Portfolio will not purchase an industrial
revenue bond if as a result of such purchase (i) more than 5% of the Fund's
total assets, determined at market value at the time of the proposed
investment, would be invested in industrial revenue bonds where the payment
of principal and interest is the responsibility of a company with less than
three (3) years' operating history, or (ii) more than 20% of the
Portfolio's total assets, determined at market value at the time of the
proposed investment, would be invested in industrial development bonds.
These restrictions do not apply to municipal obligations where the payment
of principal and interest is the responsibility of a government or the
political subdivision of a government; and
16. Each Portfolio will not purchase or otherwise acquire any security
(including the Fund's investment in The Vanguard Group, Inc.) if, as a
result, more than 15% (10% with respect to the Money Market Portfolio) of
its net assets would be invested in securities that are illiquid.
The above-mentioned investment limitations are considered at the time
investment securities are purchased. Notwithstanding these limitations, each
Portfolio may own all or any portion of the securities of, or make loans to, or
contribute to the costs or other financial requirements of, any company which
will be (1) wholly-owned by the Portfolio and one or more other investment
companies and (2) primarily engaged in the business of providing, at cost,
management, administrative, distribution and/or related services to the
Portfolio and such other investment companies.
B-2
<PAGE> 33
INVESTMENT POLICIES
FUTURES CONTRACTS AND OPTIONS
The Insured Long-Term Portfolio may enter into futures contracts, options,
and options on futures contracts for several reasons; to maintain cash reserves
while simulating full investment, to facilitate trading, to reduce transactions
costs or to seek higher investment returns when a futures contract is priced
more attractively than the underlying municipal security or index. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Assets committed to futures contracts will be segregated at the Fund's custodian
bank to the extent required by law.
Most futures contracts are closed out before the settlement date without
the making or taking of delivery. Closing out an open futures position is done
by taking an opposite position ("buying" a contract which has previously been
"sold," or "selling" a contract previously purchased) in an identical contract
to terminate the position. Brokerage commissions are incurred when a futures
contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
securities with a broker or custodian to initiate and maintain open positions in
futures contracts. A margin deposit is intended to assure completion of the
contract (delivery or acceptance of the underlying security) if it is not
terminated prior to the specified delivery date. Minimal initial margin
requirements are established by the futures exchange and may be changed. Brokers
may establish deposit requirements which are higher than the exchange minimums.
Futures contracts are customarily purchased and sold with margin at prices which
may range upward from less than 5% of the value of the contract being traded.
The Portfolio expects to earn interest income on its margin deposits.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes, to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, changes in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Portfolio intends to use futures
contracts only for bona fide hedging purposes.
Regulations of the CFTC applicable to the Portfolio require that all of its
futures transactions constitute bona fide hedging transactions. The Portfolio
will only sell futures contracts to protect securities it owns against price
declines or purchase contracts to protect against an increase in the price of
securities it intends to purchase.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolio's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While the Portfolio will incur commission expenses in both opening and closing
out futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Insured Long-Term Portfolio will not enter into futures contract
transactions to the extent that, immediately thereafter, the sum of its initial
margin deposits on open contracts exceeds 5% of the market value of the Fund's
total assets. In addition, the Portfolio will not enter into futures contracts
to the extent
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that its outstanding obligations to purchase securities under these contracts
would exceed 20% of the Portfolio's total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the Insured Long-Term Portfolio would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if the Portfolio has insufficient cash, it may have
to sell portfolio securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, the Portfolio may be required to
make delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge the Portfolio.
The Insured Long-Term Portfolio will minimize the risk that it will be
unable to close out a futures contract by only entering into futures which are
traded on national futures exchanges and for which there appears to be a liquid
secondary market. The principal interest rate futures exchanges in the United
States are the Board of Trade of the City of Chicago and the Chicago Mercantile
Exchange.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the initial margin requirement for the contract. However, because the
futures strategies of the Portfolio are engaged in only for hedging purposes,
the Adviser does not believe that the Portfolio is subject to the risks of loss
frequently associated with futures transactions. The Portfolio would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by the Portfolio does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities or other characteristics than the portfolio securities
being hedged. It is also possible that the Portfolio could both lose money on
futures contracts and also experience a decline in value of its portfolio
securities. There is also the risk of loss by the Portfolio of margin deposits
in the event of bankruptcy of a broker with whom the Portfolio has an open
position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
OTHER TYPES OF DERIVATIVES
Each Portfolio may invest in other types of derivatives, including
warrants, swap agreements and partnerships or grantor trust derivative products.
Derivatives are instruments whose value is linked to or derived from an
underlying security. Derivatives may be traded separately on exchanges or in the
over-the-counter market, or they may be imbedded in securities. The most common
imbedded derivative is the call
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option attached to or imbedded in a callable bond. The owner of a traditional
callable bond holds a combination of a long position in a non-callable bond and
a short position in a call option on that bond.
Derivative instruments may be used individually or in combination to hedge
against unfavorable changes in interest rates, or to speculate on anticipated
changes in interest rates. Derivatives may be structured with no or a high
degree of leverage. When derivatives are used as hedges, the risk incurred is
that the derivative instrument's value may change differently than the value of
the security being hedged. This "basis risk" is generally lower than the risk
associated with an unhedged position in the security being hedged. Some
derivatives may entail liquidity risk, i.e., the risk that the instrument cannot
be sold at a reasonable price in highly volatile markets. Leveraged derivatives
used for speculation are very volatile, and therefore, very risky. However, the
Portfolios will only utilize derivatives for hedging or arbitrage purposes, and
not for speculative purposes. Over-the-counter derivatives involve a
counterparty risk, i.e., the risk that the individual or institution on the
other side of the agreement will not or cannot meet their obligations under the
derivative agreement.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
The Insured Long-Term Portfolio is required for federal income tax purposes
to recognize as income for each taxable year its net unrealized gains and losses
on certain futures contracts held as of the end of the year as well as those
actually realized during the year. In most cases, any gain or loss recognized
with respect to a futures contract is considered to be 60% long-term capital
gain or loss and 40% short-term capital gain or loss, without regard to the
holding period of the contract. Furthermore, sales of futures contracts which
are intended to hedge against a change in the value of securities held by the
Portfolio may affect the holding period of such securities and, consequently,
the nature of the gain or loss on such securities upon disposition. The
Portfolio may be required to defer the recognition of losses on futures
contracts to the extent of any unrecognized gains on related positions held by
the Portfolio.
In order for the Portfolio to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Portfolio's business of investing in securities. In addition, gains realized on
the sale or other disposition of securities held for less than three months must
be limited to less than 30% of the Portfolio's annual gross income. It is
anticipated that any net gain realized from the closing out of futures contracts
will be considered gain from the sale of securities and therefore be qualifying
income for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the Portfolio may be
required to defer the closing out of futures contracts beyond the time when it
would otherwise be advantageous to do so. It is anticipated that unrealized
gains on futures contracts, which have been open for less than three months as
of the end of the Portfolio's fiscal year and which are recognized for tax
purposes, will not be considered gains on sales of securities held less than
three months for the purpose of the 30% test.
The Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the Portfolio's fiscal year) on futures
transactions. Such distributions will be combined with distributions of capital
gains realized on the Portfolio's other investments and shareholders will be
advised on the nature of the transactions.
MUNICIPAL LEASE OBLIGATIONS
Each Portfolio of the Fund may invest in municipal lease obligations. These
securities are sometimes considered illiquid because of the inefficiency and
thinness of the market in which they are traded. Under the supervision of the
Fund's Board of Trustees, the Fixed Income Group may determine to treat certain
municipal lease obligations as liquid, and therefore not subject to the Fund's
15% limit on illiquid securities (10% for the Money Market Portfolio). The
factors that the Group may consider in making these liquidity determinations
include: (1) the frequency of trades and quotations for the security; (2) the
number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; and (4) the nature of the marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer.
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WHEN-ISSUED SECURITIES
Each Portfolio of the Fund may purchase tax-exempt securities on a
"when-issued" basis. In buying "when-issued" securities, a Portfolio commits to
buy securities at a certain price even though the securities may not normally be
delivered for up to 45 days. The Portfolio pays for the securities and begins
earning interest when the securities are actually delivered. As a consequence,
it is possible that the market price of the securities at the time of delivery
may be higher or lower than the purchase price. It is possible that the
securities will never be issued and the commitment canceled.
NEW YORK RISK FACTORS
The Fund invests primarily in the obligations of New York state government,
state agencies, state authorities and various local governments, including
counties, cities, towns, special districts, and authorities. In general, the
credit quality and credit risk of any issuer's debt depend on the state and
local economy, the health of the issuer's finances, the amount of the issuer's
debt, the quality of management, and the strength of legal provisions in debt
documents that protect debt holders. Credit risk is usually lower wherever the
economy is strong, growing and diversified; financial operations are sound; and
the debt burden is reasonable.
The average rating among American states for full faith and credit state
debt is "Aa" and "AA" by Moody's Investors Service, Inc. and Standard & Poor's
Corporation, respectively. Against this measure and the criteria listed above,
the credit risk associated with direct obligations of the State of New York and
State agencies and authorities, including general obligation and revenue bonds,
"moral obligation" bonds, lease debt, appropriation debt, and notes, compares
somewhat unfavorably. During most of the last two decades, the State's general
obligation bonds have been rated just below this average by both rating
agencies. Additionally, the State's credit quality could be characterized as
more volatile than that of other states, since the State's credit rating has
been upgraded and downgraded much more often than usual. This rating has
fluctuated between "Aa" and "A" since the early 1970s. Nonetheless, during this
period the State's obligations could still be characterized as providing upper
medium grade security, with a strong capacity for timely repayment of debt.
The wealth of New York State, as well as the size and diversity of its
economy, serve to limit the credit risk of its securities. New York ranks third
among the states in per capita personal income, which is 19% above the U.S.
average. During most of the 1980s, economic indicators for New York, including
income and employment growth and unemployment rates, outperformed the nation as
a whole. The engine of growth for the State in the past decade was the surge in
financial and other services, especially in New York City. Manufacturing centers
in Upstate New York, which more closely parallel the midwestern economy,
suffered during the 1970s and early 1980s. The upstate economy continues to be
characterized by cities with aging populations and aging manufacturing plants.
Credit risk in New York State is heightened by a large and increasing debt
burden, historically marginal financial operations, limited revenue-raising
flexibility, and the uncertainty of the future credit quality of New York City,
which comprises 40% of the State's population and economy. Combined State and
local debt per capita is about 50% above the U.S. average, and debt service
expenditures have been growing as a claim on the State and City budget. New
York's debt structure is also complicated. To circumvent voter approval, most
State debt is issued by agencies, is not backed by the State's full faith and
credit and therefore has lower credit ratings. In the past, the State had to
rely on short-term borrowing to meet its obligations, but this practice has
ended.
Buoyed by rapid economic growth in the mid-1980s, the State's financial
operations generated surpluses. Beginning in 1988, however, unforeseen
consequences of federal tax reform, combined with a weakening economy, resulted
in a series of state budget deficits. New York's heavy commitment to local aid
and social welfare programs allowed expenditure growth to exceed available
revenues. This lack of budgetary discipline caused the State's credit ratings to
fall. Moreover, New York's ability to raise revenues is limited, since combined
State and local taxes are among the highest in the nation as a percent of
personal income. Recent state budgets have been balanced, and consistent
operating surpluses have been recorded although the State
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continues to have a nearly $3 billion GAAP accumulated deficit. State personal
income tax cuts have been offset by strong revenue performance emanating from
Wall Street and by solid expenditure restraint.
New York State's future credit quality will be heavily influenced by the
future of New York City. As the City's economic boom in the 1980s lifted the
State, the severe downturn in the financial services and real estate sectors,
which are concentrated in the City, has been serving as a drag on the State
economy. Stabilization or recovery in these areas is crucial to the economic and
fiscal health of the City and the State. Moreover, the City faces daunting
challenges in combatting deteriorating infrastructure and serious social
problems of housing, health, education and public safety. So far, City
government has demonstrated an ability to keep abreast of these problems, but
the City's and the State's ability to meet these challenges will be a continuing
risk factor. Buoyed by Wall Street, the addition of 140,000 private sector jobs
over the 1994-97 period and public sector workforce attrition, the City has
posted recurring operating surpluses. The largest, $856 million, is projected
for fiscal year 1997. The City will shortly be creating a new vehicle to access
the debt markets, called the Transitional Finance Authority, as G.O. capacity is
limited due to archaic statutory issuing formulas.
Major areas of credit strength continue to exist in localities in Long
Island, and north of New York City where affluent population bases continue to
exist.
YIELD AND TOTAL RETURN
The yield of the New York Insured Long-Term Portfolio for the 30-day period
ended May 31, 1997 was +--%.
The average annual total return of the New York Insured Long-Term Porftolio
for the one-, five-, and ten-year periods ending November 30, 1996, and the six
month period ending May 31, 1997 was +5.84%, +8.12%, 7.45% and --% respectively.
Total return is computed by finding the average compounded rates of return over
the period set forth above that would equate an initial amount invested at the
beginning of the period to the ending redeemable value of the investment.
CALCULATION OF YIELD
The current yield of the New York Money Market Portfolio is calculated
daily on a base period return of a hypothetical account having a beginning
balance of one share for a particular period of time (generally 7 days). The
return is determined by dividing the net change (exclusive of any capital
changes) in such account by its average net asset value for the period, and then
multiplying it by 365/7 to get the annualized current yield. The calculation of
net change reflects the value of additional shares purchased with the dividends
by the Portfolio, including dividends on both the original share and on such
additional shares. An effective yield, which reflects the effects of compounding
and represents an annualization of the current yield with all dividends
reinvested, may also be calculated for the Portfolio by adding 1 to the net
change, raising the sum to the 365/7 power, and subtracting 1 from the result.
The New York Money Market Portfolio seeks to maintain but does not
guarantee, a constant net asset value of $1.00 per share. The yield of the
Portfolio will fluctuate. Although the Money Market Portfolio invests in
high-quality instruments, the shares of the Portfolio are not insured or
guaranteed by the U.S. Government. The Fund has obtained private insurance that
partially protects the Money Market Portfolio against default of principal or
interest payments on the instruments it holds, and against bankruptcy by issuers
and credit enhancer of these instruments. Treasury and other U.S. Government
securities held by the Portfolio are excluded from this coverage. The
annualization of a week's dividend is not a representation by the Portfolio as
to what an investment in the Portfolio will actually yield in the future. Actual
yields will depend on such variables as investment quality, average maturity,
the type of instruments the Portfolio invests in, changes in interest rates on
instruments, changes in the expenses of the Fund and other factors. Yields are
one basis investors may use to analyze the Portfolios of the Fund, and other
investment vehicles, however, yields of other investment vehicles may not be
comparable because of the factors set forth in the preceding sentence,
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differences in the time periods compared, and differences in the methods used in
valuing portfolio instruments, computing net asset value and calculating yield.
PERFORMANCE MEASURES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member funds of the Vanguard Group of Investment Companies.
The Fund may use one or more of the following unmanaged indexes for
comparative performance purposes:
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well-diversified list
of 500 companies representing the U.S. Stock Market.
WILSHIRE 5000 EQUITY INDEX -- consists of more than 7,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.
RUSSELL 3000 STOCK INDEX -- a diversified portfolio of approximately 3,000
common stocks accounting for over 90% of the market value of publicly traded
stocks in the U.S.
RUSSELL 2000 STOCK INDEX -- a subset of approximately 2,000 of the smallest
stocks contained in the Russell 3000; a widely-used benchmark for small
capitalization common stocks.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
LEHMAN CORPORATE (Baa) BOND INDEX -- all publicly offered fixed-rate
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX -- is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.
BOND BUYER MUNICIPAL BOND INDEX -- is a yield index on current coupon high-grade
general obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX -- is a yield index based upon the average
yield of four high-grade, non-callable preferred stock issues.
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NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
COMPOSITE INDEX -- 65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's/BARRA Value
Index, 12.5% Standard & Poor's Utilities Index and 12.5% Standard & Poor's
Telephone Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX -- consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar denominated,
SEC-registered corporate debt rated AA or AAA.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market-weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB- or better. The Index has a market value of over
$4 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.6 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX -- is
a market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $700 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities greater than 10
years. The index has a market value of over $900 billion.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Funds that constituted the Group at its inception.)
LIPPER GENERAL EQUITY FUND AVERAGE -- an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
LIPPER FIXED INCOME FUND AVERAGE -- an industry benchmark of average fixed
income funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
LIPPER BALANCED FUND AVERAGE -- an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.
INVESTMENT MANAGEMENT
The Fund receives all investment advisory services on an "internalized,"
at-cost basis from an experienced investment management staff employed directly
by The Vanguard Group, Inc. ("Vanguard"), a subsidi-
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<PAGE> 40
ary jointly owned by the Fund and the other Funds in The Vanguard Group of
Investment Companies. The investment management staff is supervised by the
senior officers of the Fund.
The investment management staff is responsible for: maintaining the
specified standards; making changes in specific issues in light of changes in
the fundamental basis for purchasing such securities; and adjusting the Fund to
meet cash inflow (or outflow), which reflects net purchases and exchanges of
shares by investors (or net redemptions of shares) and reinvestment of the
Fund's income.
A change in securities held by the Fund is known as "portfolio turnover"
and may involve the payment of the Fund of dealer mark-ups, underwriting
commissions and other transaction costs on the sales of securities as well as on
the reinvestment of the proceeds in other securities. The annual portfolio
turnover rate for each of the Fund's Portfolios is set forth under the heading
"Financial Highlights" in the Fund's Prospectus. The portfolio turnover rate is
not a limiting factor when management deems it desirable to sell or purchase
securities. It is impossible to predict whether or not the portfolio turnover
rate in future years will vary significantly from the rates in recent years.
PORTFOLIO TRANSACTIONS
HOW TRANSACTIONS ARE EFFECTED
The types of securities in which the Portfolios invest are generally
purchased and sold through principal transactions, meaning that the Portfolios
normally purchase securities directly from the issuer or a primary market-maker
acting as principal for the securities on a net basis. Brokerage commissions are
not paid on these transactions, although the purchase price for securities
usually includes an undisclosed compensation. Purchases from underwriters of
securities typically include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers typically
include a dealer's mark-up (i.e., a spread between the bid and the asked
prices). During the fiscal years ended November 30, 1994, 1995 and 1996, the
Fund did not pay any brokerage commissions.
HOW BROKERS AND DEALERS ARE SELECTED
Vanguard's Fixed Income Group chooses brokers or dealers to handle the
purchase and sale of the Portfolios' securities, and is responsible for getting
the best available price and most favorable execution for all transactions. When
the Portfolios purchase a newly issued security at a fixed price, the Group may
designate certain members of the underwriting syndicate to receive compensation
associated with that transaction. Certain dealers have agreed to rebate a
portion of such compensation directly to the Portfolios to offset their
management expenses. The Group is required to seek best execution of all
transactions and is not authorized to pay a brokerage commission in excess of
that which another broker might have charged for effecting the same transaction
solely on account of the receipt of research or other services.
HOW THE REASONABLENESS OF BROKERAGE COMMISSIONS IS EVALUATED
As previously explained, the types of securities that the Portfolios
purchase do not normally involve the payment of brokerage commissions. If any
brokerage commissions are paid, however, the Fixed Income Group will evaluate
their reasonableness by considering: (a) historical commission rates; (b) rates
which other institutional investors are paying, based upon publicly available
information; (c) rates quoted by brokers and dealers; (d) the size of a
particular transaction, in terms of the number of shares, dollar amount, and
number of clients involved; (e) the complexity of a particular transaction in
terms of both execution and settlement; (f ) the level and type of business done
with a particular firm over a period of time; and (g) the extent to which the
broker or dealer has capital at risk in the transaction.
PURCHASE OF SHARES
The Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and
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(iii) to reduce or waive the minimum investment for or any other restriction on
initial and subsequent investments under circumstances where certain economies
can be achieved in sales of the Fund's shares.
STOCK CERTIFICATES. Your purchase will be made in full and fractional
shares of the Fund calculated to three decimal places. Shares are normally held
on deposit for shareholders by the Fund, which will send to shareholders a
statement of shares owned at the time of each transaction. This saves the
shareholders the trouble of safekeeping the certificates and saves the Fund the
cost of issuing certificates. Share certificates for the New York Insured
Long-Term Portfolios are available at any time upon written request at no
additional cost to shareholders. No certificates will be issued for fractional
shares of that Portfolio, or any shares of the Money Market Portfolio.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"), (ii) during any period when an emergency exists
as defined by the rules of the Commission as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
If the Board of Trustees determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption price in whole or in part by
a distribution in kind of securities held by the Fund in lieu of cash in
conformity with applicable rules of the Commission. Investors may incur
brokerage charges on the sale of such securities so received in payment of
redemptions.
No charge is made by the Fund for redemptions except for wire redemptions
of under $5,000 which may be charged a maximum fee of $5.00. Any redemption may
be more or less than the shareholder's cost depending on the market value of the
securities held by the Fund.
SIGNATURE GUARANTEES. To protect your account, the Fund and Vanguard from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Fund to verify the identity of the person who has
authorized a redemption from your account. SIGNATURE GUARANTEES ARE REQUIRED IN
CONNECTION WITH: (1) ALL REDEMPTIONS, REGARDLESS OF THE AMOUNT INVOLVED, WHEN
THE PROCEEDS ARE TO BE PAID TO SOMEONE OTHER THAN THE REGISTERED OWNERS; AND (2)
SHARE TRANSFER REQUESTS.
A signature guarantor must be a bank, a trust company, a member firm of a
domestic stock exchange, a foreign branch of any of the foregoing or any other
guarantor that Vanguard deems to be acceptable.
The signature guarantees must appear either: (1) on the written request for
redemption or transfer, (2) on a separate instrument for assignment ("stock
power") which should specify the total number of shares to be redeemed, or (3)
on all stock certificates tendered for redemption and, if shares held by the
Fund are also being redeemed, on the letter or stock power.
VALUATION OF SHARES
The valuation of shares of the New York Insured Long-Term Portfolio is
described in detail in the Prospectus.
NEW YORK MONEY MARKET PORTFOLIO. The net asset value per share of the New
York Money Market Portfolio is determined on each day that the New York Stock
Exchange is open.
It is the policy of the New York Money Market Portfolio to attempt to
maintain a net asset value of $1.00 per share for purposes of sales and
redemptions. The New York Money Market Portfolio seeks to maintain, but does not
guarantee a constant net asset value of $1.00 per share. Although the New York
Money Market Portfolio invests in high-quality instruments, the shares of the
Portfolio are not insured or guaranteed by the U.S. Government. The instruments
held by the New York Money Market Portfolio are valued on the basis of
B-11
<PAGE> 42
amortized cost which does not take into account unrealized capital gains or
losses. This involves valuing an instrument at-cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Portfolio would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of the Portfolio computed as
described above under Calculation of Yield may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by the Portfolio
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Portfolio would be able to obtain a somewhat higher yield than
would result from investment in a fund utilizing solely market values, and
existing investors in the Portfolio would receive less investment income. The
converse would apply in a period of rising interest rates.
The valuation of the New York Money Market Portfolio's instrument based
upon their amortized cost and the commitment to maintain the Portfolio's per
share net asset value of $1.00 is permitted by Rule 2a-7 under the Investment
Company Act of 1940, pursuant to which the Fund has agreed to adhere to certain
conditions. Accordingly, the Fund has agreed to maintain a dollar-weighted
average portfolio maturity for the New York Money Market Portfolio of 90 days or
less, to purchase instruments having remaining maturities of thirteen months or
less only, and to invest only in securities determined by the Board of Trustees
to be of high quality with minimal credit risks.
It is a fundamental objective of management to maintain the Portfolio's
price per spare as computed for the purpose of sales and redemptions at $1.00.
The Trustees have established procedures designed to achieve this objective.
Such procedures will include a review of the Portfolio's holdings by the
Trustees, at such intervals as they may deem appropriate, to determine whether
the Portfolio's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Trustees. If such deviation exceeds 1/2 of 1%,
the Trustees will promptly consider what action, if any, will be initiated. In
the event the Trustees determine that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
they have agreed to take such corrective action as they regard as necessary and
appropriate, including the sale of portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; making a special capital distribution; redemptions of
shares in kind; or establishing a net asset value per share by using available
market quotations.
B-12
<PAGE> 43
MANAGEMENT OF THE FUND
OFFICERS AND TRUSTEES
The Fund's Officers, under the supervision of the Board of Trustees, manage
the day-to-day operations of the Fund. The Trustees set broad policies for the
Fund and choose its Officers. A list of the Trustees and Officers of the Fund
and a brief statement of their present positions and principal occupations
during the past 5 years is set forth below. As of May 31, 1997, the Trustees
owned less than 1% of the Fund's outstanding shares. The mailing address of the
Fund's Trustees and Officers is Post Office Box 876, Valley Forge, PA 19482.
JOHN C. BOGLE, Chairman and Trustee*
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group; Director of The Mead
Corporation, General Accident Insurance and Chris-Craft Industries, Inc..
JOHN J. BRENNAN, President, Chief Executive Officer & Trustee*
President, Chief Executive Officer and Director of the Fund, The Vanguard
Group, Inc. and of each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Trustee
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, Trustee
Director of The Great Atlantic and Pacific Tea Company, Ikon Business
Solutions, Inc., Raytheon Company, Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co. and Trustee Emerita of Wellesley College.
BURTON G. MALKIEL, Trustee
Chemical Bank Chairman's Professor of Economics, Princeton University;
Director of Prudential Insurance Co. of America, Amdahl Corporation, Baker
Fentress & Co., The Jeffrey Co., and Southern New England Communications
Company.
ALFRED M. RANKIN, JR., Trustee
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of The BFGoodrich Company and The Standard Products Company.
JOHN C. SAWHILL, Trustee
President and Chief Executive Officer, The Nature Conservancy; formerly,
Director and Senior Partner, McKinsey & Co. and President, New York
University; Director of Pacific Gas and Electric Company, Procter & Gamble
Company and NACCO Industries.
JAMES O. WELCH, JR., Trustee
Retired Chairman of Nabisco Brands Inc., retired Vice Chairman and Director
of RJR Nabisco; Director of TECO Energy, Inc. and Director of Kmart
Corporation.
J. LAWRENCE WILSON, Trustee
Chairman and Chief Executive Officer of Rohm & Haas Company; Director of
Cummins Engine Company and Trustee of Vanderbilt University.
RAYMOND J. KLAPINSKY, Secretary*
Senior Vice President and Secretary of The Vanguard Group, Inc.; Secretary
of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND, Treasurer*
Treasurer of The Vanguard Group, Inc. and 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.
- ---------------
* Mr. Bogle and the Officers of the Fund are "interested persons" as defined in
the Investment Company Act of 1940.
THE VANGUARD GROUP
Vanguard New York Tax-Free Fund is a member of The Vanguard Group of
Investment Companies. Through their jointly-owned subsidiary, The Vanguard
Group, Inc. ("Vanguard"), the Fund and the other Funds in the Group obtain
at-cost virtually all of their corporate management, administrative and
distribution
B-13
<PAGE> 44
services. Vanguard also provides investment advisory services on an at-cost
basis to certain Vanguard Funds, including the Vanguard New York Tax-Free Fund.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Funds and also
furnishes the Funds with necessary office space, furnishings and equipment. Each
Fund pays its share of Vanguard's net expenses which are allocated among the
Funds under methods approved by the Board of Trustees (Directors) of each Fund.
In addition, each Fund bears its own direct expenses such as legal, auditing and
custodian fees.
The Fund's Officers are also officers and employees of Vanguard. No officer
or employee owns, or is permitted to own, any securities of any external adviser
for the Funds.
The Vanguard Group adheres to a Code of Ethics established pursuant to Rule
17j-1 under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics, certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.
The Vanguard Group, Inc. ("Vanguard") was established and operates under a
Funds' Service Agreement which was approved by the shareholders of each of the
Funds. The Funds' Service Agreement provides for the following arrangement: (1)
each Vanguard Fund may invest a maximum of 0.40% of its net assets in Vanguard;
and (2) there is no restriction on the maximum aggregate cash investment that
the Vanguard Funds may make in Vanguard. The amounts which each of the Funds has
invested are adjusted from time to time in order to maintain the proportionate
relationship between each Fund's relative net assets and its contribution to
Vanguard's capital. At November 30, 1996 and May 31, 1997, Vanguard New York
Tax-Free Fund had contributed capital of $87,000 and -- to Vanguard representing
.4% and -- of Vanguard's capitalization, respectively.
MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended November 30, 1996 and for the six months ended May 31, 1997,
the Funds share of Vanguard's actual net costs of operations relating to
management and administrative services (including transfer agency) totaled
approximately $1,420,000, and --, respectively.
DISTRIBUTION. Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for shares of the
Funds in connection with any sales made directly to investors in the states of
Florida, Missouri, New York, Ohio, Texas and such other states as it may be
required.
The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The Trustees
(Directors) and officers of Vanguard determine the amount to be spent annually
on distribution activities, the manner and amount to be spent on each Fund, and
whether to organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon their relative net assets. The remaining
one half of these expenses is allocated among the Funds based upon each Fund's
sales for the preceding 24 months relative to the total sales of the Funds as a
Group, provided, however, that no Fund's aggregate quarterly rate of
contribution for distribution expenses of a marketing and promotional nature
shall exceed 125% of the average distribution expense rate for the Group, and
that no Fund shall incur annual distribution expenses in excess of 20/100 of 1%
of its average month-end net assets. During the year ended November 30, 1996 and
for the six months ended May 31, 1997, the Fund paid approximately $196,000 and
- -- of the Group's distribution and marketing expenses, respectively.
INVESTMENT ADVISORY SERVICES. Vanguard also provides investment advisory
services to the Fund, Vanguard Municipal Bond Fund, Vanguard Money Market
Reserves, Vanguard California Tax-Free Fund,
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<PAGE> 45
Vanguard Pennsylvania Tax-Free Fund, Vanguard New Jersey Tax-Free Fund, Vanguard
Florida Insured Tax-Free Fund, Vanguard Ohio Tax-Free Fund, Vanguard Admiral
Funds, Vanguard International Equity Index Fund, Vanguard Balanced Index Fund,
the Vanguard REIT Index Portfolio of Vanguard Specialized Portfolios, Vanguard
Institutional Index Fund, Vanguard Index Trust, Vanguard Tax-Managed Fund, the
Total International Portfolio of Vanguard STAR Fund, the Aggressive Growth
Portfolio of Vanguard Horizon Fund, Vanguard Bond Index Fund, several Portfolios
of Vanguard Variable Insurance Fund, several Portfolios of Vanguard Fixed Income
Securities Fund, a portion of Vanguard/Windsor II, a portion of Vanguard/Morgan
Growth Fund as well as several indexed separate accounts. These services are
provided on an at-cost basis from a money management staff employed directly by
Vanguard. The compensation and other expenses of this staff are paid by the
Funds utilizing these services. During the years ended November 30, 1994, 1995
and 1996 and for the six months ended May 31, 1997, the Fund paid approximately
$89,000, $101,000, $110,000 and -- of Vanguard's investment advisory expenses.
REMUNERATION OF TRUSTEES AND OFFICERS. The Fund pays each Trustee, who is
not also an Officer, an annual fee plus travel and other expenses incurred in
attending Board meetings. During the year ended November 30, 1996, and for the
six months ended May 31, 1997, the Fund paid $3,000 and $-- in Trustees'
expenses, respectively. The Fund's Officers and employees are paid by Vanguard
which, in turn, is reimbursed by the Fund, and each other Fund in the Group, for
its proportionate share of Officers' and employees' salaries and retirement
benefits. During the year ended November 30, 1996, and for the six months ended
May 31, 1997, the Fund's proportionate share of remuneration paid to all
Officers of the Fund as a group was approximately $28,572 and $--, respectively.
Upon retirement, Trustees who are not Officers are paid an annual fee based
upon the number of years of service on the Board. The fee is equal to $1,000 for
each year of service up to a maximum of $15,000. Under its Retirement Plan,
Vanguard contributes annually an amount equal to 10% of each Officer's annual
compensation plus 5.7% of that part of the Officer's compensation during the
year, if any, that exceeds the Social Security Taxable Wage Base then in effect.
Under Vanguard's Thrift Plan, all employees are permitted to make pre-tax
contributions in a maximum amount equal to 4% of total compensation. Vanguard
matches the basic contribution on a 100% basis. During the year ended November
30, 1996 and for the six months ended May 31, 1997, the Fund's proportionate
share of retirement benefits paid to all Officers of the Fund, as a group, was
approximately $600 and $--, respectively.
The following table provides detailed information with respect to the
amounts paid or accrued for the Trustees for the fiscal year ended November 30,
1996.
VANGUARD NEW YORK TAX-FREE FUND
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM ALL VANGUARD FUNDS
NAMES OF TRUSTEES FROM FUND PART OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES(2)
- --------------------------- ------------ --------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1) -- -- -- --
John J. Brennan(1) -- -- -- --
Barbara Barnes Hauptfuhrer $323 $52 $15,000 $65,000
Robert E. Cawthorn $323 $43 $13,000 $65,000
Burton G. Malkiel $323 $35 $15,000 $65,000
Alfred M. Rankin, Jr. $323 $27 $15,000 $65,000
John C. Sawhill $323 $32 $15,000 $65,000
James O. Welch, Jr. $323 $40 $15,000 $65,000
J. Lawrence Wilson $323 $29 $15,000 $65,000
</TABLE>
- ---------------
(1) As "Interested Trustees," Messrs. Bogle and Brennan receive no compensation
for their service as Trustees.
(2) The amounts reported in this column reflect the total compensation paid to
each Trustee for their service as Director or Trustee of 33 Vanguard Funds
(33 in the case of Mr. Malkiel).
B-15
<PAGE> 46
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized as a Pennsylvania business trust on October 16,
1985.
The Declaration of Trust, as amended and restated on January 15, 1986,
permits the Trustees to issue an unlimited number of shares of beneficial
interest, without par value, from an unlimited number of separate classes
("Portfolios") of shares. Currently, the Fund is offering shares of two
Portfolios.
The shares of the Fund are fully paid and nonassessable, except as set
forth under "Shareholder and Trustee Liability," and have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of the
Fund have no pre-emptive rights. The shares of the Fund have noncumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees if they
choose to do so. A shareholder is entitled to one vote for each full share held
(and a fractional vote for each fractional share held), then standing in his
name on the books of the Fund. On any matter submitted to a vote of
shareholders, all shares of the Fund then issued and outstanding and entitled to
vote, irrespective of the class, shall be voted in the aggregate and not by
class: except (i) when required by the Investment Company Act of 1940, shares
shall be voted by individual class; and (ii) when the matter does not affect any
interest of a particular class, then only shareholders of the affected class or
classes shall be entitled to vote thereon.
The Fund will continue without limitation of time, provided, however that:
1) Subject to the majority vote of the holders of shares of the Fund
outstanding, the Trustees may sell or convert the assets of the Fund to
another investment company in exchange for shares of such investment
company, and distribute such shares, ratably among the shareholders of
the Fund.
2) Subject to the majority vote of shares of the Fund outstanding, the
Trustees may sell and convert into money the assets of the Fund and
distribute such assets ratably among the shareholders of the Fund; and
Upon completion of the distribution of the remaining proceeds or the
remaining assets of any Portfolio as provided in paragraphs 1) and 2) above the
Fund shall terminate and the Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and interest of all
parties shall be cancelled and discharged.
SHAREHOLDER AND TRUSTEE LIABILITY. Under Pennsylvania law, shareholders of
such a Trust may under certain circumstances, be held personally liable as
partners for the obligations of the Fund. Therefore, the Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Fund or the
Trustees. The Declaration of Trust provides for indemnification out of the Fund
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the year ended November 30,
1996, and unaudited financial statements for the six months ended May 31, 1997,
including the financial highlights for each of the five fiscal years in the
period ended November 30, 1996 and for the six months ended May 31, 1997,
appearing in the Vanguard New York Tax-Free Fund's 1996 Annual Report to
Shareholders, and the report thereon of Price
B-16
<PAGE> 47
Waterhouse LLP, independent accountants, also appearing therein, and the Fund's
1997 Semi Annual Report to Shareholders, are incorporated by reference in this
Statement of Additional Information. The Fund's 1996 Annual Report to
Shareholders and the 1997 Semi-Annual Report is available upon request.
APPENDIX A -- DESCRIPTION OF MUNICIPAL BONDS AND THEIR RATINGS
MUNICIPAL BONDS -- GENERAL. Municipal Bonds generally include debt
obligations issued by states and their political subdivisions, and duly
constituted authorities, not-for-profit corporations, and corporations, to
obtain funds to construct, repair or improve various public facilities such as
airports, bridges, highways, hospitals, housing, schools, streets and water and
sewer works. Municipal Bonds may also be issued to refinance outstanding
obligations as well as to obtain funds for general operating expenses and for
loan to other public institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special tax" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. The Fund may also invest in tax-exempt industrial
development bonds, short-term municipal obligations (rated SP-1+ of SP-1 by
Standard & Poor's Corp. or MIG1 or MIG2 by Moody's Investors Service, Inc.),
project notes, demand notes, tax-exempt commercial paper (rated A-1 by Standard
& Poor's Corp. or P-1 by Moody's Investors Service, Inc.). The Fund may invest
in unrated notes if considered by the Board of Trustees to be of credit quality
comparable to that required for rated notes.
Industrial revenue bonds in most cases are revenue bonds and generally do
not have the pledge of the credit of the Issuer. The payment of the principal
and interest on such industrial revenue bonds is dependent solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Short-term municipal obligations issued by states, cities, municipalities
or municipal agencies, include Tax Anticipation Notes, Revenue Anticipation
Notes, Bond Anticipation Notes, Construction Loan Notes and Short-Term Discount
Notes.
Note obligations with demand or put options may have a stated maturity in
excess of one year, but permit any holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to repay in its discretion, the
outstanding principal of the note plus accrued interest upon a specific number
of days' notice to the bondholders. The interest rate on a demand note may be
based upon a known lending rate, such as a bank's prime rate, and be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. The demand notes in which the Fund
will invest normally are payable on not more than one year's notice. Each note
purchased by the Fund will meet the quality criteria set out above for the Fund.
The yields of Municipal Bonds depend on, among other things, general money
market conditions, conditions in the Municipal Bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Corporation represent their opinions of the quality of the Municipal Bonds rated
by them. It should be emphasized that such ratings are general and are not
absolute standards of quality. Consequently, Municipal Bonds with the same
maturity, coupon and rating may have different yields, while Municipal Bonds of
the same maturity and coupon, but with different ratings may have the same
yield. It will be the responsibility of the investment management staff to
appraise independently the fundamental quality of the bonds held by the Fund.
From time to time proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on Municipal
Bonds. Similar proposals may be introduced in the future. If any such proposal
were enacted, it might restrict or eliminate the ability of the Fund to achieve
its investment
B-17
<PAGE> 48
objective. In that event, the Fund's Trustees and officers would reevaluate its
investment objective and policies and consider recommending to its shareholders
changes in such objective and policies.
Similarly, from time to time proposals have been introduced before State
and local legislatures to restrict or eliminate the State and local income tax
exemption for interest on Municipal Bonds. Similar proposals may be introduced
in the future. If any such proposal were enacted, it might restrict or eliminate
the ability of each Portfolio to achieve its respective investment objective. In
that event, the fund's trustees and officers would reevaluate its investment
objective and policies and consider recommending to its shareholders changes in
such objective and policies. (For more information please refer to "New York
Risk Factors" on page 6.)
RATINGS. Excerpts from Moody's Investors Service, Inc.'s Municipal Bond
ratings: Aaa -- judged to be of the "best quality" and are referred to as "gilt
edge"; interest payments are protected by a large or by an exceptionally stable
margin and principal is secure; Aa -- judged to be of "high quality by all
standards" but as to which margins of protection or other elements make
long-term risks appear somewhat larger than Aaa-rated Municipal Bonds; together
with Aaa group they comprise what are generally known as "high grade bonds";
A -- possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and interest
A-rated Municipal Bonds are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future; Baa --
considered as medium grade obligations; i.e., they are neither highly protected
nor poorly secured; interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length or time; Ba -- protection of
principal and interest payments may be very moderate; judged to have speculative
elements; their future cannot be considered as well-assured; B -- lack
characteristics of a desirable investment; assurance of interest and principal
payments over any long period of time may be small; Caa -- (poor standing; may
be in default or there may be present elements of danger with respect to
principal and interest; Ca -- speculative in a high degree; often in default;
C -- lowest rated class of bonds; issues so rated can be regarded as having
extremely poor prospects for ever attaining any real investment standing.
Description of Moody's ratings of state and municipal notes: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used will be as follows:
MIG-1 -- Best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both; MIG-2 -- High quality with margins of
protection ample although not so large as in the preceding group.
Description of Moody's highest commercial paper rating: Prime-1
("P-1") -- Judged to be of the best quality. Their short-term debt obligations
carry the smallest degree of investment risk.
Excerpts from Standard & Poor's Corporation's Municipal Bond ratings:
AAA -- has the highest rating assigned by S&P; extremely strong capacity to pay
principal and interest; AA -- has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in a small degree;
A -- has a strong capacity to pay principal and interest, although somewhat more
susceptible to the adverse changes in circumstances and economic conditions;
BBB -- regarded as having an adequate capacity to pay principal and interest;
normally exhibit adequate protection parameters but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
principal and interest than for bonds in A category;
BB -- B -- CCC -- CC -- predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with terms of obligation; BB is
being paid; D -- in default, and payment of principal and/or interest is in
arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Excerpt from Standard & Poor's Corporation's rating of municipal note
issues: SP-1+ -- very strong capacity to pay principal and interest;
SP-1 -- strong capacity to pay principal and interest.
Description of S&P's highest commercial papers rating: A-1+ -- This
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 -- This designation indicates the degree of safety regarding
timely payment is very strong.
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<PAGE> 49
PART C
VANGUARD NEW YORK TAX-FREE FUND
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
The Registrant's audited Financial Statements for the year ended November
30, 1996, including Price Waterhouse LLP's report thereon, and unaudited
Financial Statements for the six months ended May 31, 1997, are incorporated by
reference in the Statement of Additional Information from the Registrant's 1996
Annual Report to Shareholders and 1997 Semi-Annual Report to Shareholders which
have been filed with the Commission. The financial statements included in the
Annual Report are:
1. Statement of Net Assets as of November 30, 1996 and for the six months
ended May 31, 1997,
2. Statement of Operations for the year ended November 30, 1996 and for
the six months ended May 31, 1997,
3. Statement of Changes in Net Assets for the years ended November 30,
1995 and 1996 and for the six months ended May 31, 1997,
*4. Financial Highlights for each of the five years in the period ended
November 30, 1996 and for the six months ended May 31, 1997,
5. Notes to Financial Statements
6. Report of Independent Accountants pertaining to the Registrant's 1996
Annual Report to Shareholders.
----------------------
* In addition, the financial highlights for each of the respective periods
presented is included in Part A of this Registration Statement.
(b) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
---------------------------- ---------------------------------------------------
<S> <C>
1.......................... Declaration of Trust**
2.......................... By-Laws of Registrant**
3.......................... Not Applicable
4.......................... Not Applicable
5.......................... Not Applicable
6.......................... Not Applicable
7.......................... Reference is made to the section entitled
"Management of the Fund" in the Registrant's
Statement of Additional Information
8.......................... Form of Custody Agreement**
9.......................... Form of Funds' Service Agreement**
10.......................... Opinion of Counsel**
11.......................... Consent of Independent Accountants*
12.......................... Financial Statements -- reference is made to (a)
above
13.......................... Not Applicable
14.......................... Not Applicable
15.......................... Not Applicable
16.......................... Schedule for Computation of Performance Quotations*
27.......................... Financial Data Schedule*
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any person.
The Officers of the Registrant, the investment companies in The Vanguard Group
of Investment Companies and The Vanguard Group, Inc. are
C-1
<PAGE> 50
identical. Reference is made to the caption "Management of the Fund" in the
Prospectus constituting Part A and in the Statement of Additional Information
constituting Part B of this Registration Statement.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of May 31, 1997 there were -- shareholders of the New York Insured
Long-Term Portfolio.
ITEM 27. INDEMNIFICATION
Reference is made to Article XI of Registrant's Declaration of Trust.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, Officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, Officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, Officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Investment advisory services are provided to the Registrant on an at-cost
basis by The Vanguard Group, Inc., a jointly-owned subsidiary of the Registrant
and the other Funds in the Group. See the information concerning The Vanguard
Group set forth in Parts A and B.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None
(b) Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc. c/o The Vanguard Financial Center, Valley Forge,
Pennsylvania 19482; and the Registrant's Custodian, CoreStates Bank, N.A.,
Philadelphia, PA.
ITEM 31. MANAGEMENT SERVICES
Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which was previously filed as Exhibit 9(c) and described in
Part B hereof under "Management of the Fund;" the Registrant is not a party of
any management-related service contract.
ITEM 32. UNDERTAKINGS
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 ("1940 Act") or other applicable law. Registrant
undertakes to comply with the provisions of Section 16(c) of the 1940 Act in
regard to shareholders' rights to call a meeting of shareholders for the purpose
of voting on the removal of Trustees and to assist in shareholder communications
in such matters, to the extent required by law.
Registrant hereby undertakes to provide an Annual Report to Shareholders or
prospective investors, free of charge, upon request.
C-2
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Valley
Forge and the Commonwealth of Pennsylvania, on the 16th day of June, 1997.
VANGUARD NEW YORK TAX-FREE FUND
By: /s/ JOHN J. BRENNAN
---------------------------------------
(Raymond J. Klapinsky)
John J. Brennan*,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES
---------- TITLE DATE
----------------------- --------------
<C> <S> <C>
By: /s/ JOHN C. BOGLE Chairman of the Board June 16, 1997
- ------------------------------------------------------- and Trustee
(Raymond J. Klapinsky)
John C. Bogle*
By: /s/ JOHN J. BRENNAN President, Chief June 16, 1997
- ------------------------------------------------------- Executive Officer
(Raymond J. Klapinsky) and Trustee
John J. Brennan*
By: /s/ BARBARA B. HAUPTFUHRER Trustee June 16, 1997
- -------------------------------------------------------
(Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*
By: /s/ JOHN C. SAWHILL Trustee June 16, 1997
- -------------------------------------------------------
(Raymond J. Klapinsky)
John C. Sawhill*
By: /s/ ROBERT E. CAWTHORN Trustee June 16, 1997
- -------------------------------------------------------
(Raymond J. Klapinsky)
Robert E. Cawthorn*
By: /s/ ALFRED M. RANKIN, JR. Trustee June 16, 1997
- -------------------------------------------------------
(Raymond J. Klapinsky)
Alfred M. Rankin, Jr.*
By: /s/ BURTON G. MALKIEL Trustee June 16, 1997
- -------------------------------------------------------
(Raymond J. Klapinsky)
Burton G. Malkiel*
By: /s/ JAMES O. WELCH, JR. Trustee June 16, 1997
- -------------------------------------------------------
(Raymond J. Klapinsky)
James O. Welch, Jr.*
By: /s/ J. LAWRENCE WILSON Trustee June 16, 1997
- -------------------------------------------------------
(Raymond J. Klapinsky)
J. Lawrence Wilson*
By: /s/ RICHARD F. HYLAND Treasurer and Principal June 16, 1997
- ------------------------------------------------------- Financial Officer and
(Raymond J. Klapinsky) Accounting Officer
Richard F. Hyland*
</TABLE>
* By Power of Attorney -- See File Number 2-14336, January 23, 1990.
Incorporated by Reference.
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<S> <C>
CONSENT OF INDEPENDENT ACCOUNTANTS................................................... EX-99.B11
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS................................... EX-99.B16
FINANCIAL DATA SCHEDULE.............................................................. EX-27
</TABLE>
<PAGE> 1
EX-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 13 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated December 31, 1996, relating to the financial
statements and financial highlights appearing in the November 30, 1996 Annual
Report to Shareholders of Vanguard New York Tax-Free Fund, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Financial Statements" in the Statement of Additional
Information.
Price Waterhouse LLP
Philadelphia, PA
June 13, 1997
<PAGE> 1
EX-99.B16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD NEW YORK TAX-FREE FUND
INSURED LONG-TERM PORTFOLIO
1. AVERAGE ANNUAL TOTAL RETURN (As of November 30, 1996)
P (1 + T)(n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
</TABLE>
EXAMPLE:
One Year
<TABLE>
<S> <C> <C>
P = $1,000.00
T = +5.84
N = 1
ERV = $1,058.37
Five Year
P = $1,000.00
T = +8.12
N = 5
ERV = $1,477.82
Ten Year
P = $1,000.00
T = +7.45
N = 10
ERV = $2,050.64
</TABLE>
- ---------------
2. YIELD (30 Days Ended November 30, 1996)
<TABLE>
<CAPTION>
<S> <C> <C>
a - b
Yield = 2[( ------ + 1)(6) - 1]
c X d
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $4,035,350.36
b = $145,429.03
c = 86,715,316.4364
d = $10.96
Yield = 4.96%
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000788599
<NAME> VANGUARD NEW YORK INSURED TAX-FREE FUND
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 888677
<INVESTMENTS-AT-VALUE> 947850
<RECEIVABLES> 18846
<ASSETS-OTHER> 109
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 966805
<PAYABLE-FOR-SECURITIES> 5000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2506
<TOTAL-LIABILITIES> 7506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 897091
<SHARES-COMMON-STOCK> 87326
<SHARES-COMMON-PRIOR> 78037
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2889
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59319
<NET-ASSETS> 959299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48990
<OTHER-INCOME> 0
<EXPENSES-NET> 1793
<NET-INVESTMENT-INCOME> 47197
<REALIZED-GAINS-CURRENT> 3773
<APPREC-INCREASE-CURRENT> 705
<NET-CHANGE-FROM-OPS> 51675
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 47197
<DISTRIBUTIONS-OF-GAINS> 5071
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19759
<NUMBER-OF-SHARES-REDEEMED> 14047
<SHARES-REINVESTED> 3577
<NET-CHANGE-IN-ASSETS> 99982
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4184
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 110
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1814
<AVERAGE-NET-ASSETS> 896853
<PER-SHARE-NAV-BEGIN> 11.01
<PER-SHARE-NII> 0.569
<PER-SHARE-GAIN-APPREC> 0.045
<PER-SHARE-DIVIDEND> 0.569
<PER-SHARE-DISTRIBUTIONS> 0.065
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.99
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
