<PAGE> 1
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
The six months ended May 31, the first half of the 1994 fiscal year for the
eleven Portfolios of the Vanguard State Tax-Free Funds, witnessed something
that we have not seen much of since 1987: rising interest rates. As a result,
the prices of long-term municipal bonds declined during the period, while the
income from money market instruments received a nice boost.
This environment, of course, negatively impacted the net asset values
of each of our Insured Long-Term Portfolios, as reflected in the table on page
2. (The net asset values of our Money Market Portfolios, as you would expect,
remained constant, at $1.00 per share.) While fluctuating asset values are part
and parcel of bond investing, our Long-Term Portfolios exceeded the total
returns (capital change plus income) achieved by competitive state tax-free
bond funds. What is more, all of our Portfolios remain virtually peerless in
the mutual fund field with respect to their investment quality, as shown in the
third column of the table on page 2. In summary form, here are the Portfolio
highlights over the past twelve months:
* THE STATE MONEY MARKET PORTFOLIOS--provided total returns ranging from +2.2%
to +2.3% . . . current yields are in the area of 2.6%, about the same as they
were twelve months ago but nicely above their level at the outset of the fiscal
half year . . . net asset values remained at $1.00 per share.
* THE STATE INSURED LONG-TERM PORTFOLIOS--reflecting the rebound in interest
rates, turned in modest total returns ranging from +1.9% to +3.3% . . . current
income yields are running about 5.4%, some 40 basis points (0.40%) higher than
they were twelve months ago.
The detailed results for each of our State Tax-Free
Portfolios--including per share net asset values, dividends, and capital gains
distributions, as well as current yields--are presented on the following page.
To provide some perspective on how our Insured Long-Term Portfolios fared in
the face of rising interest rates, the table that follows summarizes the income
returns and the capital returns for each Portfolio:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
Investment Returns
Twelve Months Ended
May 31, 1994
Insured Long-Term -----------------------------------------------------------------
Portfolio* Income Capital Total
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA +5.4% -3.5% +1.9%
NEW YORK +5.4 -3.2 +2.2
PENNSYLVANIA +5.6 -2.3 +3.3
NEW JERSEY +5.3 -3.4 +1.9
OHIO +5.2 -2.8 +2.4
FLORIDA +5.1 -2.2 +2.9
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
* On March 4, 1994, the California Insured Intermediate-Term Portfolio was
introduced. Since its inception, the Portfolio has achieved an income return
of +1.0%, a capital return of +0.4%, and a total return of +1.4%.
* FIXED-INCOME MARKET REVIEW
The basic benchmark for the bond market is the long-term U.S. Treasury bond.
During the past six months, its yield rose from 6.3% at the start of the
period to 7.4% at its conclusion. This yield change engendered a decline of
about -13% in the Treasury bond's price. I am happy to report that the
tax-exempt bond market fared a good bit better, with the yield on long-term
high-grade municipal bonds rising from 5.5% to 6.1%, resulting in a price
decline of some -8%. However painful this decline may be for investors in
long-term bonds, it is worth noting that interest rates had been dropping
steadily for some seven years, and the retracement during the past six
months has merely returned rates to the level prevailing at the end of 1992.
A primary cause of the interest rate rise was investor fears about a
resurgence of inflation. So far, at least, there is little evidence of it.
The U.S. Consumer Price Index has risen just 2.3% over the past twelve
months, although more sensitive indicators--such as commodity prices--have
been rising at a much higher rate. In an effort to quell these inflationary
fears, the Federal Reserve acted to "tighten" the money supply and slow
economic growth and potential future inflation, raising the
1
<PAGE> 2
Federal funds rate (at which banks borrow from one another) four times--in
February, March, April, and again in May--from 3.00% to 4.25%.
These increases in short-term rates are often seen by market
participants as a restraint on potential inflation, and thus cause long-term
rates to fall. This time around, quite the reverse has been true. In any
event, proving that "it is an ill wind (indeed) that blows no good," the
rate increase has added to the income received by investors in our Money
Market Portfolios. And, because of the "lag" from the date interest rates
rise until they are fully manifested in money market fund yields, further
dividend increases in our Money Market Portfolios likely lie in prospect.
* IN SUMMARY
In my Chairman's letter to you one year ago, I noted that "it is hard to
imagine that the steady trend toward ever-lower interest rates can go much
further." I went on to caution that if rates did reverse their decline in
response to a strengthening economy, the capital rewards enjoyed by our
longer-term Portfolios would turn to capital penalties. While I do not presume
any forecasting ability whatsoever, these observations have proved prescient.
Nonetheless, provided that you own the Vanguard Portfolio (or combination of
Portfolios) that meets your long-term risk-reward objectives, I would urge you
to "stay the course" and avoid the temptation to make precipitate changes in
your fund holdings.
I look forward to reporting on our results for the full 1994 fiscal year six
months hence.
Sincerely,
/s/ JOHN C. BOGLE
- - ---------------------
John C. Bogle
Chairman of the Board
June 17, 1994
<TABLE>
<CAPTION> Net Asset Value
Total Per Share Dividends Total Return
Net Assets ----------------- ---------------- --------------
(millions) Average Average Nov. 30, May 31, Six Twelve Six Twelve Current
Portfolio May 31, 1994 Maturity Quality* 1993 1994 Months Months Months Months Yield**
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . . $1,126 35 DAYS MIG 1 $ 1.00 $ 1.00 $ .011 $.023 +1.1% +2.3% 2.55%
PENNSYLVANIA . . . 1,041 37 DAYS MIG 1 1.00 1.00 .011 .023 +1.1 +2.3 2.60
NEW JERSEY . . . . 803 41 DAYS MIG 1 1.00 1.00 .011 .022 +1.1 +2.2 2.46
OHIO . . . . . . . 139 47 DAYS MIG 1 1.00 1.00 .011 .023 +1.2 +2.3 2.57
- - --------------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA . . . . $ 929 12.9 YEARS Aaa $11.30 $10.66 $ .451+ $.753 -1.8% +1.9% 5.58%
CALIFORNIA INTERMEDIATE-
TERM . . . . . . . 57 5.3 YEARS Aaa -- 10.04 .101++ -- +1.4++ -- 4.82
NEW YORK . . . . . . 760 11.8 YEARS Aaa 10.97 10.49 .306+ .602+ -1.6 +2.2 5.41
PENNSYLVANIA . . . . 1,430 11.7 YEARS Aaa 11.36 10.85 .388+ .703+ -1.1 +3.3 5.47
NEW JERSEY . . . . . 700 11.5 YEARS Aaa 11.77 11.18 .374+ .690+ -1.9 +1.9 5.41
OHIO . . . . . . . . 162 9.7 YEARS Aaa 11.61 11.08 .327+ .630+ -1.8 +2.4 5.48
FLORIDA . . . . . . . 292 12.1 YEARS Aaa 10.86 10.38 .339+ .611+ -1.3 +2.9 5.39
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* MIG 1 and Aaa are Moody's highest ratings for, respectively, short-term and
long-term municipal bonds.
** Money Market Portfolios' yields are 7-day annualized yields; others are
30-day SEC yields.
+ Include capital gains distributions of $.152 for California, $.012 for New
York, $.079 for Pennsylvania, $.063 for New Jersey, $.032 for Ohio, and
$.070 for Florida.
++ Since inception, March 4, 1994.
The shares of each of the Vanguard "single state" Portfolios are available
for purchase solely by residents of the designated states.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS NOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN ACCORDANCE
WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS
(PERIODS ENDED MARCH 31, 1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
INCEPTION SINCE
PORTFOLIO DATE 1 YEAR 5 YEARS INCEPTION
- - ------------------------------------- --------- ------ ------- ---------
<S> <C> <C> <C> <C>
CALIFORNIA INSURED LONG-TERM 4/7/86 +1.77% +8.56% +7.70%
CALIFORNIA INSURED INTERMEDIATE-TERM 3/4/94 -- -- -0.64
CALIFORNIA MONEY MARKET 6/1/87 +2.34 +4.05 +4.34
NEW YORK INSURED TAX-FREE 4/7/86 +2.37 +8.97 +7.23
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +3.14 +9.22 +8.11
PENNSYLVANIA MONEY MARKET 6/13/88 +2.31 +4.15 +4.39
NEW JERSEY INSURED LONG-TERM 2/3/88 +2.44 +8.87 +8.65
NEW JERSEY MONEY MARKET 2/3/88 +2.24 +4.12 +4.37
OHIO INSURED LONG-TERM 6/18/90 +2.70 -- +9.12
OHIO MONEY MARKET 6/18/90 +2.31 -- +3.54
FLORIDA INSURED TAX-FREE 9/1/92 +2.56 -- +7.01
</TABLE>
THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE NOTE THAT AN INVESTMENT IN A MONEY MARKET FUND, SUCH AS A MONEY MARKET
PORTFOLIO OF THE VANGUARD STATE TAX-FREE FUNDS, 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 $1.00 PER SHARE.
3
<PAGE> 4
REPORT FROM THE INVESTMENT ADVISER
STATE INSURED
LONG-TERM PORTFOLIOS
Over the past six months, the pace of domestic economic activity accelerated
sharply. Strong improvements in the rate of growth in Gross Domestic Product
(GDP), and a host of related statistics such as home sales, automobile sales,
and consumer confidence, provided ample evidence of renewed vigor. Bond markets
seldom react well to strong economic signals and this period was no exception.
The yield on the 30-year Treasury bond rose 1.1 percentage points (from 6.3% to
7.4%). During the same period, municipal bonds performed slightly better, with
the yield on long-term high-grades rising 0.6% (from 5.5% to 6.1%), producing
an 8.3% loss of value.
As one would expect, the sharp rise in interest rates negatively impacted
the share price of the State Insured Long-Term Portfolios. To be sure, a
decline of this nature can be disconcerting to even the most resolute long-term
investor. However, following more than a decade of exceptional returns of
longer-term fixed-income assets, the poor six-month period represents only a
partial "give back" of previous prosperity. Looking beyond the short-term share
price volatility, a shareholder of the State Insured Long-Term Portfolios can
expect to receive an attractive, consistent, and durable stream of tax-exempt
dividend income.
* SUCCESSFUL STRATEGIES . . .
For the recent period, two of several core strategies stand out for
enhancing the relative returns of the State Insured Long-Term Portfolios.
First, a reduction in average maturity over the past year improved relative
market performance and moderated some of the "sting" of a bear market. Some
of this was accomplished by focusing on municipals maturing in 15 to 20
years, rather than the slightly higher yielding but more volatile 30-year
maturities. This modest reduction in average maturity effectively
"locked-in" a portion of the gains in share price achieved in the previous
bull market.
Second, the prudent maintenance of reserve positions of about 10% of
fund assets added to our relative stability. What is more, these reserves
provided a liquidity cushion to meet shareholder redemptions. In good times,
reserves (which normally yield less than longer-term assets) forego a small
amount of yield potential. In difficult market conditions, such as prevailed
during the past six months, the additional reserves allow the portfolio to
meet redemption requests without the inopportune (and sometimes
"distressed") sale of securities.
* LOOKING FORWARD . . .
The issuance of new municipal bonds has fallen dramatically. Issuance
for the first six months in fiscal 1994 was 26% below the pace of a year
earlier. Early indications show forward supply even lower compared to the
"mad dash" of 1993. Municipalities appear to have completed the process of
refinancing older, higher coupon debt of the 1980's and early 1990's. At the
same time, a record number of previously mentioned high coupon bonds are
approaching their call dates, and a huge amount of principal will be
returned to owners of individual bonds. All things being equal, this should
continue to provide more attractive returns for municipal bonds than their
taxable brethren.
In conclusion, it would be reassuring to believe that the recent
increase in interest rates is sufficient to "rein in" the rapidly expanding
U.S. economy and dampen any inflationary expectations. Yet, that observation
might be premature. If history serves as any guide, the process may take
longer than the recent six months of "pain." If so, there could be more
share price unpleasantness ahead before the markets resume their positive
return pattern of the past decade. However, attempting to "time" the
turnaround--getting out at the highs and then getting back in at the
lows--tends to be equally futile for the institutional and individual
investor alike. The best advice we know is to endure the swings and allow
the powerful tax exempt compounding of interest to continue.
4
<PAGE> 5
STATE MONEY MARKET PORTFOLIOS
The past six months ushered in a change in the Federal Reserve Board's
previously accommodative monetary policy. Since February 4, 1994, market
participants watched anxiously as the Federal Reserve Board, in four separate
instances, pushed the Federal funds rate up 125 basis points (1.25%) to 4.25%
and tightened the discount rate 50 basis points (0.50%) to 3.50%. This series
of moves by the Fed has signaled the end of stimulative policy (maintained
throughout 1993) and the initiation of a policy of "neutrality."
The effect of the tightening on the short-term municipal market was
surprisingly mild. While yields on "first tier" taxable money market funds rose
approximately 70 basis points over the six-month period, yields on
state-specific and general purpose tax- free money funds rose a mere 35 basis
points. The primary contributor to the unresponsive municipal market was the
scarcity of new issue supply. Supply of short-term municipal securities is
quite cyclical, and depends on an issuer's fiscal year, which generally runs
from July 1 to June 30. As a result, supply typically remains light in the
months leading up to June and dramatically increases in the summer months, as
issuers prepare to fund their upcoming budgetary needs in the new fiscal year.
This lack of supply experienced during a period of rising rates in the broader
taxable markets enabled short-term municipal yields to maintain relative
stability. As technical supply factors temporarily have been depressing yields
on short-term municipal securities, we have been targeting a low average
weighted maturity for the tax-exempt money funds of 45 to 60 days. Our
Portfolios should be commensurately more responsive when new issue supply
surges and interest rates rise. We expect the shift from scarcity to abundance
will occur within weeks.
While the market focused on an accelerating economy and the rise in
interest rates, the Securities and Exchange Commission quietly launched its own
initiative to ensure the net asset value safety of tax-exempt money funds,
consistent with those already applicable to taxable money funds. In fact, the
SEC has proposed regulations that coincide with (or in some cases are less
restrictive than) our conservative approach to managing money market funds.
Thus, they will have little impact on the Vanguard Money Market Portfolios. We
believe that the Commission's proposals, if adopted, will be a positive force
in elevating industrywide portfolio standards.
In conclusion, the upcoming months could potentially bring about
significant regulatory and economic changes in our market. While keeping a
watchful eye on the actions of the Federal Reserve Board and maintaining our
conservative investment approach, we look forward to capitalizing on any
opportunities that may result.
Sincerely,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela E. Wisehaupt
Vice President
David E. Hamlin
Assistant Vice President
Reid O. Smith
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Vanguard Fixed Income Group
June 13, 1994
5
<PAGE> 6
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
May 31, 1994
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
- - -----------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (98.4%)
- - -----------------------------------------------------------------------
ISSUER INSURED (80.9%)
Atlantic City Board of Education
6.125%, 12/1/11 (2) $ 1,700 $ 1,728
6.15%, 12/1/12 (2) 2,500 2,546
Atlantic County COP
7.30%, 3/1/05 (3) 2,000 2,291
7.30%, 3/1/06 (3) 1,800 2,074
7.40%, 3/1/10 (3) 1,755 2,018
7.40%, 3/1/11 (3) 4,025 4,643
6.00%, 3/1/14 (3) 3,685 3,672
6.00%, 3/1/15 (3) 1,480 1,475
Bayshore Regional Sewer Auth.
5.40%, 5/1/12 (1) 500 470
Bergen County Utilities Auth.
PCR 5.75%, 12/15/05 (3) 2,000 2,068
PCR 5.50%, 12/15/15 (3) 15,750 14,732
(Solid Waste)
5.50%, 6/15/13 (3) 9,000 8,493
Bordentown Sewer Auth.
5.375%, 12/1/15 (1) 6,250 5,753
5.40%, 12/1/20 (1) 1,400 1,282
6.80%, 12/1/25 (1) 3,500 3,706
Brick Township Municipal
Utilities Auth.
6.50%, 12/1/12 (2) 1,000 1,046
Camden County GO
5.00%, 2/1/10 (3) 1,500 1,366
5.00%, 2/1/11 (3) 2,950 2,659
Camden County Municipal Utilities
Auth. Sewer Rev.
0.00%, 9/1/04(3) 8,345 4,733
0.00%, 9/1/05 (3) 18,545 9,865
0.00%, 9/1/06 (3) 18,545 9,238
8.25%, 12/1/17 (3) 850 958
Cape May County Industrial
Development Auth.
(Atlantic City Electric)
6.80%, 3/1/21 (1) 15,400 17,162
Cape May County Municipal
Utility Auth.
5.75%, 1/1/16 (1) 11,225 10,808
Delaware River Port Auth.
7.375%, 1/1/07(2) 9,500 10,429
6.50%, 1/1/09 (2) 3,500 3,584
Edison Township GO
7.10%, 1/1/95 (2) 1,715 1,748
Elizabeth City Fiscal Year
Adjustment Bonds
6.60%, 8/1/06(1) 8,750 9,383
Essex County Improvement
Auth. Lease Rev. GO
7.00%, 12/1/00 (2) (Prere.) 5,000 5,598
5.50%, 12/1/08 (2) 2,560 2,515
5.50%, 12/1/13 (2) 7,500 7,072
Essex County Improvement Auth.
Township of Irvington GO
6.625%, 10/1/02 (4) (Prere.) 7,000 7,734
Evesham Municipal Utility Auth.
7.00%, 7/1/10 (1) 1,700 1,807
7.00%, 7/1/15 (1) 450 478
Gloucester Township GO
5.75%, 7/15/10 (2) 2,880 2,859
Gloucester Township Municipal
Utilities Auth.
5.65%, 3/1/18 (2) 2,755 2,623
Hamilton Township Municipal
Utility Auth.
6.00%, 8/15/17 (3) 1,000 995
Hoboken-Union City-Weehawken
Sewer Auth.
0.00%, 8/1/03 (1) 3,800 2,305
0.00%, 8/1/04 (1) 3,750 2,137
0.00%, 8/1/05 (1) 3,805 2,034
0.00%, 8/1/06 (1) 2,000 1,001
6.25%, 8/1/13 (1) 9,590 10,084
Hudson County Correctional
Facility COP
6.30%, 6/1/04 (1) 1,720 1,811
6.30%, 12/1/04 (1) 1,770 1,866
6.50%, 12/1/11 (1) 9,000 9,388
6.60%, 12/1/21 (1) 1,000 1,044
Hudson County General
Improvement GO
6.55%, 7/1/04 (3) 1,300 1,430
6.55%, 7/1/05 (3) 1,290 1,415
6.55%, 7/1/06 (3) 700 762
6.55%, 7/1/07 (3) 1,300 1,407
6.55%, 7/1/09 (3) 635 684
Hudson County Improvement
Auth. Lease
6.00%, 12/1/12 (3) 10,000 10,046
Irvington Township GO
0.00%, 8/1/07 (1) 1,000 467
0.00%, 8/1/09 (1) 2,580 1,048
0.00%, 8/1/10 (1) 2,080 790
Jersey City Water Auth. GO
7.60%, 10/1/12 (2) 700 772
7.60%, 10/1/13 (2) 700 772
Lacey Township Municipal
Utility Auth.
7.00%, 12/1/99 (6) (Prere.) 3,000 3,333
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -----------------------------------------------------------------------
<S> <C> <C>
Lacey Township Municipal
Water Auth.
6.25%, 12/1/24 (1) $ 2,255 $ 2,252
Manchester Township Board of
Education COP
7.20%, 12/15/99 (1) (Prere.) 1,000 1,112
Middlesex County Utility Auth.
6.75%, 8/15/09 (2) 3,500 3,672
6.50%, 9/15/11 (3) 6,300 6,551
Millville Board of Education GO
5.30%, 8/1/04 (2) 1,100 1,102
5.30%, 8/1/05 (2) 1,100 1,093
5.30%, 8/1/06 (2) 1,100 1,089
5.30%, 8/1/07 (2) 1,067 1,043
Monmouth County Improvement Auth.
6.875%, 8/1/00 (1) (Prere.) 2,700 2,995
5.00%, 2/1/13 (1) 750 664
6.75%, 2/1/13 (1) 1,250 1,379
Monroe Township Municipal
Utility Auth.
6.875%, 2/1/17 (1) 1,700 1,795
Mount Laurel Township Municipal
Utility Auth.
6.00%, 7/1/15 (1) 4,250 4,240
Muscanectong Sewer Auth.
7.15%, 1/1/00 (1) (Prere.) 1,000 1,114
New Brunswick Housing & Urban
Development
6.00%, 7/1/12 (1) 6,000 6,013
5.75%, 7/1/24 (1) 8,640 8,196
New Brunswick Housing Auth.
5.50%, 8/1/16 (1) 525 473
New Brunswick Parking Auth.
5.40%, 9/1/15 (3) 1,000 920
New Jersey Economic Development
Auth. (Hackensack Water)
7.00%, 1/1/19 (2) 2,400 2,561
New Jersey Educational
Facilities Auth.
(Kean College)
6.60%, 7/1/21 (1) 3,700 3,838
(NJ Institute of Technology)
6.25%, 7/1/11 (2) 5,165 5,287
(Rider College)
6.20%, 7/1/17 (2) 4,000 4,041
(Trenton State College)
6.00%, 7/1/12 (2) 3,005 3,023
6.00%, 7/1/19 (2) 7,250 7,194
New Jersey Health Care
Facilities Auth.
(Bridgeton & Millville Hosp.)
7.875%, 7/1/10 (1) 3,305 3,654
(Burdette Tomlin Memorial Hosp.)
6.50%, 7/1/12 (3) 1,500 1,551
(Community Medical Center)
7.00%, 7/1/20 (1) 2,850 3,052
(Hackensack Medical Center)
6.625%, 7/1/11 (3) 3,000 3,134
(Helene Fuld Medical Center)
6.60%, 7/1/21 (2) 4,080 4,200
(Jersey Shore Medical Center)
8.00%, 7/1/18 (2) 1,905 2,130
(Memorial Health Alliance)
6.25%, 7/1/10 (3) 8,000 8,157
(Mercer Medical Center)
6.25%, 7/1/06 (1) 1,685 1,761
6.50%, 7/1/10 (1) 6,000 6,199
(Mountainside Hosp.)
2.85%, 7/1/94 (1) 1,070 1,070
3.45%, 7/1/95 (1) 1,620 1,613
5.35%, 7/1/07 (1) 3,215 3,144
5.50%, 7/1/14 (1) 3,975 3,690
(Muhlenberg Medical Center)
8.00%, 7/1/18 (2) 750 838
(Riverview Medical Center)
6.25%, 7/1/10 (2) 2,935 3,031
(Shore Memorial Hosp.)
7.875%, 7/1/12 (1) 750 833
(Society of the Valley Hosp.)
6.625%, 7/1/10 (1) 2,750 2,853
(Somerset Medical Center)
5.20%, 7/1/24 (3) 10,785 9,283
(St. Clare's Riverside
Medical Center)
7.75%, 7/1/14 (6) 5,800 6,388
(West Jersey Health System)
6.00%, 7/1/09 (1) 5,175 5,221
6.125%, 7/1/12 (1) 1,000 1,008
New Jersey Housing and Mortgage
Finance Agency
7.875%, 10/1/17 (1) 450 471
New Jersey Sports &
Exposition Auth. VRDO
2.60%, 9/1/94 (1) 7,600 7,600
New Jersey Turnpike Auth. VRDO
2.60%, 7/1/94 (3) 5,500 5,500
6.50%, 1/1/13 (1) 20,000 21,225
6.50%, 1/1/16 (1) 18,250 19,208
Newark General Improvement
5.30%, 10/1/06 (2) 1,710 1,693
5.40%, 10/1/07 (2) 1,685 1,666
5.50%, 10/1/08 (2) 1,660 1,634
Newark Water Utility
5.30%, 10/1/06 (2) 2,625 2,599
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -----------------------------------------------------------------------
<S> <C> <C>
North Bergen GO
8.00%, 8/15/06 (4) $ 1,885 $ 2,311
North Jersey Water Dist.
6.00%, 7/1/12 (1) 10,125 10,214
Northwest Bergen County
Utility Auth.
6.00%, 7/15/13 (1) 2,050 2,065
Ocean County Utilities Waste
Water Rev.
6.75%, 1/1/13 (3) 14,810 15,455
5.00%, 1/1/14 (3) 2,000 1,740
6.60%, 1/1/18 (3) (ETM) 2,500 2,825
6.60%, 1/1/18 (3) 4,000 4,154
Ocean Township Municipal
Utility Auth.
6.00%, 8/1/17 (1) 3,975 3,950
Old Bridge Municipal Utility Auth.
6.40%, 11/1/09 (3) 3,000 3,137
6.25%, 11/1/16 (3) 1,400 1,425
Passaic Valley Sewer Comm.
7.10%, 12/1/97 (2) (Prere.) 6,785 7,438
5.75%, 12/1/08 (2) 4,450 4,457
5.75%, 12/1/13 (2) 2,500 2,431
Plainfield GO
6.25%, 7/15/07 (2) 6,930 7,236
Roselle GO
5.05%, 10/15/07 (1) 1,435 1,355
5.10%, 10/15/08 (1) 1,405 1,319
Salem County Improvement Auth.
7.125%, 5/1/99 (2) (Prere.) 1,000 1,108
Salem County Pollution Control
Finance Auth.
(Public Service Electric & Gas)
5.70%, 5/1/28 (1) 5,000 4,556
5.55%, 11/1/33 (1) 8,000 7,088
South Jersey Transportation Auth.
5.80%, 11/1/05 (1) 1,645 1,690
5.90%, 11/1/06 (1) 3,435 3,529
5.90%, 11/1/07 (1) 2,545 2,590
6.00%, 11/1/12 (1) 5,250 5,262
South Monmouth Sewer Auth.
6.00%, 1/15/14 (1) 400 399
Stafford Municipal Utility Auth.
5.50%, 6/1/11 (3) 3,100 2,958
Sussex County Solid Waste Rev.
5.75%, 12/1/09 (1) 19,820 19,699
Sussex Municipal Utility Auth.
5.25%, 12/1/08 (1) 1,150 1,097
5.375%, 12/1/14 (1) 2,000 1,854
West Windsor-Plainsboro School
Dist. COP
7.60%, 3/15/97 (6) (Prere.) 5,000 5,461
5.875%, 3/15/07 (1) 1,390 1,411
5.875%, 3/15/08 (1) 1,465 1,477
OUTSIDE NEW JERSEY:
Puerto Rico Public Building Auth.
0.00%, 7/1/02 (3) 4,000 2,595
-------
GROUP TOTAL 566,546
-------
- - -----------------------------------------------------------------------
PORTFOLIO INSURED (.2%)
Rutgers State Univ.
7.375%, 5/1/96 (Prere.) 1,500 1,609
-------
- - -----------------------------------------------------------------------
SECONDARY MARKET INSURED (7.7%)
Atlantic County Utility
6.875%, 1/1/12 (2) (ETM) 3,000 3,360
New Jersey Educational Facilities
Auth. (Montclair State College)
7.20%, 7/1/10 (1) 1,000 1,065
New Jersey Highway Auth.
(Garden State Parkway)
6.20%, 1/1/10 (2) 20,000 20,791
6.00%, 1/1/16 (2) 5,000 4,982
New Jersey Sports &
Exposition Auth.
6.50%, 3/1/13 (1) 10,000 10,745
Port Auth. of New York &
New Jersey
6.875%, 1/1/25 (2) 8,200 8,582
Univ. of Medicine & Dentistry
6.50%, 12/1/12 (1) 4,000 4,296
-------
GROUP TOTAL 53,821
-------
- - -----------------------------------------------------------------------
NON-INSURED (9.6%)
Burlington County Bridge Comm.
5.30%, 10/1/13 9,500 8,618
Cherry Hill Township GO
6.30%, 6/1/12 4,745 4,876
Delaware River & Bay Auth.
4.50%, 1/1/95 4,000 4,021
Mercer County Improvement Auth.
5.75%, 12/15/07 1,110 1,119
5.75%, 12/15/08 1,165 1,164
5.95%, 12/15/12 4,895 4,900
6.00%, 12/1/14 1,000 1,007
Monmouth County Improvement
Auth. GO (Correctional Facilities)
6.40%, 8/1/11 1,850 1,916
New Jersey Economic Development
Auth. VRDO (Dow Chemical)
2.90%, 6/1/94 200 200
New Jersey Housing & Mortgage
Finance Agency
3.40%, 3/29/95* 8,000 7,979
New Jersey TRAN
3.00%, 6/15/94 17,100 17,097
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -----------------------------------------------------------------------
<S> <C> <C>
Rutgers State Univ. GO
6.40%, 5/1/13 $3,000 $ 3,176
OUTSIDE NEW JERSEY:
Puerto Rico Electric Power Auth.
9.00%, 7/1/95 (Prere.) 4,750 5,141
Puerto Rico Govt.
Development Bank VRDO
2.60%, 6/1/94 5,900 5,900
--------
GROUP TOTAL 67,114
--------
- - -----------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $667,434) 689,090
- - -----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.6%)
- - -----------------------------------------------------------------------
Other Assets--Note B 15,767
Liabilities (4,777)
-------
10,990
- - -----------------------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------------------
Applicable to 62,624,656 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $700,080
- - -----------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.18
=======================================================================
</TABLE>
+ See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 11.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - -----------------------------------------------------------------------
Amount Per
(000) Share
------ -----
<S> <C> <C>
Paid in Capital $673,138 $10.75
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 3,843 .06
Unrealized Appreciation
of Investments--Note D 23,099 .37
- - -----------------------------------------------------------------------
NET ASSETS $700,080 $11.18
- - -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
- - -----------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (99.1%)
- - -----------------------------------------------------------------------
Bergen County BAN
2.82%, 6/28/94 $10,000 $10,000
Bergen County GO
5.80%, 7/15/94 3,300 3,312
Bergenfield BAN
3.25%, 1/12/95 2,534 2,543
Bloomfield Township BAN
2.99%, 11/15/94 7,000 7,001
Burlington County BAN
3.00%, 11/4/94 2,500 2,502
Burlington County GO
4.35%, 10/15/94 1,750 1,761
Cherry Hill Township BAN
3.00%, 12/14/94 8,794 8,812
Denville Township BAN
3.00%, 12/29/94 6,080 6,097
East Brunswick Township BAN
3.00%, 6/24/94 1,250 1,250
Essex County Improvement
Auth. Pooled Govt. Loan VRDO
2.95%, 6/1/94 35,250 35,250
Fair Lawn Borough BAN
3.50%, 12/16/94 4,011 4,031
Freehold BAN
3.50%, 12/14/94 5,905 5,934
Gloucester County PCR VRDO
(Mobil Oil Corp.)
2.55%, 6/1/94 12,500 12,500
Hunterdon County BAN
2.53%, 8/31/94 8,325 8,326
Mendham Township BAN
3.25%, 10/28/94 1,000 1,002
Middlesex County GO
2.75%, 7/15/94 1,000 1,000
Monmouth County GO
5.00%, 7/1/94 1,320 1,323
6.75%, 9/15/94 1,300 1,316
Monmouth County Improvement
Auth. Pooled Govt. Loan VRDO
2.80%, 6/1/94 30,000 30,000
Newark GO
3.45%, 10/1/94 (2) 865 867
New Jersey Economic
Development Auth. CP
(Chambers Cogeneration)
2.55%, 6/2/94 17,600 17,600
2.65%, 6/9/94 7,100 7,100
3.00%, 7/14/94 5,000 5,000
(Exxon Corp.)
3.05%, 10/3/94 6,700 6,700
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -----------------------------------------------------------------------
<S> <C> <C>
(Keystone Project)
2.45%, 6/1/94 $14,000 $14,000
2.35%, 6/7/94 5,300 5,300
New Jersey Economic Development
Auth. VRDO TOB
2.70%, 6/2/94 15,000 15,000
(Dow Chemical Co.)
2.90%, 6/1/94 5,300 5,300
(Makita Corp.)
2.80%, 6/1/94 3,700 3,700
New Jersey Educational Facilities
Auth. College & Univ. Capital
Improvement VRDO
2.60%, 6/1/94 (3) 2,450 2,450
New Jersey GO
TOB VRDO 2.89%, 6/2/94 9,370 9,370
5.80%, 8/1/94 (ETM) 1,000 1,005
TOB 2.85%, 8/15/94* 19,000 19,000
8.50%, 10/1/94 (ETM) 1,345 1,371
8.90%, 10/1/94 (Prere.) 2,000 2,080
6.80%, 4/15/95 (ETM) 4,000 4,120
New Jersey Health Care
Facilities Auth.
(Pooled Capital Assets)
VRDO 2.80%, 6/2/94 38,100 38,100
(Carrier Foundation) VRDO
2.60%, 6/1/94 (3) 5,100 5,100
(Hackensack Medical Center)
5.00%, 7/1/94 (3) 5,350 5,360
(Mountainside Hosp.)
2.85%, 7/1/94 (1) 1,000 1,000
New Jersey Housing Finance
Agency TOB VRDO
3.05%, 6/2/94 (1) 8,900 8,900
New Jersey Housing & Mortgage Finance
Agency 2.90%, 9/29/94* 13,200 13,200
New Jersey Sports &
Exposition Auth. VRDO
2.60%, 6/2/94 (1) 32,800 32,800
New Jersey State Highway Auth.
(Garden State Parkway)
10.00%, 1/1/95 (Prere.) 4,150 4,402
10.50%, 1/1/95 (Prere.) 2,500 2,663
New Jersey TRAN
3.00%, 6/15/94 57,650 57,659
New Jersey Transportation Trust
3.50%, 6/15/94 20,000 19,955
New Jersey Turnpike Auth. VRDO
2.60%, 6/1/94 (3) 61,800 61,800
Passaic County BAN
2.75%, 6/7/94 1,800 1,800
3.25%, 7/7/94 33,000 33,022
3.75%, 4/6/95 11,000 11,045
Piscataway Township BAN
3.125%, 9/9/94 6,310 6,318
Port Auth. of New York &
New Jersey CP
2.40%, 6/1/94 7,455 7,455
2.55%, 6/2/94 2,560 2,560
2.95%, 6/8/94 15,610 15,610
2.90%, 7/13/94 1,245 1,245
2.75%, 7/19/94 5,500 5,500
2.90%, 7/19/94 1,540 1,540
3.05%, 7/21/94 4,695 4,695
3.20%, 7/21/94 15,130 15,130
3.10%, 8/9/94 1,480 1,480
3.05%, 8/11/94 1,030 1,030
Port Auth. of New York &
New Jersey Rev.
2.70%, 10/1/94 14,000 13,999
Port Auth. of New York &
New Jersey VRDO
(Kiac Partners)
2.70%, 6/1/94 51,000 51,000
Randolph Township BAN
3.00%, 6/24/94 4,658 4,659
Salem County PCR CP
(Philadelphia Electric)
2.45%, 6/1/94 5,000 5,000
Sussex County BAN
3.25%, 6/28/94 6,650 6,653
Union County PCR
Finance Auth. VRDO
(Exxon Corp.)
2.70%, 6/7/94 8,000 8,000
2.80%, 6/7/94 6,000 6,000
3.20%, 9/29/94 12,000 12,000
Wayne Township BAN
3.00%, 6/15/94 4,600 4,601
OUTSIDE NEW JERSEY:
Puerto Rico Electric Power Auth.
10.25%, 7/1/94 (Prere.) 6,725 6,969
Puerto Rico Govt.
Development Bank VRDO
2.60%, 6/1/94 28,550 28,550
Puerto Rico Highway &
Transportation Auth. VRDO
2.55%, 6/1/94 25,600 25,600
- - -----------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $796,323) 796,323
- - -----------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
(000)+
- - -----------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (.9%)
- - -----------------------------------------------------------------------
Other Assets--Note B $21,327
Liabilities (14,194)
--------
7,133
- - -----------------------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------------------
Applicable to 803,472,593 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $803,456
- - -----------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
=======================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - -----------------------------------------------------------------------
Amount Per
(000) Share
-------- -----
<S> <C> <C>
Paid in Capital $803,485 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (29) --
Unrealized Appreciation
of Investments -- --
- - -----------------------------------------------------------------------
NET ASSETS $803,456 $1.00
- - -----------------------------------------------------------------------
</TABLE>
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(5) CGI (Capital Guaranty Insurance)
(6) BIGI (Bond Investors Guaranty Insurance)
(7) Connie Lee Inc.
(8) FHA (Federal Housing Authority)
BAN--Bond Anticipation Note
COP--Certificate of Participation
CP--Commercial Paper
GO--General Obligation
IDR--Industrial Development Revenue
PCR--Pollution Control Revenue
RAN--Revenue Anticipation Note
TAN--Tax Anticipation Note
TOB--Tender Option Bond
TRAN--Tax Revenue Anticipation Note
VRDO--Variable Rate Demand Obligation
(ETM)--Escrowed to Maturity
(Prere.)--Prerefunded
*Put Option Obligation.
11
<PAGE> 12
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED LONG-TERM MONEY MARKET
PORTFOLIO PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
May 31, 1994 May 31, 1994
(000) (000)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . $20,581 $9,285
- - ------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . 20,581 9,285
- - ------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . $ 40 $ 40
Management and Administrative . . . . . . . . . 642 661
Marketing and Distribution . . . . . . . . . . 83 765 104 805
----- -----
Insurance Expense . . . . . . . . . . . . . . . . 2 --
Auditing Fees . . . . . . . . . . . . . . . . . . 4 4
Shareholders' Reports . . . . . . . . . . . . . . 16 18
Annual Meeting and Proxy Costs . . . . . . . . . . 1 2
Trustees' Fees and Expenses . . . . . . . . . . . 2 2
- - ------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . 790 831
- - ------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 19,791 8,454
- - ------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . 2,934 (31)
Futures Contracts . . . . . . . . . . . . . . . . 4,148 --
- - ------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . 7,082 (31)
- - ------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . (42,793) --
Futures Contracts . . . . . . . . . . . . . . . . 798 --
- - ------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . (41,995) --
- - ------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . $(15,122) $8,423
==================================================================================================================
</TABLE>
12
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- - ------------------------------------------------------------------------------------------
SIX MONTHS Year Ended
ENDED November 30,
MAY 31, 1994 1993
(000) (000)
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . $ 19,791 $,737,680
Realized Net Gain (Loss) . . . . . . . . . . . . . . . 7,082 754
Change in Unrealized Appreciation (Depreciation) . . . (41,995) 39,488
- - ------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations . . . . . . . . . . . . . . . . . (15,122) 77,922
- - ------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . (19,791) (37,680)
Realized Net Gain . . . . . . . . . . . . . . . . . . . (3,994) (7,008)
- - ------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . (23,785) (44,688)
- - ------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . 71,064 205,923
-- In Lieu of Cash Distributions . . . . . 19,020 36,036
-- Exchange . . . . . . . . . . . . . . . 34,272 76,871
Redeemed -- Regular . . . . . . . . . . . . . . . . (57,071) (93,405)
-- Exchange . . . . . . . . . . . . . . . (76,429) (82,075)
- - ------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions . . . . . . . . . . . . . . . . . (9,144) 143,350
- - ------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . (48,051) 176,584
- - ------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . 748,131 571,547
- - ------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . $700,080 $748,131
==========================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . $.311 $.637
Realized Net Gain . . . . . . . . . . . . . . . . . $.063 $.135
- - -----------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . 9,084 24,358
Issued in Lieu of Cash Distributions . . . . . . . 1,647 3,114
Redeemed . . . . . . . . . . . . . . . . . . . . . (11,653) (15,067)
- - ------------------------------------------------------------------------------------------
(922) 12,405
- - ------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- - ------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended
ENDED November 30,
MAY 31, 1994 1993
(000) (000)
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . $ 8,454 $ 15,397
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . (31) 2
Change in Unrealized Appreciation (Depreciation) . . . . . . . -- --
- - ------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations . . . . . . . . . . . . . . . . . . . . . . 8,423 15,399
- - ------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . (8,454) (15,397)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . -- --
- - ------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . (8,454) (15,397)
- - -------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . 280,479 551,033
-- In Lieu of Cash Distributions . . . . . . . . . 8,045 14,556
-- Exchange . . . . . . . . . . . . . . . . . . . 134,020 130,139
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . (264,654) (458,197)
-- Exchange . . . . . . . . . . . . . . . . . . . (78,215) (140,713)
- - -------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions . . . . . . . . . . . . . . . . . . . . . 79,675 96,818
- - ------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . 79,644 96,820
- - ------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . 723,812 626,992
- - ------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . $803,456 $723,812
================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . $.011 $.023
Realized Net Gain . . . . . . . . . . . . . . . . . . . . -- --
- - ------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . 414,499 681,172
Issued in Lieu of Cash Distributions . . . . . . . . . . . 8,045 14,556
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . (342,869) (598,910)
- - ------------------------------------------------------------------------------------------------
79,675 96,818
- - ------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED --------------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31,1994 1993 1992 1991 1990 1989
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $11.77 $11.18 $10.75 $10.51 $10.45 $10.01
------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .311 .637 .659 .676 .692 .708
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . (.527) .725 .438 .245 .073 .440
------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . (.216) 1.362 1.097 .921 .765 1.148
- - -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . (.311) (.637) (.659) (.676) (.692) (.708)
Distributions from Realized Capital Gains . . . . . . . (.063) (.135) (.008) (.005) (.013) --
------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.374) (.772) (.667) (.681) (.705) (.708)
- - -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $11.18 $11.77 $11.18 $10.75 $10.51 $10.45
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . -1.90% +12.53% +10.48% +9.01% +7.66% +11.80%
- - -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . $700 $748 $572 $434 $245 $129
Ratio of Expenses to Average Net Assets . . . . . . . . . .22%* .20% .25% .24%+ .25%+ .24%+
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . . . . . . . . . . . . . . . 5.39%* 5.47% 5.99% 6.33% 6.73% 6.88%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 11%* 12% 34% 18% 7% 0%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+Insurance expense represents .01%, .01% and .02%.
*Annualized.
15
<PAGE> 16
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED -----------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31,1994 1993 1992 1991 1990 1989
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .011 .023 .030 .045 .056 .062
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . .011 .023 .030 .045 .056 .062
- - ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . (.011) (.023) (.030) (.045) (.056) (.062)
Distributions from Realized Capital Gains . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.011) (.023) (.030) (.045) (.056) (.062)
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . +1.10% +2.31% +3.04% +4.54% +5.78% +6.33%
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . $803 $724 $627 $547 $464 $259
Ratio of Expenses to Average Net Assets . . . . . . . . . .22%* .20% .24% .24% .24% .23%
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . . . . . . . . . . . . . . . 2.19%* 2.29% 2.98% 4.43% 5.61% 6.16%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . N/A N/A N/A N/A N/A N/A
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Vanguard New Jersey Tax-Free Fund is registered under the Investment Company
Act of 1940 as an open-end investment company and consists of the Insured
Long-Term and Money Market 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 Jersey.
* A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Money Market Portfolio: investment securities are
stated at amortized cost which approximates market value. Insured
Long-Term Portfolio: municipal bonds are valued utilizing primarily the
latest bid prices or, if bid prices are not available, on the basis of
valuations based on a matrix system (which considers such factors as
security prices, yields, maturities, and ratings), both as furnished by an
independent pricing service.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
income. Accordingly, no provision for Federal income taxes is required in
the financial statements.
3. FUTURES: The Insured Long-Term Portfolio utilizes futures contracts to a
limited extent. The primary risks associated with the use of futures
contracts are imperfect correlation between the change in market value of
the 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. Fluctuations in the value of
futures contracts are recorded as unrealized appreciation (depreciation)
until terminated at which time realized gains (losses) are recognized.
Unrealized appreciation (depreciation) related to open futures contracts
is required to be treated as realized gain (loss) for Federal income tax
purposes.
4. DISTRIBUTIONS: Distributions from net investment income are declared on a
daily basis payable on the first business day of the following month.
Annual distributions from realized gains, if any, are recorded on the
ex-dividend date. Capital gain 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.
5. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of 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, Inc. furnishes at cost investment advisory, corporate
management, administrative, marketing and distribution services. The costs
of such services are allocated to the Fund under methods approved by the
Board of Trustees. The Fund has contributed capital aggregating $240,000
to Vanguard (included in Other Assets), representing 1.2% of Vanguard's
capitalization. The Fund's officers and trustees are also officers and
directors of Vanguard.
* C. During the six months ended May 31, 1994, the Insured Long-Term Portfolio
made purchases of $38,672,000 and sales of $40,290,000 of investment
securities other than temporary cash investments.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (continued)
* D. At May 31, 1994, unrealized appreciation of investment securities of the
Insured Long-Term Portfolio for financial reporting and Federal income tax
purposes aggregated $21,656,000 of which $28,729,000 related to
appreciated securities and $7,073,000 related to depreciated securities.
At May 31, 1994, the Insured Long-Term Portfolio had long positions in
Municipal Bond Index futures contracts expiring in June 1994, with an
aggregate settlement value and net unrealized depreciation of $29,992,000
and $1,256,000, respectively. The aggregate settlement value and net
unrealized appreciation related to short positions in U.S. Treasury Bond
futures contracts expiring through September 1994 were $73,150,000 and
$2,699,000, respectively. The market value of securities deposited as
initial margin for open futures contracts was $2,103,000.
18
<PAGE> 19
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer Chairman and Director of
The Vanguard Group, Inc., and of each of the investment companies in The
Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc Rorer
Inc.; Director of Sun Company, Inc. and Immune Response Corporation; Trustee of
the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight- Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., and The Southern New England Telephone
Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
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 Company
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.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas
Company; Director of Cummins Engine Company; Trustee of Vanderbilt University
and the Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
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.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
19
<PAGE> 20
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q142-05/94
VANGUARD
NEW JERSEY
TAX-FREE FUND
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
MAY 31, 1994
<PAGE> 21
EDGAR APPENDIX
The back cover of the printed version of this report features the flags of
the United States of America and Vanguard flying from a halyard.
