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VANGUARD
NEW YORK
TAX-FREE FUND
Annual Report - November 30, 1997
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 6,000 highly
motivated men and women--who form the cornerstone of our operations. As with any
cornerstone, we could not survive long--let alone prosper--without it. That's
why we chose this fiscal year's annual report to celebrate the spirit,
enthusiasm, and achievements of our crew. (We call those who work at Vanguard
crew members, not employees, because they operate as a team to accomplish our
mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving
you in the years ahead.
[PHOTO]
JOHN C. BOGLE JOHN J. BRENNAN
CHAIRMAN PRESIDENT
CONTENTS
<TABLE>
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS . . . . . . . . . . . 1
THE MARKETS IN PERSPECTIVE . . . . . . . . . . . . 4
REPORT FROM THE ADVISER . . . . . . . . . . . . . . 6
PORTFOLIO PROFILES . . . . . . . . . . . . . . . . 8
PERFORMANCE SUMMARIES . . . . . . . . . . . . . . . 11
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . 13
REPORT OF INDEPENDENT ACCOUNTANTS . . . . . . . . . 26
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
DEAR SHAREHOLDER,
During the twelve months ended November 30--Vanguard New York Tax-Free
Fund's 1997 fiscal year--the prices of tax-exempt bonds edged higher, reflecting
a modest decline in long-term interest rates in the face of continued mild
inflation. Short-term interest rates, on the other hand, moved slightly higher.
In this environment, the +6.4% return of our Insured Long-Term Portfolio
exceeded the results of its peers. The table below presents the Portfolio's
twelve-month return, as well as its income and capital components.
As you may recall, we introduced a Money Market Portfolio to the New York
Tax-Free Fund on September 3, 1997. We welcome Money Market Portfolio
shareholders who are new to the Fund. For the record, we report that the
Portfolio's return for the three months since its inception was +0.8%, an exact
match with that of its average peer. The total return (capital change plus
reinvested dividends) of the Insured Long-Term Portfolio is based on a change in
net asset value from $10.99 per share on November 30, 1996, to $11.05 per share
on November 30, 1997, adjusted for dividends totaling $0.572 per share from net
investment income and distributions totaling $0.041 per share from net realized
capital gains. The Money Market Portfolio's net asset value remained at $1 per
share, as is expected but not guaranteed. At the end of the fiscal year, the
Insured Long-Term Portfolio's yield stood at 4.70% and the Money Market
Portfolio's yield at 3.60%.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
COMPONENTS OF TOTAL RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1997
-----------------------------------
PORTFOLIO INCOME CAPITAL TOTAL
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Money Market* +0.8% 0.0% +0.8%
Insured Long-Term +5.5 +0.9 +6.4
- ----------------------------------------------------------------------
</TABLE>
*Total return for the period beginning September 3, 1997.
FISCAL 1997 PERFORMANCE OVERVIEW
Steady economic growth teamed with low inflation to create a near-perfect
environment for investors over the past twelve months. Interest rates began the
period heading higher, a climb that was punctuated in March when the Federal
Reserve Board raised its target for short-term rates by 25 basis points.
However, that small increase was the only Fed action of the year. After peaking
in mid-April, the yield on the benchmark U.S. Treasury long-term bond headed
down to end the twelve months at 6.05%, more than one full percentage point
lower than its apex of 7.17% on April 14. Yields on high-grade, long-term
municipal bonds ended the period at 5.36%, down from 5.66% at the end of
November 1996. Yields on top-grade short-term (MIG-1) notes rose on balance to
3.80% from 3.55% a year earlier.
While the economic environment was kind to bonds, it truly worked wonders
for equities. Low inflation, continued strong growth in corporate earnings, and
a record level of consumer confidence combined to drive stocks upward. Despite a
severe shock in late October, the Standard & Poor's 500 Composite Stock Price
Index posted a return of +28.5% for the fiscal year ended November 30.
This year's generally placid interest-rate environment marked the second
straight year of relative tranquillity in the bond market. However, we need not
look far back for evidence that calm is by no means a constant in the bond
market. During fiscal 1995, bond prices soared as interest rates fell sharply.
Just the opposite was true during 1994, when the bond market suffered one of its
worst years ever. For bond fund investors, the important lesson
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is that fluctuations in bond (and bond fund) prices, which can have a
significant impact on returns from year to year, tend to wash away over longer
periods, leaving the rate of interest income--the coupon--as the dominant source
of long-term returns.
The +6.4% annual total return for the New York Insured Long-Term
Portfolio was a hair ahead of the +5.7% annual return for the average New York
municipal bond fund, but fell behind the +7.2% return of the Lehman Brothers
Municipal Bond Index. This "all-state" Index is a tough standard for any single
state tax-free fund, existing, as it does, outside the real world of operating
expenses and transaction costs. Our total return received a slight boost from
the price increase engendered by the decline in interest rates, but the lion's
share of our return during the twelve months came from interest income.
THE MUNICIPAL BOND TAX ADVANTAGE
For New York residents, the income earned by our Portfolios is exempt from
state, local, and federal income taxes. Given these advantages, investors in the
New York Insured Long-Term Portfolio who are taxed at the highest combined
federal-state marginal tax rate can earn 59% more after-tax income than they
could in a comparable long-term taxable bond fund. For similarly situated
investors in our Money Market Portfolio, the yield of MIG-1 notes at the end of
the fiscal year was 31% higher than the after-tax yield of three-month U.S.
Treasury bills. Put another way, a yield of 5.4% on a tax-exempt long-term
portfolio would be the equivalent of a 9.6% taxable yield to New York taxpayers
subject to the highest tax rates. For a tax-exempt short-term yield of 3.8%, the
taxable equivalent would be 6.8%. These advantages are truly remarkable, as
reflected in the adjacent table, which generally compares the annual net income
earned on tax-exempt and taxable securities as of November 30, 1997, assuming a
$100,000 investment.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
--------------------------------
SHORT-TERM LONG-TERM
- ------------------------------------------------------------------
<S> <C> <C>
Taxable gross income $ 5,200 $ 6,100
Less taxes (43.8%) (2,300) (2,700)
Net after-tax income 2,900 3,400
- ------------------------------------------------------------------
Tax-exempt income $ 3,800 $ 5,400
- ------------------------------------------------------------------
Tax-exempt income advantage $ 900 $ 2,000
- ------------------------------------------------------------------
Percentage advantage 31% 59%
- ------------------------------------------------------------------
</TABLE>
The illustration assumes current yields (as of November 30, 1997) of 6.1% for
long-term U.S. Treasury bonds, 5.2% for U.S. Treasury bills, 5.4% for long-term
municipals, and 3.8% for short-term municipals. The tax adjustment assumes a
typical itemized tax return based on a federal tax rate of 39.6% and the top
state tax rate of 6.9%; local taxes are not considered. This illustration is not
intended to represent future results.
We emphasize that these examples ignore two important differences in
credit quality between state-specific municipal bond funds and U.S. Treasury
bond funds: (1) Treasuries are backed by the full faith and credit of the U.S.
government; and (2) state-specific municipal bond funds incur a significant risk
by concentrating assets in securities from a particular economic region.
For our Insured Long-Term Portfolio, the added credit risk is
substantially mitigated by private insurance, which in effect guarantees the
full payment of annual income and the return of principal at maturity for the
municipal bonds we hold. Because portfolio insurance is generally not available
for short-term securities, the task of preserving principal in our Money Market
Portfolio falls to our investment adviser, Vanguard Fixed Income Group. This
Group carefully scrutinizes the credit quality of our holdings, which on average
have earned Moody's highest quality rating. That said, we point out that money
market investments are not guaranteed by the Federal Deposit Insurance
Corporation, which insures bank accounts and certificates of deposit.
2
<PAGE> 5
LONG-TERM PERFORMANCE OVERVIEW
The accompanying table compares the performance of our Insured Long-Term
Portfolio with that of its average peer over the past ten years. It also
illustrates our performance edge over our competitors--a difference we call the
"Vanguard Advantage." For obvious reasons, we do not include such an
illustration for the brief life span of our Money Market Portfolio.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED NOVEMBER 30, 1997
------------------------------------------------------------------
AVERAGE FINAL VALUE OF A
ANNUAL RATE $10,000 INITIAL INVESTMENT*
---------------------- ---------------------------------------
AVERAGE AVERAGE
VANGUARD COMPETING VANGUARD COMPETING VANGUARD
PORTFOLIO FUND PORTFOLIO FUND ADVANTAGE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insured Long-Term +8.8% +8.0% $23,155 $21,567 $1,588
- -----------------------------------------------------------------------------------------
</TABLE>
*Assuming reinvestment of all income dividends and capital gain distributions.
Our expense-ratio advantage over our typical competitor plays a key role
in our performance advantage. Our Portfolios maintain expense ratios (annual
expenses as a percentage of average net assets) of about 0.20%, compared with
the 1.04% expense ratio of the average competitive long-term state tax-free
fund, and 0.60% for the average state tax-free money market fund. This cost
savings, which flows directly to our shareholders, has been available year after
year, and we expect it to continue to aid us in our goal of providing returns
that exceed those of our competitive norms. Vanguard Fixed Income Group plays a
key role too, managing the Portfolios ably and maintaining a level of investment
quality that we believe is without peer in the industry.
Over the past several years--indeed, on balance for more than 15
years--bond investors have benefited from returns that are above historical
averages. Because long-term yields are at lower levels today than for most of
the recent past, it is virtually certain that returns for the next decade will
not match those of the past decade.
IN SUMMARY
Bond investors have enjoyed a long period of generally declining interest rates,
while stock investors have experienced a stretch that is nothing short of
remarkable. But a sensible investor understands that the financial markets are
not a one-way street. Risk is an ever-present element of investing, even when
the markets are providing generous rewards.
That said, the greatest risk is not investing in the first place. We
believe that a sound method for dealing with risk is to construct a balanced
investment program of stock funds, bond funds, and reserves, one that is suited
to your objectives, financial situation, tolerance for risk, and time horizon.
If you have such a program in place, you should be prepared to "stay the course"
toward your investment goals, no matter what lies ahead.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
December 19, 1997
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE
Year Ended November 30, 1997
U.S. EQUITY MARKETS
The fiscal year ended November 30 tested investors' mettle on a number of
occasions, but most ended on a positive note. The increasingly global nature of
investing has rarely been more in evidence than it was over the period. Turmoil
in Southeast Asia raised serious questions about future growth in the region
and, significantly, called into question the earnings outlook for U.S. companies
with exposure there.
Over the 12 months, large-capitalization stocks continued their advance,
propelling the S&P 500 Index to a 28.5% gain. Small-cap stocks also fared well,
as illustrated by the 23.4% increase of the Russell 2000 Index. These gains
withstood a rocky October, when the sharp declines in Asian markets led many
investors to question their expectations regarding U.S. equities. Although the
domestic market dropped substantially--the Dow Jones Industrial Average fell 554
points, or 7.2%, on October 27--it then rebounded smartly over the next few
days.
Among large-cap stocks, the financial services sector was again one of
the best performers, with an increase of 34.8% in fiscal 1997. Also noteworthy
was a November surge in utility stocks, which brought that sector's 12-month
return up to 34.5%. Utilities, those seemingly perennial cellar-dwellers, were
boosted by a drop in interest rates and by a general consensus that their
valuations at last adequately reflected the risks associated with the new
competitive landscape. In the final quarter of the fiscal year, utility stocks
jumped 23.6%, roughly three times the return generated by the S&P 500 Index
(6.7%). In sharp contrast were a number of market sectors that felt the brunt of
the disarray in Asian economies and--while showing positive gains for the
year--turned in negative fourth fiscal quarters. As the fiscal year ended, there
were growing indications from technology and manufacturing companies that the
economic distress in Southeast Asia would likely reduce their current and future
earnings.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1997
---------------------------------
1 YEAR 3 YEARS 5 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 28.5% 31.1% 20.2%
Russell 2000 Index 23.4 22.7 16.8
MSCI EAFE Index -0.1 6.5 11.6
- --------------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 7.6% 10.3% 7.6%
Lehman 10-Year Municipal Bond Index 7.1 10.3 7.5
Salomon Brothers Three-Month
U.S. Treasury Bill Index 5.2 5.4 4.7
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.8% 2.6% 2.6%
- --------------------------------------------------------------------------------
</TABLE>
While small-company stocks failed to match the outsized advance of the
S&P 500 Index, their performance grew notably stronger in the second half of the
fiscal year. For the year, the Russell 2000 Index gained 23.4%. During the
second six months, the Russell 2000's 13.8% essentially matched the S&P 500's
13.6%. The improved performance of smaller companies cannot be attributed to any
single factor, but is, rather, due to a combination of attractive valuations and
good earnings.
4
<PAGE> 7
U.S. FIXED-INCOME MARKETS
Bonds were overshadowed by stocks for much of the year. Investors' returns from
bonds, however, were quite respectable. As the year progressed, investors grew
more confident that four seemingly strange bedfellows--strong economic growth,
reasonable inflation, low unemployment, and stable wage growth--would continue
to coexist peacefully. As a result, when interest rates dipped noticeably toward
the fiscal year's end, they fell furthest for issues with the longest
maturities. The yield on the 30-year U.S. Treasury bond closed the fiscal year
at 6.05%, compared to 6.35% on November 30, 1996. Falling rates flattened the
yield curve considerably: Only 0.85% separated the yield on Treasury bills from
the yield on the 30-year issue, down from a spread of 1.22% at the previous
fiscal year-end.
The positive effect of the yield drop on bond prices was apparent in the
7.6% return of the Lehman Aggregate Bond Index, the broadest measure of
investment-grade issues. Investors in lower-quality securities fared even
better, as shown by the 12.6% gain of the Lehman High Yield Bond Index. The
strength of the economy, together with the lack of inflationary pressure,
produced an ideal environment for junk bonds.
INTERNATIONAL EQUITY MARKETS
Arguably, investors' greatest disappointments were in international
markets--and, of course, Asian markets in particular. During the fiscal year,
the Morgan Stanley Capital International (MSCI) Pacific Index declined by 26.3%
in U.S. dollar terms; the index fell 17.3% in the fourth quarter alone. Among
individual markets, the fiscal year saw sharp declines (in U.S. dollar terms) in
Japan, down 24.5%, including a 16.1% drop in the fourth quarter; Hong Kong, down
25%; Malaysia, down 68%; and Singapore, down 23%. The general slump in Asian
markets began in midsummer with currency devaluations by a number of countries.
Because the values of many of these currencies had been linked to the U.S.
dollar, their fall caused it to appreciate greatly--so much so that Asian
businesses soon found it difficult to purchase American-made products and to
repay dollar-denominated loans. This situation raised questions about how the
region's economic growth would be affected. Related worries focused on imprudent
aspects of various countries' financial systems and the probability of corporate
bankruptcies. In short, there was no place to hide.
By contrast, the European markets continued to provide U.S. investors
with solid returns, although they, too, stumbled in late October and recovered
in November. The MSCI Europe Index posted a gain of 21.8% for the 12 months. The
robust character of the European markets reflects strong corporate earnings and
optimism that the European Monetary Union will provide a solid framework for
future fiscal responsibility and economic growth.
5
<PAGE> 8
REPORT FROM THE ADVISER
Long-term tax-exempt bonds enjoyed a light tailwind in the 12 months
ended November 30, 1997, the fiscal year for Vanguard New York Tax-Free Fund. A
slight decline in bond yields raised the prices of existing bonds, augmenting
returns from interest income. Yields on short-term tax-exempt securities rose
slightly on balance over the year.
THE INSURED LONG-TERM PORTFOLIO
For the Insured Long-Term Portfolio (formerly known as Vanguard New York Insured
Tax-Free Fund), fiscal 1997 was another period of positive performance. As in
the previous fiscal year, most of our return represented coupon income derived
from Portfolio holdings. Because of Vanguard's characteristically low expense
ratio--0.20% of average net assets in fiscal 1997--the vast majority of the
gross interest collected by the Portfolio flows through to shareholders.
During the fiscal year, yields on 30-year high-quality municipal
securities fell 0.20 percentage point, from 5.45% to 5.25%. In comparison, the
yield on the 30-year U.S. Treasury bond declined 0.30 percentage point, from
6.35% to 6.05%. Despite the relatively narrow difference between yields at the
beginning and end of the year, the path was far from direct.
During the first half of the year, robust expansion of the U.S. economy
and steady job growth caused concern among fixed-income investors that inflation
would accelerate. Yields rose, and in April the yield on the 30-year Treasury
bond peaked at 7.17%. However, inflation remained in check, and investors came
to welcome the economy's steady growth as sustainable without upward price
pressure. This led to a rally in bond prices after midyear. Later, the bond
market got an additional boost from a dramatic meltdown in Asian currency and
equity markets. This instability triggered a "flight to quality" in which many
investors bought U.S. Treasury securities, pushing yields even lower. (A "flight
to quality" is a movement of capital to the safest investments as people seek to
protect themselves from loss during an unsettling period in a market.)
Two factors in the tax-exempt bond market have led to tightened yield
differentials between bond sectors. First, the current environment of low
interest rates has prompted many fixed-income investors to stretch for
additional yield by purchasing low-quality securities. This additional demand
has reduced the interest-rate premium that investors normally require before
they will buy bonds with poorer credit quality. Second, the increased use of
municipal bond insurance by issuers to boost the credit quality of their
securities has reduced the availability of low-investment-grade securities.
Today, approximately 50% of all new municipal bond issues are insured and carry
an AAA rating.
The combination of increased demand for and diminished supply of
lower-quality securities has caused a dramatic decline in the yield spreads
between tax-exempt bonds of higher and lower credit quality. For example, at the
beginning of fiscal 1997, an investor
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<PAGE> 9
could receive 0.75 percentage point of additional income for purchasing the
lowest-quality investment-grade municipal bond rather than the highest-quality
bond. By November 30, that spread had fallen to only 0.35 percentage point. We
do not expect a continued tightening of quality spreads, but we cannot predict
when spreads might widen. In the meantime, shareholders in the Insured Long-Term
Portfolio are getting the highest credit quality while giving up very little in
incremental yield.
Vanguard's low-cost structure proved its value during the fiscal year as
investors tended to stretch further for yield and reduced their credit
protection. The powerful advantage of our low expense ratio--0.20% versus 1.04%
for the average long-term state tax-free fund--allows more tax-exempt investment
income to flow directly to shareholders without requiring us to incur higher
credit risk. Cost has been especially important in recent years when income, not
capital change, has accounted for the majority of return for fixed-income
investments. Over the long-term, low expenses correlate directly with superior
portfolio performance.
We think that the current environment bodes well for tax-exempt
investors. With moderate economic growth and subdued inflation, fixed-income
investments offer a consistent, durable return, which provides an important
anchor to windward in a diversified portfolio. In this realm, the Insured
Long-Term Portfolio offers the advantages of low expenses, high credit quality,
and income that is exempt from both state and federal taxes. It is a combination
difficult to surpass.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio began operations on September 3, 1997, amid a period
of relatively stable yields on tax-exempt money market instruments. The yield on
the benchmark one-year MIG-1 note was 3.80% as the fiscal year ended on November
30, 1997, compared with a yield of 5.49% on one-year U.S. Treasury bills. Thus,
the ratio of one-year MIG-1 note yields to yields on one-year Treasuries was
69.2% on November 30.
The Portfolio is positioned neutrally as we begin the new fiscal year.
This strategy affords the Portfolio maximum flexibility in the face of
uncertainty, as the financial markets weigh the strength demonstrated by the
U.S. economy against the potential impact of continued economic turmoil in Asia.
What is certain, however, is that Vanguard New York Tax-Free Fund will continue
to be managed conservatively with an emphasis on high quality. This will allow
the consistency and durability of Vanguard's low expenses to work on behalf of
our shareholders.
Ian A. MacKinnon, Managing Director
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Christopher M. Ryon, Principal
Vanguard Fixed Income Group
December 15, 1997
INVESTMENT PHILOSOPHY
The adviser believes that each Portfolio, while operating within stated maturity
and stringent quality targets, can achieve a high level of current income that
is exempt from federal and New York income taxes by investing in insured and
high-quality uninsured securities issued by New York state, county, and
municipal governments.
7
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PORTFOLIO PROFILE
Money Market Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
November 30, 1997. Key elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Yield 3.6%
Average Maturity 53 days
Average Quality MIG-1
Expense Ratio 0.20%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
MIG-1/SP-1+ 43.1%
A-1/P-1 41.0
AAA/AA 9.8
A 6.1
- ----------------------------------------------------------
Total 100.0%
</TABLE>
8
<PAGE> 11
AVERAGE COUPON. The average interest rate paid on the securities held by a
portfolio. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond portfolio's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the portfolio's duration by the change in rates. If interest
rates rise by one percentage point, the share price of a portfolio with an
average duration of five years would decline by about 5%. If rates decrease by a
percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity (or are called) and are repaid. In general, the longer the
average maturity, the more a portfolio's share price will fluctuate in response
to changes in market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. Quality is graded on a scale, with Aaa or AAA indicating the
most creditworthy bond issuers and SP-1 or MIG-1 indicating the most
creditworthy issuers of money market securities.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a portfolio's securities by
credit rating can help in gauging the risk that returns could be affected by
defaults or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of the portfolio's net asset value, is based on income earned over
the past 30 days (7 days for money market funds) and is annualized, or projected
forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
9
<PAGE> 12
PORTFOLIO PROFILE
Insured Long-Term Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
November 30, 1997, compared where appropriate to an unmanaged index. Key
elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Number of Issues 220
Yield 4.7%
Yield to Maturity 4.8%
Average Coupon 5.5%
Average Maturity 9.2 years
Average Quality AAA
Average Duration 6.5 years
Expense Ratio 0.20%
Cash Reserves 1.3%
</TABLE>
INVESTMENT FOCUS
- ----------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
INSURED LONG-TERM LEHMAN
PORTFOLIO INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.97 1.00
Beta 1.17 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
AAA 99.6%
AA 0.4
A 0.0
BBB 0.0
BB 0.0
B 0.0
Not Rated 0.0
- ----------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
Under 1 Year 7.6%
1-5 Years 18.3
5-10 Years 33.2
10-20 Years 33.2
20-30 Years 7.7
Over 30 Years 0.0
- ----------------------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
PERFORMANCE SUMMARY
Money Market Portfolio
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
returns can fluctuate widely. An investment in a money market fund is neither
insured nor guaranteed by the U.S. government, and there is no assurance that
the fund will be able to maintain a stable net asset value of $1 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURN:
SEPTEMBER 3, 1997-NOVEMBER 30, 1997
- ----------------------------------------------------------
MONEY MARKET PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
PERIOD RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1997 0.0% 0.8% 0.8% 0.8%
- ----------------------------------------------------------
</TABLE>
*Average New York Tax-Exempt Money Market Fund.
See Financial Highlights table on page 22 for dividend information since the
Portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIOD ENDED SEPTEMBER 30, 1997*
- ------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------------
DATE CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Portfolio 9/3/1997 0.00% 0.26% 0.26%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
PERFORMANCE SUMMARY
Insured Long-Term Portfolio
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
both share price and return can fluctuate widely so that an investment in the
Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: APRIL 7, 1986-NOVEMBER 30, 1997
- ---------------------------------------------------------
INSURED LONG-TERM PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1986 0.8% 4.3% 5.1% 5.0%
1987 -12.0 6.2 -5.8 -0.2
1988 4.4 7.2 11.6 10.6
1989 5.1 7.2 12.3 11.0
1990 -0.7 6.7 6.0 7.7
1991 3.9 7.0 10.9 10.3
1992 4.1 6.5 10.6 10.0
1993 6.4 6.0 12.4 11.1
1994 -11.5 5.1 -6.4 -5.2
1995 13.5 6.4 19.9 18.9
1996 0.4 5.4 5.8 5.9
1997 0.9 5.5 6.4 7.2
- ---------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 23 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1987-NOVEMBER 30, 1997
- ------------------------------------------------------------------------------------
Insured Long- Average New York Lehman Municipal
Term Portfolio Insured Municipal Fund Bond Index
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1987 11 10000 10000 10000
1988 02 10754 10699 10618
1988 05 10504 10533 10543
1988 08 10826 10796 10777
1988 11 11163 11124 11063
1989 02 11473 11313 11277
1989 05 12074 11811 11757
1989 08 12173 11997 11960
1989 11 12532 12230 12281
1990 02 12555 12272 12434
1990 05 12722 12415 12617
1990 08 12714 12549 12728
1990 11 13283 12928 13227
1991 02 13639 13192 13580
1991 05 14014 13564 13888
1991 08 14392 14099 14228
1991 11 14727 14315 14584
1992 02 15137 14593 14936
1992 05 15509 14925 15252
1992 08 16079 15658 15816
1992 11 16293 15754 16045
1993 02 17511 16644 16991
1993 05 17638 16750 17076
1993 08 18272 17620 17746
1993 11 18316 17578 17824
1994 02 18393 17533 17931
1994 05 18020 17055 17498
1994 08 18219 17461 17778
1994 11 17150 16346 16893
1995 02 18886 17689 18275
1995 05 19639 18407 19098
1995 08 19759 18743 19355
1995 11 20563 19514 20087
1996 02 20801 19438 20295
1996 05 20389 18950 19971
1996 08 20779 19572 20369
1996 11 21763 20413 21268
1997 02 21792 20163 21413
1997 05 22028 20296 21625
1997 08 22627 21082 22253
1997 11 23155 21567 22793
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997
---------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured Long-Term Portfolio 6.36% 7.28% 8.76% $23,155
Average New York Insured Municipal Fund 5.65 6.48 7.99 21,567
Lehman Municipal Bond Index 7.17 7.27 8.59 22,793
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1997*
- --------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insured Long-Term Portfolio 4/7/1986 8.66% 7.31% 2.76% 6.35% 9.11%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
12
<PAGE> 15
FINANCIAL STATEMENTS
November 30, 1997
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's municipal bond
holdings, including each security's market value on the last day of the
reporting period and information on credit enhancements (insurance or letters of
credit). Securities are grouped and subtotaled according to their insured or
noninsured status. Other assets are added to, and liabilities are subtracted
from, the value of Total Municipal Bonds to calculate the Portfolio's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the
Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets of each Portfolio, you will find
a table displaying the composition of the Portfolio's net assets on both a
dollar and per-share basis. Undistributed Net Investment Income is usually zero
because the Portfolio distributes its net income to shareholders as a dividend
each day. Any realized gains must be distributed annually, so the bulk of net
assets consists of Paid in Capital (money invested by shareholders). The balance
shown for Accumulated Net Realized Gains usually approximates the amount
available to distribute to shareholders as taxable capital gains as of the
statement date, but may differ because certain investments or transactions may
be treated differently for financial statement and tax purposes. Any Accumulated
Net Realized Losses, and any cumulative excess of distributions over net
realized gains, will appear as negative balances. Unrealized Appreciation
(Depreciation) is the difference between the value of the Portfolio's
investments and their cost, and reflects the gains (losses) that would be
realized if the Portfolio were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.3%)
- -----------------------------------------------------------------------------------------------------------------------------
East Hampton NY Union Free School Dist. TAN 4.125% 6/29/1998 $5,000 $ 5,008
Erie County NY Water Auth. Rev. VRDO 3.75% 12/3/1997 (2) 6,400 6,400
Great Neck NY Union Free School Dist. TAN 4.25% 6/30/1998 3,000 3,008
Monroe County NY GO 4.50% 3/1/1998 1,435 1,438
Nassau County NY Combined Sewer Dist. 6.60% 7/15/1998 (Prere.) 800 829
Nassau County NY GO 4.50% 9/1/1998 (3) 5,000 5,024
New York City NY GO VRDO 3.85% 12/2/1997 LOC 2,100 2,100
New York City NY GO VRDO 3.90% 12/3/1997 LOC 4,500 4,500
New York City NY Health & Hosp. Corp. Rev. VRDO (Health System) 3.85% 12/3/1997 LOC 7,400 7,400
New York City NY IDA Dev. VRDO (National Audubon Society) 3.75% 12/2/1997 LOC 2,700 2,700
New York City NY Muni. Assistance Corp. VRDO 3.75% 12/3/1997 LOC 6,700 6,700
New York City NY Muni. Water Finance Auth. CP 3.80% 3/11/1998 LOC 8,000 8,000
New York City NY Muni. Water Finance Auth. CP 3.90% 12/18/1997 600 600
New York City NY TOB VRDO 4.00% 12/4/1997 (1) 2,275 2,275
New York City NY Trust for Cultural Resources VRDO
(Solomon R. Guggenheim Foundation) 3.75% 12/2/1997 LOC 4,100 4,100
New York State Dormitory Auth. CP (Sloan Kettering Cancer Center) 3.65% 12/10/1997 LOC 1,900 1,900
New York State Dormitory Auth. CP (Sloan Kettering Cancer Center) 3.80% 1/21/1998 LOC 4,800 4,800
New York State Dormitory Auth. VRDO (Cornell Univ.) 3.75% 12/2/1997 LOC 6,400 6,400
New York State Dormitory Auth. VRDO (Foundling Charities Corp.) 3.80% 12/3/1997 LOC 3,400 3,400
New York State Dormitory Auth. TOB VRDO (City Univ. of New York) 3.95% 12/4/1997 (1) 4,000 4,000
New York State Energy Research & Dev. Auth. PCR VRDO
(New York State Electric & Gas) 3.70% 12/2/1997 LOC 1,700 1,700
New York State Energy Research & Dev. Auth. VRDO 3.70% 12/2/1997 LOC 3,100 3,100
New York State Environmental Fac. Corp.
Solid Waste Disposal Rev. CP (General Electric Co. Project) 3.65% 12/1/1997 2,400 2,400
New York State Environmental Fac. Corp.
Solid Waste Disposal Rev. CP (General Electric Co. Project) 3.75% 1/21/1998 2,800 2,800
New York State Environmental Fac. Corp. TOB VRDO
(Muni. Water Finance Auth. Project) 3.95% 12/4/1997 (1) 5,000 5,000
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York State Environmental Quality GO CP 3.75% 12/18/1997 LOC $ 500 $ 500
New York State Environmental Quality GO CP 3.80% 12/18/1997 LOC 500 500
New York State Local Govt. Assistance Corp. TOB VRDO 3.95% 12/6/1997 (2) 2,000 2,000
New York State Local Govt. Assistance Corp. VRDO 3.80% 12/3/1997 LOC 8,900 8,900
Port Auth. of New York & New Jersey CP 3.70% 12/1/1997 2,000 2,000
Port Auth. of New York & New Jersey CP 3.70% 1/14/1998 500 500
Port Auth. of New York & New Jersey CP 3.75% 2/10/1998 4,860 4,860
Port Auth. of New York & New Jersey CP 3.75% 2/17/1998 2,000 2,000
Port Auth. of New York & New Jersey CP 3.80% 1/21/1998 2,800 2,800
Rochester NY BAN 4.00% 3/10/1998 3,800 3,802
Roslyn NY Union Free School Dist. TAN 4.25% 6/29/1998 1,500 1,503
Syosset NY Central School Dist. TAN 4.25% 6/29/1998 1,400 1,403
Triborough Bridge & Tunnel Auth. NY VRDO 3.75% 12/3/1997 (3) 6,400 6,400
OUTSIDE NEW YORK:
Puerto Rico Commonwealth Aqueduct & Sewer Auth. 7.00% 7/1/1998 (Prere.) 1,120 1,163
Puerto Rico Govt. Dev. Bank VRDO 3.80% 12/3/1997 LOC 7,000 7,000
Puerto Rico Highway & Transp. Auth. Rev. VRDO 3.65% 12/3/1997 LOC 4,500 4,500
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $145,413) 145,413
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.7%)
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 2,750
Liabilities (204)
-------
2,546
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------
Applicable to 147,959,682 outstanding shares of beneficial interest
(unlimited authorization--no par value) $147,959
=============================================================================================================================
NET ASSET VALUE PER SHARE $1.00
=============================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 19.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $147,960 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (1) --
Unrealized Appreciation -- --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $147,959 $1.00
=========================================================================================================================
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.7%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (82.3%)
Albany County NY GO 5.00% 10/1/2005 (3) $ 2,000 $ 2,072
Albany County NY GO 5.00% 10/1/2006 (3) 3,150 3,259
Albany County NY GO 5.00% 10/1/2012 (3) 4,400 4,427
Albany County NY GO 7.00% 1/15/2005 (2) 1,250 1,342
Albany NY Muni. Water Finance Auth. 7.50% 12/1/2017 (1) 2,080 2,190
Battery Park City NY Auth. 5.50% 11/1/2026 (2) 11,750 11,855
Broome County NY Public Safety Fac. Project 5.25% 4/1/2015 (1) 3,000 3,002
Buffalo & Erie County NY Toll Bridge Auth. 6.00% 1/1/2015 (1) 4,500 4,772
Buffalo NY General Improvement 6.75% 3/1/2006 (1) 1,815 1,976
Buffalo NY General Improvement 6.75% 3/1/2007 (1) 390 425
Buffalo NY General Improvement 6.75% 3/1/2009 (1) 410 446
Buffalo NY General Improvement 6.75% 3/1/2010 (1) 380 414
Buffalo NY General Improvement 6.75% 3/1/2011 (1) 385 419
Buffalo NY Muni. Water Finance Auth. 5.75% 7/1/2019 (4) 8,500 8,773
Buffalo NY Sewer Auth. System Rev. 5.00% 7/1/2012 (3) 5,675 5,640
Buffalo NY Sewer Auth. System Rev. 5.25% 7/1/2008 (3) 3,500 3,585
Duchess County NY Resource Recovery Solid Waste System 7.50% 1/1/2009 (3) 2,000 2,156
Erie County NY GO 6.10% 1/15/2006 (3) 1,865 2,063
Erie County NY GO 6.125% 1/15/2007 (3) 1,660 1,846
Erie County NY Water Auth. Rev. 0.00% 12/1/2005 (2) 3,000 2,068
Erie County NY Water Auth. Rev. 0.00% 12/1/2006 (2) 6,915 4,595
Erie County NY Water Auth. Rev. 5.00% 12/1/2004 (2) 5,920 6,165
Erie County NY Water Auth. Rev. 6.00% 12/1/2008 (2) 1,600 1,752
Erie County NY Water Auth. Rev. VRDO 3.75% 12/3/1997 (2) 2,000 2,000
Town of Hempstead NY GO 5.50% 8/1/2011 (3) 2,450 2,556
Town of Hempstead NY GO 5.625% 2/1/2012 (3) 1,490 1,566
Town of Hempstead NY GO 5.625% 2/1/2013 (3) 1,170 1,224
Huntington NY GO 5.50% 4/1/2013 (3) 3,400 3,495
Huntington NY GO 6.70% 2/1/2011 (3) 310 364
Metropolitan Transit Auth. of New York (Commuter Fac. Rev.) 5.625% 7/1/2015 (4) 5,000 5,159
Metropolitan Transit Auth. of New York (Commuter Fac. Rev.) 5.50% 7/1/2017 (2) 11,585 11,813
Metropolitan Transit Auth. of New York (Commuter Fac. Rev.) 5.70% 7/1/2017 (1) 7,000 7,272
Metropolitan Transit Auth. of New York (Commuter Fac. Rev.) 6.25% 7/1/2022 (1) 3,000 3,300
Metropolitan Transit Auth. of New York (Dedicated Petroleum Tax) 5.25% 4/1/2026 (1) 6,000 5,921
Metropolitan Transit Auth. of New York (Dedicated Petroleum Tax) 6.00% 4/1/2020 (1) 25,000 27,835
Metropolitan Transit Auth. of New York (Transp. Fac. Rev.) 5.40% 7/1/2007 (3) 12,000 12,689
Metropolitan Transit Auth. of New York (Transp. Fac. Rev.) 5.70% 7/1/2017 (1) 5,500 5,728
Metropolitan Transit Auth. of New York (Transp. Fac. Rev.) 6.00% 7/1/2011 (2) 2,000 2,051
Metropolitan Transit Auth. of New York (Transp. Fac. Rev.) 6.10% 7/1/2026 (4) 13,425 14,512
Metropolitan Transit Auth. of New York (Transp. Fac. Rev.) 7.00% 7/1/2009 (2) 19,050 22,817
Monroe County NY GO (Rochester Water Dist.) 5.60% 6/1/2004 (3) 1,235 1,320
Monroe County NY GO (Rochester Water Dist.) 5.70% 6/1/2005 (3) 1,350 1,457
Monroe County NY GO (Rochester Water Dist.) 5.80% 6/1/2006 (3) 1,340 1,460
Monroe County NY GO (Woodbury Central School Dist.) 5.625% 5/15/2010 (1) 1,000 1,060
Monroe County NY GO (Woodbury Central School Dist.) 5.625% 5/15/2011 (1) 1,000 1,056
Monroe County NY GO (Woodbury Central School Dist.) 5.625% 5/15/2012 (1) 1,000 1,052
Monroe County NY GO (Woodbury Central School Dist.) 5.625% 5/15/2013 (1) 1,425 1,492
Monroe County NY GO (Woodbury Central School Dist.) 5.625% 5/15/2014 (1) 1,000 1,043
Montgomery, Ostego, Scholoharie Counties NY Solid Waste 5.25% 1/1/2014 (1) 1,640 1,646
Mount Sinai NY Union Free School Dist. 6.20% 2/15/2014 (2) 1,050 1,184
Nassau County NY Combined Sewer Dist. GO 4.70% 10/1/2004 (3) 1,805 1,832
Nassau County NY Combined Sewer Dist. GO 4.80% 10/1/2005 (3) 1,760 1,792
Nassau County NY Combined Sewer Dist. GO 4.90% 10/1/2006 (3) 1,740 1,776
Nassau County NY Combined Sewer Dist. GO 5.00% 10/1/2007 (3) 1,715 1,758
Nassau County NY Combined Sewer Dist. GO 5.00% 10/1/2008 (3) 1,695 1,742
Nassau County NY Combined Sewer Dist. GO 5.00% 5/1/2009 (3) 3,210 3,283
Nassau County NY Combined Sewer Dist. GO 5.00% 5/1/2010 (3) 2,875 2,920
Nassau County NY Combined Sewer Dist. GO 5.00% 5/1/2011 (3) 1,770 1,789
Nassau County NY Combined Sewer Dist. GO 5.00% 5/1/2012 (3) 1,760 1,771
Nassau County NY Combined Sewer Dist. GO 5.35% 7/1/2008 (1) 4,730 4,996
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nassau County NY Combined Sewer Dist. GO 5.35% 1/15/2009 (1) $ 3,505 $ 3,682
Nassau County NY Combined Sewer Dist. GO 5.35% 7/1/2009 (1) 4,635 4,876
Nassau County NY Combined Sewer Dist. GO 5.875% 8/1/2012 (3) 825 869
Nassau County NY Combined Sewer Dist. GO 6.20% 5/15/2007 (1) 840 911
Nassau County NY Combined Sewer Dist. GO 6.20% 5/15/2008 (1) 835 906
Nassau County NY Combined Sewer Dist. GO 6.25% 5/15/2009 (1) 825 896
Nassau County NY Combined Sewer Dist. GO 6.25% 5/15/2010 (1) 820 890
Nassau County NY GO 5.125% 3/1/2013 (2) 5,860 5,861
Nassau County NY GO 5.125% 3/1/2014 (2) 5,900 5,876
Nassau County NY GO 5.50% 7/15/2007 (1) 1,270 1,338
Nassau County NY GO 5.50% 7/15/2008 (1) 1,300 1,370
Nassau County NY GO 5.50% 7/15/2009 (1) 1,325 1,391
Nassau County NY GO 5.50% 7/15/2010 (1) 1,345 1,407
Nassau County NY GO 5.50% 7/15/2011 (1) 1,370 1,431
Nassau County NY GO 5.70% 8/1/2011 (3) 2,000 2,122
Nassau County NY GO 5.75% 2/1/2011 (1) 1,100 1,149
New York City NY Cultural Resources
(American Museum of Natural History) 5.60% 4/1/2018 (1) 2,635 2,710
New York City NY Cultural Resources
(American Museum of Natural History) 5.65% 4/1/2022 (1) 5,000 5,139
New York City NY Cultural Resources
(American Museum of Natural History) 5.70% 4/1/2016 (1) 12,730 13,305
New York City NY Cultural Resources (Museum of Modern Art) 5.40% 1/1/2006 (2) 720 757
New York City NY Cultural Resources (Museum of Modern Art) 5.40% 1/1/2006 (2)(ETM) 85 90
New York City NY Cultural Resources (Museum of Modern Art) 5.40% 1/1/2012 (2) 1,400 1,432
New York City NY Cultural Resources (Museum of Modern Art) 5.50% 1/1/2007 (2) 805 847
New York City NY Cultural Resources (Museum of Modern Art) 5.50% 1/1/2007 (2)(ETM) 35 38
New York City NY GO 5.75% 8/1/2009 (3) 4,250 4,453
New York City NY GO 6.625% 8/1/2013 (1) 675 742
New York City NY GO 6.95% 8/15/2004 (1)(Prere.) 20 23
New York City NY GO 6.95% 8/15/2012 (1) 1,440 1,642
New York City NY GO 7.10% 2/1/2002 (1)(Prere.) 4,315 4,835
New York City NY GO 7.10% 2/1/2009 (1) 685 760
New York City NY GO VRDO 3.85% 12/2/1997 (1) 400 400
New York City NY Health & Hosp. Corp. 5.625% 2/15/2013 (2) 23,400 24,046
New York City NY IDA (USTA Project) 6.375% 11/15/2014 (4) 2,000 2,196
New York City NY Muni. Water Finance Auth. Water &
Sewer System Rev. 5.35% 6/15/2013 (1) 5,300 5,332
New York City NY Muni. Water Finance Auth. Water &
Sewer System Rev. 5.875% 6/15/2012 (2) 20,000 21,858
New York City NY Muni. Water Finance Auth. Water &
Sewer System Rev. 5.875% 6/15/2013 (2) 20,000 21,830
New York City NY Muni. Water Finance Auth. Water &
Sewer System Rev. VRDO 3.85% 12/2/1997 (3) 2,700 2,700
New York State Dormitory Auth. (City Univ. of New York) 6.25% 7/1/2019 (1) 4,485 4,822
New York State Dormitory Auth. (City Univ. of New York) 7.00% 7/1/2014 (3) 20,700 22,443
New York State Dormitory Auth. (Colgate Univ.) 6.50% 7/1/2001 (1)(Prere.) 1,350 1,478
New York State Dormitory Auth. (Fordham Univ.) 5.50% 7/1/2023 (3) 10,150 10,239
New York State Dormitory Auth. (Fordham Univ.) 5.75% 7/1/2015 (3) 1,500 1,560
New York State Dormitory Auth. (Fordham Univ.) 7.20% 7/1/2015 (2) 710 773
New York State Dormitory Auth. (Iona College) 5.25% 7/1/2008 (1) 1,000 1,038
New York State Dormitory Auth. (Iona College) 5.35% 7/1/2009 (1) 1,000 1,039
New York State Dormitory Auth. (Iona College) 7.625% 7/1/1998 (1) 5,000 5,209
New York State Dormitory Auth. (Ithaca College) 6.25% 7/1/2021 (1) 10,000 10,758
New York State Dormitory Auth. (Montefiore Medical Center) 5.25% 2/1/2015 (2) 42,750 42,782
New York State Dormitory Auth. (Mt. Sinai School of Medicine) 6.75% 7/1/2015 (1) 7,245 7,923
New York State Dormitory Auth. (New School for Social Research) 5.625% 7/1/2016 (1) 2,260 2,347
New York State Dormitory Auth. (New York Univ.) 6.00% 7/1/2015 (3) 32,165 33,763
New York State Dormitory Auth. (Pace) 5.625% 7/1/2017 (1) 11,185 11,565
New York State Dormitory Auth. (Rensselaer Polytech. Institute) 6.50% 7/1/2006 (3) 3,000 3,262
New York State Dormitory Auth. (Rochester Institute of Technology) 5.30% 7/1/2017 (1) 6,275 6,307
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York State Dormitory Auth. (School Dist.) 6.00% 7/1/2015 (3) 2,675 2,731
New York State Dormitory Auth. (Siena College) 6.00% 7/1/2011 (1) 1,500 1,581
New York State Dormitory Auth. (State Univ.) 5.75% 7/1/2007 (2) 2,250 2,440
New York State Dormitory Auth. (State Univ.) 5.75% 7/1/2008 (2) 3,335 3,633
New York State Dormitory Auth. (State Univ.) 6.00% 7/1/2009 (2) 1,590 1,764
New York State Dormitory Auth. (St. John's Univ.) 5.60% 7/1/2016 (1) 7,000 7,236
New York State Dormitory Auth. (St. John's Univ.) 5.70% 7/1/2026 (1) 9,230 9,579
New York State Dormitory Auth. (St. Joseph's Hosp.) 5.25% 7/1/2018 (1) 6,700 6,650
New York State Dormitory Auth. (St. Vincent Hosp. Medical Center) 5.80% 8/1/2025 (2) 4,250 4,406
New York State Dormitory Auth. (Union College) 5.75% 7/1/2010 (3) 1,800 1,883
New York State Dormitory Auth. (Vassar Brothers Hosp.) 5.25% 7/1/2017 (4) 7,025 6,982
New York State Dormitory Auth. (Vassar Brothers Hosp.) 5.375% 7/1/2025 (4) 7,000 6,945
New York State Energy Research & Dev. Auth. PCR
(Niagara Mohawk) 6.625% 10/1/2013 (3) 10,000 10,902
New York State Environmental Fac. Water PCR 5.50% 6/15/2009 (1) 10,000 10,540
New York State Medical Care Fac. Finance Agency
(Mental Health Services) 5.50% 8/15/2021 (3)+ 8,000 8,011
New York State Medical Care Fac. Finance Agency
(Mental Health Services) 6.00% 8/15/2015 (1) 15,000 15,891
New York State Medical Care Fac. Finance Agency
(Mental Health Services) 6.375% 8/15/2010 (3) 6,100 6,606
New York State Medical Care Fac. Finance Agency
(Mental Health Services) 7.40% 2/15/1999 (1)(Prere.) 430 456
New York State Medical Care Fac. Finance Agency
(Mental Health Services) 7.40% 8/15/2007 (1) 460 486
New York State Medical Care Fac. Finance Agency
(Sisters of Charity-Buffalo) 6.625% 11/1/2018 (2) 5,500 5,994
New York State Thruway Auth. Rev. 5.00% 1/1/2020 (1) 5,055 4,827
New York State Thruway Auth. Rev. 5.50% 1/1/2023 (3) 6,800 6,832
New York State Thruway Auth. Rev. 6.00% 1/1/2015 (3) 11,600 12,360
New York State Thruway Auth. Rev. 6.00% 1/1/2025 (3) 14,250 15,152
New York State Thruway Auth. Rev. (Highway & Bridge Trust Fund) 5.30% 4/1/2010 (1) 3,775 3,867
New York State Thruway Auth. Rev. (Highway & Bridge Trust Fund) 5.50% 4/1/2015 (1) 12,480 12,791
New York State Thruway Auth. Rev. (Highway & Bridge Trust Fund) 5.80% 4/1/2010 (2) 14,215 15,041
New York State Thruway Auth. Rev. (Highway & Bridge Trust Fund) 5.80% 4/1/2011 (2) 8,635 9,106
New York State Thruway Auth. Rev. (Highway & Bridge Trust Fund) 6.00% 4/1/2009 (3) 5,000 5,364
New York State Thruway Auth. Rev. (Service Contract) 5.75% 4/1/2013 (1) 4,000 4,169
New York State Urban Dev. Corp. 5.375% 1/1/2012 (1) 21,375 21,758
New York State Urban Dev. Corp. 5.50% 4/1/2016 (1) 8,350 8,528
Niagara Falls NY Bridge Comm. 5.25% 10/1/2015 (3) 5,000 5,110
Niagara Falls NY Bridge Comm. 6.25% 10/1/2020 (3) 8,685 9,969
Niagara Falls NY Bridge Comm. 6.25% 10/1/2021 (3) 9,230 10,625
North Hempstead NY GO 6.30% 4/1/2008 (3) 2,055 2,331
North Hempstead NY GO 6.40% 4/1/2010 (3) 1,500 1,717
North Hempstead NY GO 6.40% 4/1/2011 (3) 2,075 2,379
North Hempstead NY Solid Waste Auth. 5.00% 2/1/2012 (1) 3,370 3,360
Oyster Bay NY Public Improvement 5.40% 2/15/2003 (1) 1,475 1,549
Oyster Bay NY Public Improvement 5.60% 2/15/2005 (1) 1,000 1,070
Rochester NY GO 5.70% 8/15/2003 (2) 2,330 2,491
Rochester NY GO 5.70% 8/15/2004 (2) 2,180 2,346
Smithtown NY GO 5.25% 4/1/2006 (1) 1,000 1,045
Smithtown NY GO 5.45% 4/1/2008 (1) 400 417
Suffolk County NY GO 5.00% 4/1/2006 (1) 2,255 2,305
Suffolk County NY GO 5.00% 7/15/2006 (3) 1,000 1,023
Suffolk County NY GO 5.10% 7/15/2007 (3) 1,280 1,310
Suffolk County NY GO 5.20% 7/15/2008 (3) 1,100 1,126
Suffolk County NY Water Auth. 5.10% 6/1/2007 (1) 7,110 7,354
Suffolk County NY Water Auth. 5.25% 6/1/2004 (2)(Prere.) 21,305 22,406
Suffolk County NY Water Auth. 5.25% 6/1/2010 (2)(ETM) 3,790 3,960
Suffolk County NY Water Auth. 5.25% 6/1/2011 (2)(ETM) 2,380 2,478
Suffolk County NY Water Auth. 5.25% 6/1/2012 (2)(ETM) 4,290 4,454
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Suffolk County NY Water Auth. 5.25% 6/1/2017 (2) $1,695 $ 1,737
Suffolk County NY Water Auth. 5.75% 6/1/2002 (2)(Prere.) 1,100 1,186
Suffolk County NY Water Auth. 5.75% 6/1/2013 (2) 7,340 7,610
Triborough Bridge & Tunnel Auth. NY 5.50% 1/1/2017 (2) 18,485 18,632
City of Yonkers NY School Dist. GO 5.60% 8/1/2009 (3) 535 567
City of Yonkers NY School Dist. GO 5.70% 8/1/2010 (3) 545 578
OUTSIDE NEW YORK:
Puerto Rico Electric Power Auth. Rev. 6.50% 7/1/2006 (1) 10,000 11,412
Puerto Rico Infrastructure Financing Auth. Rev. 5.00% 7/1/2021 (2) 3,000 2,927
Puerto Rico Public Building Auth. 0.00% 7/1/2003 (3) 4,000 3,164
----------
932,540
----------
PORTFOLIO INSURED (0.1%)
New York State Energy Research & Dev.
(Niagara Mohawk Power Corp.) 8.875% 11/1/2025 1,100 1,125
----------
SECONDARY MARKET INSURED (7.5%)
Municipal Assistance Corp. for New York City NY 6.00% 7/1/2008 (3) 22,350 23,586
New York City NY Muni. Water Finance Auth. Water &
Sewer System Rev. 5.00% 6/15/2017 (3) 4,000 3,902
New York State Dormitory Auth. (City Univ.) 5.75% 7/1/2009 (3) 3,750 4,060
New York State Dormitory Auth. (City Univ.) 5.75% 7/1/2011 (3) 5,950 6,410
New York State Dormitory Auth. (Cornell Univ.) 7.25% 7/1/2012 (1) 1,175 1,280
New York State Dormitory Auth. (State Univ.) 6.00% 5/15/2017 (2) 5,600 5,743
New York State Medical Care Fac. Finance Agency 5.25% 2/15/2019 (3) 10,230 10,049
New York State Medical Care Fac. Finance Agency
(Mental Health Services) 5.375% 2/15/2014 (1) 5,000 5,024
Port Auth. of New York & New Jersey 6.50% 1/15/2026 (1) 1,500 1,603
Triborough Bridge & Tunnel Auth. NY 5.50% 1/1/2019 (2) 4,000 4,006
Triborough Bridge & Tunnel Auth. NY 6.00% 1/1/2012 (1) 7,805 8,621
Triborough Bridge & Tunnel Auth. NY 6.75% 1/1/2009 (2) 3,000 3,515
Triborough Bridge & Tunnel Auth. NY 6.875% 1/1/2015 (3) 7,000 7,613
----------
85,412
----------
NONINSURED (8.8%)
Municipal Assistance Corp. for New York City NY VRDO 3.75% 12/3/1997 LOC 1,200 1,200
New York City NY GO VRDO 3.85% 12/2/1997 LOC 4,600 4,600
New York City NY GO VRDO 3.90% 12/3/1997 LOC 8,800 8,800
New York City NY GO VRDO 4.00% 12/3/1997 LOC 4,600 4,600
New York City NY Health & Hosp. Corp. Rev. VRDO (Health System) 3.85% 12/3/1997 LOC 4,400 4,400
New York State Dormitory Auth. (Columbia Univ.) 5.75% 7/1/2015 11,965 12,299
New York State Energy Research & Dev. VRDO 3.70% 12/2/1997 LOC 2,300 2,300
New York State Environmental Fac. Water PCR 5.55% 7/15/2009 2,000 2,117
New York State Local Govt. Assistance Corp. VRDO 3.80% 12/3/1997 LOC 21,900 21,900
New York State Power Auth. 7.00% 1/1/2009 6,000 6,138
Onondaga County NY Public Improvements 5.875% 2/15/2006 1,580 1,723
Onondaga County NY Public Improvements 5.875% 2/15/2008 2,475 2,715
Port Auth. of New York & New Jersey VRDO 3.85% 12/2/1997 2,800 2,800
Rochester NY BAN 4.00% 3/10/1998 4,500 4,502
Westchester County NY GO 6.70% 11/1/2008 3,250 3,828
Westchester County NY GO 6.70% 11/1/2009 3,645 4,305
OUTSIDE NEW YORK:
Puerto Rico Govt. Dev. Bank VRDO 3.80% 12/3/1997 LOC 10,900 10,900
----------
99,127
----------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,047,482) 1,118,204
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.3%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 20,538
Liabilities (5,326)
----------
15,212
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 102,593,421 outstanding shares of beneficial interest
(unlimited authorization--no par value) $1,133,416
=========================================================================================================================
NET ASSET VALUE PER SHARE $11.05
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Securities with a value of $6,109,000 have been segregated as initial margin
for open futures contracts.
For explanations of abbreviations and other references, see below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,063,084 $10.36
Undistributed Net Investment Income -- --
Overdistributed Net Realized Gains--Note E (448) --
Unrealized Appreciation--Note F
Investment Securities 70,722 .69
Futures Contracts 58 --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,133,416 $11.05
=========================================================================================================================
</TABLE>
KEY TO ABBREVIATIONS
BAN--Bond Anticipation Note.
CP--Commercial Paper.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
PCR--Pollution Control Revenue Bond.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association).
(2) AMBAC (AMBAC Indemnity Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
19
<PAGE> 22
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. These
expenses directly reduce the amount of investment income available to pay to
shareholders as tax-exempt income dividends. This Statement also shows any Net
Gain (Loss) realized on the sale of investments, and the increase or decrease in
the Unrealized Appreciation (Depreciation) on investments during the period. If
a Portfolio invested in futures contracts during the period, the results of
these investments are shown separately.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MONEY INSURED
MARKET LONG-TERM
PORTFOLIO PORTFOLIO
--------------------------------
SEP. 3* TO YEAR ENDED
NOV. 30, 1997 NOV. 30, 1997
--------------------------------
(000) (000)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest $670 $55,719
--------------------------------
Total Income 670 55,719
--------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services -- 150
Management and Administrative 35 1,558
Marketing and Distribution -- 241
Insurance Expense -- 4
Custodian Fees 2 16
Auditing Fees -- 7
Shareholders' Reports -- 22
Annual Meeting and Proxy Costs -- 5
Trustees' Fees and Expenses -- 2
--------------------------------
Total Expenses 37 2,005
Expenses Paid Indirectly--Note C (2) (104)
--------------------------------
Net Expenses 35 1,901
- -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 635 53,818
- -----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (1) 2,215
Futures Contracts -- (2,015)
- -----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (1) 200
- -----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- 11,549
Futures Contracts -- (88)
- -----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- 11,461
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $634 $65,479
===========================================================================================================
</TABLE>
*Commencement of operations.
20
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes information
that is detailed in the Statement of Operations. Because the Portfolio
distributes its income to shareholders each day, the amounts of
Distributions--Net Investment Income generally equal the net income earned as
shown under the Operations section. The amounts of Distributions--Realized
Capital Gain may not match the capital gains shown in the Operations section,
because distributions are determined on a tax basis and may be made in a period
different from the one in which the gains were realized on the financial
statements. The Capital Share Transactions section shows the amount shareholders
invested in the Portfolio, either by purchasing shares or by reinvesting
distributions, and the amounts redeemed. The corresponding numbers of Shares
Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
MONEY MARKET PORTFOLIO
PORTFOLIO ------------------------------
-------------------- YEAR ENDED NOVEMBER 30,
SEP. 3* TO ------------------------------
NOV. 30, 1997 1997 1996
(000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 635 $ 53,818 $ 47,197
Realized Net Gain (Loss) (1) 200 3,773
Change in Unrealized Appreciation (Depreciation) -- 11,461 705
---------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 634 65,479 51,675
---------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (635) (53,818) (47,197)
Realized Capital Gain -- (3,537) (5,071)
---------------------------------------------------------------
Total Distributions (635) (57,355) (52,268)
---------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 160,750 299,846 212,722
Issued in Lieu of Cash Distributions 607 41,951 38,644
Redeemed (13,397) (175,804) (150,791)
---------------------------------------------------------------
Net Increase from Capital Share Transactions 147,960 165,993 100,575
- -----------------------------------------------------------------------------------------------------------------------
Total Increase 147,959 174,117 99,982
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period -- 959,299 859,317
---------------------------------------------------------------
End of Period $147,959 $1,133,416 $959,299
=======================================================================================================================
(1) Shares Issued (Redeemed)
Issued 160,750 27,602 19,759
Issued in Lieu of Cash Distributions 607 3,857 3,577
Redeemed (13,397) (16,191) (14,047)
---------------------------------------------------------------
Net Increase in Shares Outstanding 147,960 15,268 9,289
=======================================================================================================================
</TABLE>
*Commencement of operations.
21
<PAGE> 24
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total Return
and shows net investment income and expenses as percentages of average net
assets. These data will help you assess: the variability of the Portfolio's net
income and total returns from year to year; the relative contributions of net
income and capital gains to the Portfolio's total return; how much it costs to
operate the Portfolio; and the extent to which the Portfolio tends to distribute
capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
Portfolio for one year. Money market portfolios are not required to report a
Portfolio Turnover Rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
SEP. 3* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD NOV. 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .008
Net Realized and Unrealized Gain (Loss) on Investments --
-----------------------
Total from Investment Operations .008
-----------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.008)
Distributions from Realized Capital Gains --
-----------------------
Total Distributions (.008)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00
=========================================================================================================================
TOTAL RETURN 0.84%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $148
Ratio of Total Expenses to Average Net Assets 0.20%**
Ratio of Net Investment Income to Average Net Assets 3.52%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
22
<PAGE> 25
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM PORTFOLIO
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.99 $11.01 $ 9.70 $10.97 $10.45
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .572 .569 .581 .588 .594
Net Realized and Unrealized Gain (Loss) on Investments .101 .045 1.310 (1.258) .665
-----------------------------------------------------------
Total from Investment Operations .673 .614 1.891 (.670) 1.259
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.572) (.569) (.581) (.588) (.594)
Distributions from Realized Capital Gains (.041) (.065) -- (.012) (.145)
-----------------------------------------------------------
Total Distributions (.613) (.634) (.581) (.600) (.739)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.05 $10.99 $11.01 $ 9.70 $10.97
========================================================================================================================
TOTAL RETURN 6.36% 5.84% 19.90% -6.37% 12.42%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,133 $959 $859 $695 $807
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.22% 0.22% 0.19%
Ratio of Net Investment Income to Average Net Assets 5.26% 5.28% 5.51% 5.60% 5.47%
Portfolio Turnover Rate 6% 5% 10% 20% 10%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
Vanguard New York Tax-Free Fund is registered under the Investment Company Act
of 1940 as an open-end investment company, or mutual fund, and comprises the
Money Market and Insured Long-Term Portfolios. Each Portfolio invests in debt
instruments of municipal issuers whose ability to meet their obligations may be
affected by economic and political developments in the state of New York.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Money Market Portfolio: Investment securities are
valued at amortized cost, which approximates market value. Insured Long-Term
Portfolio: Bonds, and temporary cash investments acquired over 60 days to
maturity, are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and credit ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as
a regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. FUTURES CONTRACTS: The Insured Long-Term Portfolio may use Municipal
Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with
the objectives of enhancing returns, managing interest-rate risk, maintaining
liquidity, diversifying credit risk, and minimizing transaction costs. The
Portfolio may purchase or sell futures contracts instead of bonds to take
advantage of pricing differentials between the futures contracts and the
underlying bonds. The Portfolio may also seek to take advantage of price
differences among bond market sectors by simultaneously buying futures (or
bonds) of one market sector and selling futures (or bonds) of another sector.
Futures contracts may also be used to simulate a fully invested position in the
underlying bonds while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of bonds held by the Portfolio and the prices
of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
original issue discounts are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Trustees. At November 30, 1997, the Fund had contributed capital of $83,000 to
Vanguard (included in Other Assets), representing 0.4% of Vanguard's
capitalization. The Fund's Trustees and officers are also Directors and officers
of Vanguard.
C. The Fund's investment adviser may direct new issue portfolio purchases,
subject to obtaining the best price and execution, to underwriters who have
agreed to rebate or credit to the Fund part of the underwriting fees generated.
Such rebates or credits are used solely to reduce the Fund's
24
<PAGE> 27
administrative expenses. The Fund's custodian bank has also agreed to reduce its
fees when the Fund maintains cash on deposit in the non-interest-bearing custody
account. For the period ended November 30, 1997, directed brokerage and
custodian fee offset arrangements reduced expenses by:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
EXPENSE REDUCTION
(000) TOTAL EXPENSE
--------------------------------- REDUCTION AS A
DIRECTED CUSTODIAN PERCENT OF AVERAGE
PORTFOLIO BROKERAGE FEES NET ASSETS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market -- $ 2 0.01%*
Insured Long-Term $88 16 0.01
- ----------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
D. During the year ended November 30, 1997, the Insured Long-Term Portfolio
purchased $178,275,000 of investment securities and sold $59,147,000 of
investment securities, other than temporary cash investments.
E. Capital gains distributions are determined on a tax basis and may differ from
realized capital gains for financial reporting purposes due to differences in
the timing of realization of gains. For federal income tax purposes, the Insured
Long-Term Portfolio had a gain of $1,756,000 available for distribution at
November 30, 1997.
F. At November 30, 1997, net unrealized appreciation of Insured Long-Term
Portfolio investment securities for financial reporting and federal income tax
purposes was $70,722,000, consisting of unrealized gains of $70,727,000 on
securities that had risen in value since their purchase and $5,000 in unrealized
losses on securities that had fallen in value since their purchase.
At November 30, 1997, the aggregate settlement value of open futures
contracts expiring in March 1998 and the related unrealized appreciation were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(000)
-----------------------------------
AGGREGATE
NUMBER OF SETTLEMENT UNREALIZED
PORTFOLIO/FUTURES CONTRACTS LONG CONTRACTS VALUE APPRECIATION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term/
U.S. Treasury Bond 200 $23,806 $58
- -----------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Trustees of
Vanguard New York Tax-Free Fund
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Money Market Portfolio and Insured Long-Term Portfolio, formerly known as
Vanguard New York Insured Tax-Free Fund (constituting Vanguard New York Tax-Free
Fund, hereafter referred to as the "Fund") at November 30, 1997, the results of
each of their operations for the year then ended, and the changes in each of
their net assets and the financial highlights for each of the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures where securities purchased had not been settled, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 1998
26
<PAGE> 29
SPECIAL 1997 TAX INFORMATION (UNAUDITED) FOR VANGUARD NEW YORK TAX-FREE FUND
This information for the fiscal year ended November 30, 1997, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term Portfolio designates $1,756,000 as capital gain
dividends (from net long-term capital gains), which will be distributed in
December 1997. Of the $1,756,000 capital gain dividends, the Portfolio
designates $1,159,000 as a 20% rate gain distribution.
Each Portfolio designates 100% of its income dividends as
exempt-interest dividends.
27
<PAGE> 30
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Chairman of the Board and Director of The Vanguard Group, Inc., and of each of
the investment companies in The Vanguard Group.
JOHN J. BRENNAN
President, Chief Executive Officer, and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN
Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co., and
NACCO Industries.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's 500," "S&P 500(R)," "Standard & Poor's(R)," "S&P(R)," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company is
the owner of trademarks and copyrights relating to the Russell Indexes.
"Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates.
<PAGE> 31
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(CA, NJ, NY, OH, PA)
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