<PAGE> 1
VANGUARD
NEW JERSEY
TAX-FREE FUND
ANNUAL REPORT 1993
[PHOTO]
<PAGE> 2
A BRAVE NEW WORLD FOR INVESTING
With the clarity of hindsight, we can now see that the past two decades
composed one of the great cycles in the history of the financial markets, as
reflected in the chart below.
* During the 1973-1982 decade, the nominal total returns (capital change
plus income) of stocks and bonds averaged only about +6% per year;
cash reserves averaged more than +8% annually. However, high
inflation rates, averaging 8.7% annually, devastated these nominal
results. Real returns (nominal returns less the inflation rate) for
each of these three major asset classes were actually negative.
* During the 1983-1992 decade, quite the opposite situation prevailed.
Nominal returns for stocks and bonds were close to their highest
levels in history and forged well into double-digit territory. To
make a good investment environment even better, inflation was tame
(averaging 3.8% annually), and real returns were solidly positive.
[A TALE OF TWO DECADES BAR GRAPH -- SEE EDGAR APPENDIX]
This sharp contrast provides us with perspective for the decade that will end
in the year 2002. Some investors will fear a recurrence of the returns of the
first decade, while others will hope for a recurrence of the second; most will
likely anticipate something in between. Whatever the case, there are two
essential elements involved in considering your investment program in the light
of today's circumstances.
First, the yield of each investment class at the start of a decade has had
an important relationship to its future return. Yields were low when 1973
began, high when 1983 began, and are again low today. In fact, current income
yields are remarkably close to the levels of 20 years ago, as shown in the
following table.
<TABLE>
<CAPTION>
INCOME YIELDS (January 1)
-------------------------------------------------
1973 1983 1993 (11/30)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS 2.7% 4.9% 2.7%
BONDS 5.8 10.7 6.0
RESERVES 3.8 10.5 3.1
- ------------------------------------------------------------------------------
</TABLE>
But there is a second important element to consider: inflation. It got
progressively worse during most of the first decade, but got progressively
better in the second.
<TABLE>
<CAPTION>
-------------------------------------------------
1973 1981 1993 (11/30)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
INFLATION 3.4% 12.4% 2.7%
- ------------------------------------------------------------------------------
</TABLE>
Today's low yield levels suggest that more modest nominal returns are in
prospect for the coming decade than in the 1980s; indeed, returns could
gravitate
(Please turn to inside back cover)
- ------------------------------------------------------------------------------
VANGUARD NEW JERSEY TAX-FREE FUND OFFERS TWO PORTFOLIOS THAT SEEK TO PROVIDE A
HIGH LEVEL OF INCOME THAT IS EXEMPT FROM FEDERAL AS WELL AS NEW JERSEY STATE
PERSONAL INCOME TAXES. THE INSURED LONG-TERM PORTFOLIO INVESTS PRIMARILY IN
INSURED LONG-TERM MUNICIPAL BONDS. THE MONEY MARKET PORTFOLIO SEEKS TO MAINTAIN
A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE ALONG WITH REASONABLE CURRENT
INCOME.
<PAGE> 3
CHAIRMAN'S LETTER
[PHOTO]
DEAR SHAREHOLDER:
The decline in interest rates continued--and indeed accelerated--during the
twelve months ended November 30, 1993, the eighth fiscal year of the Vanguard
State Tax-Free Funds. Lower yields pushed the prices of long-term tax-exempt
bonds higher, and the net asset values of our Insured Long-Term Portfolios
benefited accordingly. As rates fell, however, interest income was reduced,
with the most immediate impact felt in our Money Market Portfolios.
Reflecting the low-interest-rate environment that prevailed over the past
twelve months, our Money Market Portfolios provided returns that were modest in
an absolute sense, albeit comfortably above the returns of their respective
competitive benchmarks. The total returns (capital change plus income) of our
Insured Long-Term Portfolios were exemplary, surpassing even the excellent
results that we achieved in our prior fiscal year. It is difficult to imagine a
more beneficial two-year stretch for investors in long-term bonds. In any
event, here are the Portfolio highlights for the past twelve months:
* THE STATE MONEY MARKET PORTFOLIOS--provided total returns of about +2.4% .
. . with declining money market rates for yet another year, Portfolio
yields ended the period at lower levels than where they began, hovering in
the area of 2.3% . . . net asset values, of course, remained at $1.00 per
share.
* THE STATE INSURED LONG-TERM PORTFOLIOS--enjoyed another outstanding year
"across the board," as each Portfolio turned in a double-digit return
ranging from +12% to +13% . . . current yields are at their lowest levels
in our Funds' (admittedly rather short) history.
The detailed results for each of our State Tax-Free Portfolios, including
per share net asset values, dividends and capital gains distributions for the
fiscal year, as well as current yields are presented at the end of this letter.
The following table summarizes the returns for our State Insured Long-Term
Portfolios:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Investment Returns
Twelve Months Ended
November 30, 1993 % of Total
Insured Long-Term --------------------------- Return From
Portfolio Income Capital Total Capital
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA +5.8% +5.7% +11.5% 49%
NEW YORK +6.0 +6.4 +12.4 52
PENNSYLVANIA +6.1 +5.8 +11.9 49
NEW JERSEY +5.9 +6.6 +12.5 52
OHIO +5.7 +6.3 +12.0 52
FLORIDA +5.5 +6.9 +12.4 56
- ------------------------------------------------------------------
</TABLE>
In last year's Annual Report, I called special attention to the substantial
capital component (appreciation in net asset value per share) of the total
returns on our State Insured Long-Term Portfolios. My purpose in doing so at
that time was to advise investors that it seemed unreasonable to expect a
recurrence of these capital returns in fiscal 1993. As shown in the table, this
year the role of capital appreciation in our Portfolios' results turned out to
be even more dramatic, accounting on balance for some 50% of our total returns.
(continued)
1
<PAGE> 4
[MONTH-END YIELDS CHART -- SEE EDGAR APPENDIX]
Although my cautionary words one year ago could hardly have been
further off the mark, I nonetheless would remind shareholders that capital
returns of the magnitude shown in the preceding table simply cannot be taken
for granted. Indeed, with long-term interest rates at their lowest levels in
two decades, now is a perfect opportunity to remind investors that, should
rates reverse direction and move higher, "capital reward" will inevitably
translate to "capital penalty" for each of our six Insured Long-Term
Portfolios.
The excellent absolute returns for all of our Insured Long-Term Portfolios
in fiscal 1993 come on top of the double-digit returns earned in the prior
fiscal year. The chart at the top of the facing page illustrates the results of
the New Jersey Insured Long-Term Portfolio since its inception in February
1988, compared with the results of the two most appropriate available
benchmarks: the unmanaged Lehman Municipal Bond Index and the average New
Jersey municipal fund. Our returns have been somewhat better than those of the
average competitor and the unmanaged Index. I should also note that the New
Jersey Money Market Portfolio has enjoyed fine relative results since its
inception in February 1988, achieving a cumulative return of +28.8% versus
+28.2% for its average competitor (+4.5% versus +4.4% annually).
* THE FISCAL YEAR IN REVIEW
Our 1993 fiscal year was the sixth consecutive year of favorable markets--and
the third consecutive year of double-digit returns-- for long-term bonds. Lower
yields drove up the prices of municipal, corporate, and U.S. Treasury bonds
alike. Treasury bonds registered the largest rate declines and garnered the
greatest price appreciation, gaining some +17% for the year. Over the same
period, yields on high-grade, long-term, tax-exempt bonds fell 0.70% (70 "basis
points"), from 6.2% to 5.5%, resulting in a price increase of +10%.
Compared to the sharp decline in long-term rates over the past twelve
months, the drop in short-term tax-exempt rates was fairly muted. From the 2.7%
level at the outset of the fiscal year, yields on high-grade (MIG 1) municipal
notes fell to 2.0% in January 1993, climbed to 2.6% at the end of July, and
closed the year at 2.4%.
The consensus holds that the rate decline is based on two fundamental
factors. First, the U.S. economy remains sluggish, unable to provide the
typical post-recession snapback that investors have come to expect. Second, and
perhaps more importantly, there is continuing evidence that inflation remains
well under control. The U.S. consumer price index (CPI) increased 2.7% over the
past twelve months, compared to 3.0% during the prior twelve-month period. As a
result, despite the sharp decline in interest rates, "real" yields (nominal
yields less the inflation rate) on long-term bonds remain at healthy levels.
The chart to the left provides a striking illustration of how precipitous
the decline in interest rates has been over the past four years, with nearly
2
<PAGE> 5
[CUMULATIVE PERFORMANCE CHART -- SEE EDGAR APPENDIX]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended November 30, 1993
- --------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
VANGUARD NJ INSURED LONG-TERM +12.53% +10.29% +9.87%
AVERAGE NJ MUNICIPAL FUND +11.72 + 9.88 +9.37
LEHMAN MUNICIPAL BOND INDEX +11.08 +10.01 +9.42
</TABLE>
* Inception, February 3, 1988. Competitive performance begins on January 31,
1988. Note: Past performance is not predictive of future performance.
nearly all of the decline coming during the final three years. The yield on
high-grade, long-term municipal bonds fell from 7.0% on November 30, 1989, to
5.5% on November 30, 1993. For short-term tax-exempt rates, the decline during
the same period was more pronounced, with the yield on high-grade notes falling
on balance from 5.9% to 2.4%. As a result of this disparity in rate declines,
the "spread" of the long rate over the short rate has widened from 110 basis
points at the beginning of the period to 310 basis points at the end. This
widening reflects a very "steep" yield curve, allowing fixed-income investors
to earn a substantial income premium by extending the maturity of their bond
holdings. It should go without saying that each step out in length of maturity
brings with it additional price volatility.
* THE ADVANTAGE OF TAX-EXEMPT INCOME
In each year's Annual Report, we present our customary table illustrating the
advantage of tax-exempt investments versus taxable investments, after adjusting
for the effect of Federal taxes at the maximum marginal rate on income
payments. Here are the results of the comparison at the end of fiscal 1993:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Illustration of Income on
Hypothetical $100,000 Investment
--------------------------------
Long-Term Short-Term
- ------------------------------------------------------------------------------------
<S> <C> <C>
TAXABLE GROSS INCOME $6,300 $3,200
LESS TAXES (39.6%) (2,500) (1,300)
- ------------------------------------------------------------------------------------
NET AFTER-TAX INCOME $3,800 $1,900
TAX-EXEMPT INCOME 5,500 2,400
- ------------------------------------------------------------------------------------
TAX-EXEMPT ADVANTAGE $1,700 $ 500
- ------------------------------------------------------------------------------------
</TABLE>
Table assumes current yields (as of November 30, 1993) of 6.3% for U.S.
Treasury bonds, 3.2% for Treasury bills, 5.5% for long-term municipals, and
2.4% for short-term municipals. The illustration is not intended to represent
future results.
The advantage spelled out in the table--a 45% increase in after-tax income for
the long-term investor and a 26% increase for the short-term investor--strongly
suggests that investors who are taxed at the highest marginal rates should
consider tax-exempt alternatives for the fixed-income
3
<PAGE> 6
portion of their overall investment portfolio. (I should add that both the
interest earned on our State Tax-Free Portfolios and the interest earned on
U.S. Treasury obligations are exempt from taxes at the state level.)
As I noted earlier, the decline in yields on U.S. Treasury bonds has been
significantly larger than that on tax-exempt bonds. This divergence is
paradoxical considering that it comes just as the maximum marginal federal tax
rate has been raised from 31% to 39.6%--the highest rate since 1986. This
should mean that the spread between taxable and tax-exempt rates would widen;
instead, it has narrowed for long-term investors and remained about the same
for short-term investors.
To be sure, even the highest quality insured state municipal bond cannot
quite match the creditworthiness of a U.S. Treasury bond, and long-term
municipal bonds are usually callable after 10 years, a disadvantage not shared
by Treasury securities. So, the yield comparison has a moderate structural bias
in favor of municipals. But the yield differential illustrated in the table is
hardly "moderate"--it is more like "day and night." Suffice it to say that the
ability of top-tax-bracket investors to earn substantially more after-tax
income with only a marginal sacrifice in quality is unlikely to persist
indefinitely. It is probably fair to say that relative values in tax-exempt
bonds are as great on a sustained basis as they have been for two decades.
* A PERSPECTIVE ON TODAY'S INTEREST RATE ENVIRONMENT
The aggregate assets of all municipal bond mutual funds now total some $350
billion, and the funds are now among the largest buyers and holders of
tax-exempt securities. While, like all mutual funds, our State Insured Tax-Free
Portfolios promise "liquidity on demand" to shareholders, it must be clear that
providing this liquidity depends to a degree on an orderly liquidation pattern
by investors. With the exception of the industry's experience during 1987's
sharp dip in long-term bond prices, resulting from the upward spikes in
interest rates in April and May of that year, the industry's handling of
redemptions has been flawless, and daily liquidity has been maintained without
impacting the marketplace. (Given the very short maturities of money market
instruments, liquidity is much less of a concern in our State Money Market
Portfolios.)
And yet, with rates having come down so far and so fast, there is always
the risk of a sharp rebound. When that happens, investors who have purchased
municipal bond funds for the long term should not be concerned. However, there
appears to be an active body of short-term speculators who move their money
from long-term to short-term bonds at the proverbial drop of a hat. You should
know that at Vanguard we do our best to exclude these speculators from our
funds, by rigorously limiting the frequency of inter-fund exchanges and by
refusing to accept business from known "market timers."
If you are an investor who likes to speculate on interest rate changes, I
urge you to move your assets to one of our many competent competitors. If you
are an investor who will respond with fright to any kind of reversal of the
past five year's rise in bond prices, I urge you to shorten your maturity
profile by, for example, moving a portion of your assets from the more volatile
Insured Long-Term Portfolio for your state to our corresponding Money Market
Portfolio (available in all states but New York and Florida, in which case the
Money Market Portfolio of Vanguard Municipal Bond Fund might be selected). If
you are a long-term investor--content that your needs for capital stability
(with commensurate income volatility) in our Money Market Portfolios and for
income stability (with commensurate capital volatility) in our Insured
Long-Term Portfolios are being met--I urge you, once again, to "stay the
course."
* IN SUMMARY
As I write this letter, the combined assets of the ten Vanguard State Tax-Free
Portfolios are approaching the $8 billion mark, up some 30% in just one year.
This staggering growth is a testament, we believe, to an ever-increasing
understanding among investors
4
<PAGE> 7
that, all else being equal, costs will "carry the day." With the yield on the
average state tax-exempt bond fund at 4.3%, and with 102 of 137 state
tax-exempt money market funds now yielding less than 2.0%, costs will be an
even more critical determinant of the top-performing funds.
This is precisely the kind of environment in which the Vanguard State
Tax-Free Portfolios should thrive. While the average competitive state tax-free
portfolio charges annual fees at the rate of 0.68% of average net assets, the
expense ratio for our Portfolios, at 0.21%, is just a fraction of this amount.
For a money market portfolio with a gross yield of 2.0%, the expenses of the
average competitor would consume nearly 35% of its interest income; Vanguard's
expenses would consume but 11%. It is hard to imagine that intelligent
investors could be attracted to a fund with such a built-in yield disadvantage.
In closing, we believe that, whatever the future course of interest rates,
our State Tax-Free Portfolios will provide returns that generally exceed those
of their respective competitors.
Sincerely,
/S/ JOHN C. BOGLE
- ---------------------
John C. Bogle
Chairman of the Board
December 13, 1993
Note: Mutual fund data from Lipper Analytical Services, Inc.
A WORD ABOUT CAPITAL GAINS DISTRIBUTIONS
You may recall that, during the rising bond markets of each of the past three
years, some of our Insured Long-Term Portfolios realized modest capital gains.
And, it will probably not surprise you to know that each Portfolio realized
capital gains in 1993. These amounts must, under Federal tax regulations, be
distributed to shareholders of our Portfolios as taxable capital gains.
I want to emphasize that it is not our objective to realize capital gains;
rather, these gains are a by-product of a number of factors, including, most
importantly, sharply rising municipal bond prices, bonds that are called or
refunded, and limited portfolio strategy shifts to capitalize on the relative
valuations of different market sectors.
5
<PAGE> 8
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 SEPTEMBER 30, 1993) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
PORTFOLIO (INCEPTION DATE) 1 YEAR 5 YEARS SINCE INCEPTION
- ----------------------------------------- ------- -------- ---------------
<S> <C> <C> <C>
CALIFORNIA INSURED LONG-TERM (4/7/86) +14.53% +10.62% + 8.97%
CALIFORNIA MONEY MARKET (6/1/87) + 2.42 + 4.42 + 4.49
NEW YORK INSURED TAX-FREE (4/7/86) +14.83 +10.78 + 8.41
PENNSYLVANIA INSURED LONG-TERM (4/7/86) +14.32 +10.91 + 9.23
PENNSYLVANIA MONEY MARKET (6/13/88) + 2.41 + 4.53 + 4.58
NEW JERSEY INSURED LONG-TERM (2/3/88) +15.16 +10.78 +10.39
NEW JERSEY MONEY MARKET (2/3/88) + 2.37 + 4.50 + 4.56
OHIO INSURED LONG-TERM (6/18/90) +14.76 -- +12.12
OHIO MONEY MARKET (6/18/90) + 2.38 -- + 3.72
FLORIDA INSURED TAX-FREE (9/1/92) +15.18 -- +15.03
</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 THE MONEY MARKET
PORTFOLIO OF VANGUARD NEW JERSEY TAX-FREE 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 $1.00 PER SHARE.
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL PER SHARE
NET ASSETS ------------------ TWELVE MONTHS
(MILLIONS) AVERAGE AVERAGE NOV. 30, NOV. 30, ------------------------- CURRENT
PORTFOLIO NOV. 30, 1993 MATURITY QUALITY* 1992 1993 DIVIDENDS TOTAL RETURN YIELD**
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA $1,006 73 DAYS MIG 1 $ 1.00 $ 1.00 $.024 + 2.4% 2.32%
PENNSYLVANIA 935 71 DAYS MIG 1 1.00 1.00 .024 + 2.4 2.25
NEW JERSEY 724 58 DAYS MIG 1 1.00 1.00 .023 + 2.3 2.23
OHIO 132 74 DAYS MIG 1 1.00 1.00 .023 + 2.4 2.36
- ----------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA $1,074 11.3 YEARS Aaa $10.89 $11.30 $.803+ +11.5% 4.89%
NEW YORK 807 9.9 YEARS Aaa 10.45 10.97 .739+ +12.4 4.73
PENNSYLVANIA 1,496 8.4 YEARS Aaa 10.96 11.36 .855+ +11.9 4.83
NEW JERSEY 748 9.5 YEARS Aaa 11.18 11.77 .772+ +12.5 4.76
OHIO 166 8.9 YEARS Aaa 11.07 11.61 .753+ +12.0 4.77
FLORIDA 269 10.7 YEARS Aaa 10.16 10.86 .537 +12.4 4.88
- ----------------------------------------------------------------------------------------------------------------
</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 $.199 for California, $.145 for New
York, $.224 for Pennsylvania, $.135 for New Jersey, and $.145 for Ohio.
The shares of each of the Vanguard "single state" Portfolios are available
for purchase solely by residents of the designated states.
6
<PAGE> 9
REPORT FROM THE INVESTMENT ADVISER
STATE INSURED LONG-TERM PORTFOLIOS
* TIME FOR CHANGE?
Just one year ago, President Clinton was elected on a platform of change. Since
that time, the restrictive economic impact of higher taxes has overshadowed the
relatively quiet role played by Federal Reserve policy, and long-term interest
rates have declined precipitously. For the fiscal year ended November 30, 1993,
the yield on the 30-year U.S. Treasury Bond fell 1.2 percentage points (from
7.5% to 6.3%). During the same period, high-grade, long-term municipal yields
fell nearly three-quarters of a percentage point, from 6.2% to 5.5%.
The net result was another year of good performance both for the State
Insured Long-Term Portfolios and the bond market as a whole. In light of the
many successive years of above-average returns by longer-maturity fixed-income
investments, one has to wonder how much longer the rally can last.
* MUNICIPAL BONDS ARE ATTRACTIVE VERSUS TAXABLE BONDS
While municipal bond prices have risen sharply, taxable bond prices have
rallied even more. High-grade tax-exempt bonds currently provide 86% of the
yield on the 30-year U.S. Treasury bond, up from 82% at the beginning of the
year. This "cheapening" has been due primarily to a huge increase in the pace
of municipal bond issuance. Indeed, 1993 municipal supply set an all-time
record of some $290 billion--fully 25% above the previous record set just last
year, and easily twice the volume of a typical year's issuance.
Municipalities of all types have flooded the marketplace to refinance
higher cost debt at today's lower yield levels. We believe this process has run
full course, and suggest that municipal bonds are extremely attractive when
compared to their taxable brethren. The case for municipal bonds is even more
compelling in light of recently increased marginal tax rates.
* INVESTMENT STRATEGY
Given the current environment, the State Insured Long-Term Bond Portfolios are
pursuing the following investment strategies:
* CALL PROTECTION. We continue to emphasize call protection in all of our
longer bond portfolios. This strategy has produced greater price
appreciation as yields have declined. Importantly, it also will insulate
future dividends from an abrupt decline due to bond calls.
* MUNICIPAL VERSUS TREASURY. We have positioned the Portfolios to take
advantage of the exceptionally cheap relationship of municipal bonds
versus Treasury bonds. This positioning has been accomplished by
simultaneously establishing long positions in municipal bond futures
contracts and short positions in Treasury bond futures contracts. Although
this strategy has slightly detracted from annual performance thus far, we
believe it will produce positive results in 1994.
* "LONG AND RIGHT." Over the past few years, the State Insured Long-Term
Portfolios have maintained a longer maturity structure and consequently a
higher sensitivity to changes in interest rates than our competitors. This
strategy has served us well and produced good longer-term results in a
substantial bull market for fixed-income securities. During the course of
the past year, we reduced somewhat our longer maturity structure to match
that of our competitors, thereby "locking in" gains earned to date.
In conclusion, the past twelve months has been an exciting period for
bond fund shareholders. Plummeting interest rates have translated into
attractive performance returns on long-term, tax-exempt, fixed-income
investments. To be sure, this will be a tough standard to surpass. (continued)
7
<PAGE> 10
STATE MONEY MARKET PORTFOLIOS
Over the past twelve months, moderate economic expansion and low inflation
enabled the Federal Reserve Board to hold key interest rates steady. The last
policy action taken by the Fed occurred in early September 1992, when it
lowered the Federal funds rate to 3%.
Despite the overall stability in short-term rates, yields on tax-exempt
money market funds continued to decline. Plagued by a combination of sporadic
supply and strong investor demand, yields on state-specific money funds
deteriorated 30 basis points, from 2.2% to 1.9%. Notwithstanding this yield
decline, assets grew at a robust 14% rate. Strong performance versus the
competition, due primarily to Vanguard's expense ratio advantage, enabled our
money market funds to capture a large percentage of these assets.
The volume of new issue supply differed greatly among the various
state-specific funds. Recessionary and fiscal stress, which has persisted in
California, forced many of its municipalities to finance their cash needs with
short-term debt. As a result, July and August brought a flood of supply in
California tax-exempt paper. At the opposite end of the spectrum was New
Jersey, where diminished supply was attributable primarily to relatively low
long-term interest rates. The many municipalities that previously issued
short-term notes took advantage of these low rates by issuing long-term bonds
instead.
Looking forward, net new issuance in the first quarter of fiscal year 1994
is expected to remain light. Poised for this anticipated drought in supply, the
Vanguard State Tax-Free Money Market Portfolios are currently targeting a
minimum average weighted maturity of 75 days. Beyond the first quarter we will
proceed with caution, as any signs of increased inflation may prompt the
Federal Reserve Board to raise short-term interest rates.
Sincerely,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela E. Wisehaupt
Vice President
David E. Hamlin
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Reid O. Smith
Assistant Vice President
Vanguard Fixed Income Group
December 7, 1993
8
<PAGE> 11
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS
November 30, 1993
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
- -----------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (97.8%)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ISSUER INSURED (79.7%)
Atlantic City Board of Education
6.125%, 12/1/11 (2) $ 1,700 $ 1,829
6.15%, 12/1/12 (2) 2,500 2,695
Atlantic County COP
7.3%, 3/1/05 (3) 2,000 2,409
7.3%, 3/1/06 (3) 1,800 2,172
7.4%, 3/1/10 (3) 1,755 2,175
7.4%, 3/1/11 (3) 4,025 5,020
6.0%, 3/1/14 (3) 3,685 4,027
6.0%, 3/1/15 (3) 1,480 1,621
Bayshore Regional Sewer Auth.
5.4%, 5/1/12 (1) 500 501
Bergen County Utilities Auth.
PCR 5.75%, 12/15/05 (3) 2,000 2,159
PCR 5.5%, 12/15/15 (3) 15,750 15,835
(Solid Waste) 5.5%, 6/15/13 (3) 9,000 9,073
Bordentown Sewer Auth.
5.375%, 12/1/15 (1) 6,250 6,250
5.4%, 12/1/20 (1) 1,400 1,396
6.8%, 12/1/25 (1) 3,500 3,900
Brick Township Municipal Utilities Auth.
6.5%, 12/1/12 (2) 1,000 1,123
Camden County Municipal Utilities Auth. Sewer Rev.
0.0%, 9/1/04(3) 8,345 4,825
0.0%, 9/1/05 (3) 18,545 10,109
0.0%, 9/1/06 (3) 18,545 9,517
8.25%, 12/1/17 (3) 850 986
Cape May County Industrial Development Auth.
(Atlantic City Electric) 6.8%, 3/1/21 (1) 15,400 18,760
Cape May County Municipal Utility Auth.
7.25%, 1/1/94 (1) (Prere.) 5,055 5,201
7.25%, 1/1/94 (3) (Prere.) 1,945 2,001
6.8%, 8/1/98 (1) (Prere.) 4,655 5,244
5.75%, 1/1/16 (1) 11,225 11,520
Delaware River Port Auth.
7.375%, 1/1/07(2) 9,500 10,801
6.5%, 1/1/09 (2) 3,500 3,707
Edison Township GO 7.1%, 1/1/95 (2) 1,715 1,788
Elizabeth City Fiscal Year Adjustment Bonds
6.6%, 8/1/06(1) 8,750 9,728
Essex County Improvement Auth. Lease Rev. GO
7.0%, 12/1/00 (2) (Prere.) $13,000 $15,201
5.5%, 12/1/08 (2) 2,560 2,642
5.5%, 12/1/13 (2) 7,500 7,579
Essex County Improvement Auth.
Township of Irvington GO
6.625%, 10/1/17 (4) 7,000 7,788
Evesham Municipal Utility Auth.
7.0%, 7/1/10 (1) 1,700 1,909
7.0%, 7/1/15 (1) 450 505
Gloucester Township GO 5.75%, 7/15/10 (2) 2,880 3,055
Gloucester Township Municipal Utilities Auth.
5.65%, 3/1/18 (2) 2,755 2,921
Hamilton Township Municipal Utility Auth.
6.0%, 8/15/17 (3) 1,000 1,062
Hoboken-Union City-Weehawken Sewer Auth.
0.0%, 8/1/03 (1) 3,800 2,335
0.0%, 8/1/04 (1) 3,750 2,178
0.0%, 8/1/05 (1) 3,805 2,083
0.0%, 8/1/06 (1) 2,000 1,031
6.25%, 8/1/13 (1) 9,590 10,820
Hudson County Correctional Facility COP
6.3%, 6/1/04 (1) 1,720 1,884
6.3%, 12/1/04 (1) 1,770 1,939
6.5%, 12/1/11 (1) 9,000 9,844
6.6%, 12/1/21 (1) 1,000 1,101
Hudson County General Improvement GO
6.55%, 7/1/04 (3) 1,300 1,481
6.55%, 7/1/05 (3) 1,290 1,473
6.55%, 7/1/06 (3) 700 805
6.55%, 7/1/07 (3) 1,300 1,491
6.55%, 7/1/09 (3) 635 730
Hudson County Improvement Auth. Lease
6.0%, 12/1/12 (3) 10,000 10,569
Irvington Township GO
0.0%, 8/1/07 (1) 1,000 485
0.0%, 8/1/09 (1) 2,580 1,104
0.0%, 8/1/10 (1) 2,080 836
Jersey City Sewer Auth. 7.0%, 1/1/97 (3) (Prere.) 5,500 6,068
Jersey City Water Auth. GO
7.6%, 10/1/12 (2) 700 793
7.6%, 10/1/13 (2) 700 793
</TABLE>
9
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Lacey Municipal Utility Auth.
7.0%, 12/1/99 (6) (Prere.) $ 3,000 $ 3,471
Manchester Township Board of Education COP 7.2%, 12/15/09 (1) 1,000 1,150
Middlesex County Utility Auth.
6.75%, 8/15/09 (2) 3,500 3,812
6.5%, 9/15/11 (3) 6,300 6,858
Millville Board of Education GO
5.3%, 8/1/04 (2) 1,100 1,150
5.3%, 8/1/05 (2) 1,100 1,144
5.3%, 8/1/06 (2) 1,100 1,134
5.3%, 8/1/07 (2) 1,067 1,092
Monmouth County Improvement Auth.
6.875%, 8/1/12 (1) 2,700 3,001
6.75%, 2/1/13 (1) 1,250 1,387
Monroe Township Municipal Utility Auth.
6.875%, 2/1/17 (1) 1,700 1,906
Mount Laurel Township Municipal Utility Auth.
6.0%, 7/1/15 (1) 4,250 4,503
Muscanectong Sewer Auth.
7.15%, 1/1/00 (1) (Prere.) 1,000 1,160
New Brunswick Housing & Urban Development
6.0%, 7/1/12 (1) 6,000 6,382
5.75%, 7/1/24 (1) 8,640 8,832
New Brunswick Housing Auth. 5.5%, 8/1/16 (1) 525 529
New Brunswick Parking Auth. 5.4%, 9/1/15 (3) 1,000 996
New Jersey Economic Development Auth. (Hackensack Water)
7.0%, 1/1/19 (2) 2,400 2,631
New Jersey Educational Facilities Auth.
(Kean College) 6.6%, 7/1/21 (1) 3,700 4,081
(NJ Inst. of Technology) 6.25%, 7/1/11 (2) 5,165 5,499
(Rider College) 6.2%, 7/1/17 (2) 4,000 4,309
(Trenton State College)
7.2%, 7/1/99 (2) (Prere.) 11,240 13,020
6.0%, 7/1/12 (2) 3,005 3,194
6.0%, 7/1/19 (2) 7,250 7,681
New Jersey Health Care Facilities Auth.
(Bridgeton & Millville Hosp.)
7.875%, 7/1/10 (1) 3,305 3,813
(Burdette Tomlin Memorial Hosp.)
6.5%, 7/1/12 (3) $ 1,500 $ 1,640
(St. Clare's Riverside Medical Center)
7.75%, 7/1/14 (6) 5,800 6,601
(Community Medical Center) 7.0%, 7/1/20 (1) 2,850 3,249
(Hackensack Medical Center) 6.625%, 7/1/11 (3) 3,000 3,298
(Helene Fuld Medical Center) 6.6%, 7/1/21 (2) 4,080 4,473
(Jersey Shore Medical Center) 8.0%, 7/1/18 (2) 1,905 2,207
(Memorial Health Alliance) 6.25%, 7/1/10 (3) 8,000 8,399
(Mercer Medical Center)
6.25%, 7/1/06 (1) 1,685 1,825
6.5%, 7/1/10 (1) 6,000 6,565
(Mountainside Hosp.)
2.85%, 7/1/94 (1) 1,070 1,071
3.45%, 7/1/95 (1) 1,620 1,631
5.35%, 7/1/07 (1) 3,215 3,282
5.5%, 7/1/14 (1) 3,975 3,988
(Muhlenberg Medical Center) 8.0%, 7/1/18 (2) 750 869
(Shore Memorial Hosp.) 7.875%, 7/1/12 (1) 750 851
(Society of the Valley Hosp.) 6.625%, 7/1/10 (1) 2,750 3,014
(West Jersey Health System)
6.0%, 7/1/09 (1) 5,175 5,504
6.125%, 7/1/12 (1) 1,000 1,075
New Jersey Housing and Mortgage Finance Agency
9.625%, 10/1/08 (1) 530 552
7.875%, 10/1/17 (1) 450 482
New Jersey Sports & Exposition Auth. VRDO
2.15%, 3/1/94 (1) 2,100 2,100
New Jersey Turnpike Auth.
6.5%, 1/1/13 (1) 20,000 23,122
6.5%, 1/1/16 (1) 18,250 20,769
Newark General Improvement
5.3%, 10/1/06 (2) 1,710 1,761
5.4%, 10/1/07 (2) 1,685 1,741
5.5%, 10/1/08 (2) 1,660 1,728
Newark Water Utility 5.3%, 10/1/06 (2) 2,625 2,694
North Bergen GO 8.0%, 8/15/06 (4) 1,885 2,410
North Jersey Water Dist. 6.0%, 7/1/12 (1) 10,125 10,768
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Northwest Bergen County Utility Auth.
6.0%, 7/15/13 (1) $ 2,050 $ 2,190
Ocean County Utilities Waste Water Rev.
6.75%, 1/1/13 (3) 14,810 15,982
5.0%, 1/1/14 (3) 2,000 1,933
6.6%, 1/1/18 (3) (ETM) 2,500 2,993
6.6%, 1/1/18 (3) 4,000 4,358
Ocean Township Municipal Utility Auth.
6.0%, 8/1/17 (1) 3,975 4,376
Old Bridge Municipal Utility Auth.
6.4%, 11/1/09 (3) 3,000 3,301
6.25%, 11/1/16 (3) 1,400 1,514
Passaic Valley Sewer Comm.
7.1%, 12/1/97 (2) (Prere.) 6,785 7,693
5.75%, 12/1/08 (2) 4,450 4,672
5.75%, 12/1/13 (2) 2,500 2,584
Plainfield GO 6.25%, 7/15/07 (2) 6,930 7,544
Roselle GO
5.05%, 10/15/07 (1) 1,435 1,436
5.14%, 10/15/08 (1) 1,405 1,401
Salem County Improvement Auth.
7.125%, 5/1/99 (2) (Prere.) 1,000 1,151
Salem County Pollution Control Finance Auth.
5.7%, 5/1/28 (1) 5,000 5,084
South Jersey Transportation Auth.
5.8%, 11/1/05 (1) 1,645 1,773
5.9%, 11/1/06 (1) 3,435 3,711
5.9%, 11/1/07 (1) 2,545 2,734
6.0%, 11/1/12 (1) 5,250 5,592
Sussex County Solid Waste Rev.
5.75%, 12/1/09 (1) 19,820 20,657
Sussex Municipal Utility Auth.
5.25%, 12/1/08 (1) 1,150 1,160
5.375%, 12/1/14 (1) 2,000 1,996
West Windsor-Plainsboro School Dist. COP
7.6%, 3/15/97 (6) (Prere.) 5,000 5,646
5.875%, 3/15/07 (1) 1,390 1,489
5.875%, 3/15/08 (1) 1,465 1,556
OUTSIDE NEW JERSEY:
Puerto Rico Public Building Auth.
0.0%, 7/1/02 (3) 4,000 2,662
--------
GROUP TOTAL 596,469
--------
- -----------------------------------------------------------------------------------------------------
PORTFOLIO INSURED (.2%)
Rutgers State Univ. 7.375%, 5/1/96 (Prere.) 1,500 1,657
--------
- -----------------------------------------------------------------------------------------------------
SECONDARY MARKET INSURED (7.7%)
Atlantic County Utility
6.875%, 1/1/12 (2) (ETM) $ 3,000 $ 3,541
New Jersey Educational Facilities Auth.
(Montclair State College) 7.2%, 7/1/10 (1) 1,000 1,098
New Jersey Highway Auth. (Garden State Parkway)
6.2%, 1/1/10 (2) 20,000 22,370
6.0%, 1/1/16 (2) 5,000 5,217
New Jersey Sports & Exposition Auth.
6.5%, 3/1/13 (1) 10,000 11,502
Port. Auth. of New York & New Jersey
6.875%, 1/1/25 (2) 8,200 9,045
Univ. of Medicine & Dentistry
6.5%, 12/1/12 (1) 4,000 4,660
--------
GROUP TOTAL 57,433
--------
- -----------------------------------------------------------------------------------------------------
NON-INSURED (10.2%)
Burlington County Bridge Comm. 5.3%, 10/1/13 9,500 9,396
Camden County BAN 3.25%, 2/23/94 4,900 4,908
Cherry Hill Township GO 6.3%, 6/1/12 4,745 5,092
Delaware River & Bay Auth. 4.5%, 1/1/95 4,000 4,053
Mercer County Improvement Auth.
5.75%, 12/15/07 1,110 1,177
5.75%, 12/15/08 1,165 1,226
5.95%, 12/15/12 4,895 5,286
Monmouth County Improvement Auth. GO
(Correctional Facilities) 6.4%, 8/1/11 1,850 1,978
Monmouth County Improvement Auth.
Pooled Govt. Loan VRDO 2.35%, 12/1/93 200 200
New Jersey Economic Development Auth.
VRDO (Dow Chemical) 1.85%, 12/1/93 200 200
New Jersey Housing & Mortgage Finance
Agency 3.4%, 3/29/95* 8,000 8,010
New Jersey Turnpike Auth. VRDO 2.2%, 1/1/94 30,000 30,000
Rutgers State Univ. GO 6.4%, 5/1/13 3,000 3,362
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OUTSIDE NEW JERSEY:
Puerto Rico Govt.
Development Bank VRDO 2.25%, 12/1/93 $900 $ 900
--------
GROUP TOTAL 75,788
--------
- -----------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $666,898) 731,347
- -----------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.2%)
- -----------------------------------------------------------------------------------------------------
Other Assets--Note B 20,398
Liabilities (3,614)
--------
16,784
- -----------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------
Applicable to 63,546,953 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $748,131
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.77
=====================================================================================================
</TABLE>
+ See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 14.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1993, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $682,282 $10.74
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 755 .01
Unrealized Appreciation of Investments 65,094 1.02
- -----------------------------------------------------------------------------------------------------
NET ASSETS $748,131 $11.77
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
- -----------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (100.2%)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Bergen County BAN 2.82%, 6/28/94 $10,000 $10,001
Burlington County BAN
3.0%, 12/17/93 4,800 4,801
3.0%, 11/4/94 2,500 2,504
Burlington County GO 4.35%, 10/15/94 1,750 1,775
East Brunswick Township BAN
2.6%, 3/1/94 3,036 3,038
3.0%, 6/24/94 1,250 1,253
Edison Township TAN 2.62%, 12/17/93 15,000 15,001
Egg Harbor Township Board of Education
2.75%, 3/1/94 (1) 780 780
Essex County Improvement Auth.
Pooled Govt. Loan VRDO
2.35%, 12/1/93 36,950 36,950
Fort Lee Borough BAN 2.54%, 5/6/94 6,900 6,901
Hackensack BAN 3.0%, 12/23/93 2,000 2,000
Hunterdon County GO BAN 2.53%, 8/31/94 8,325 8,327
Long Hill Township BAN 2.63%, 1/28/94 2,161 2,161
Mendham Township BAN 3.25%, 10/28/94 1,000 1,005
Mercer County BAN 2.75%, 1/14/94 15,000 15,006
Middlesex County GO 2.75%, 7/15/94 1,000 1,001
Monmouth County GO 5.0%, 7/1/94 1,320 1,337
Monmouth County Improvement Auth.
Pooled Govt. Loan VRDO 2.35%, 12/1/93 29,800 29,800
Montvale Borough TAN 3.2%, 1/19/94 1,500 1,501
New Jersey Economic Development Auth. CP
(Chambers Cogeneration)
2.15%, 12/7/93 7,100 7,100
2.2%, 12/9/93 17,600 17,600
(Exxon Corp.)
2.3%, 12/7/93 6,700 6,700
(Keystone Project)
2.3%, 12/9/93 6,000 6,000
2.6%, 1/18/94 14,000 14,000
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
New Jersey Economic Development Auth.
VRDO TOB 2.3%, 2/1/94 $15,000 $15,000
(Dow Chemical Co.) 1.85%, 12/1/93 5,300 5,300
(Makita Corp.) 2.15%, 12/1/93 3,700 3,700
New Jersey Educational Facilities Auth.
College & Univ. Capital Improvement
VRDO 2.05%, 12/1/93 (3) 2,650 2,650
New Jersey Health Care Facilities Auth. VRDO
(Capital Assets) 2.25%, 12/1/93 30,500 30,500
(Carrier Foundation) 2.05%, 12/1/93 (3) 5,100 5,100
New Jersey Health Care Facilities Auth.
(Hackensack Medical Center) 5.0%, 7/1/94 (3) 5,350 5,416
(Mountainside Hosp.) 2.85%, 7/1/94 (1) 1,000 1,001
New Jersey GO
TOB VRDO 2.45%, 2/1/94 9,370 9,370
TOB 2.8%, 2/15/94* 25,000 25,000
7.1%, 4/15/94 (ETM) 5,000 5,082
5.8%, 8/1/94 (ETM) 1,000 1,020
New Jersey Housing Finance Agency
TOB VRDO 2.55%, 4/1/94 (1) 8,900 8,900
New Jersey Housing & Mortgage
Finance Agency 2.9%, 9/29/94* 15,000 15,000
New Jersey Sports & Exposition Auth.
VRDO 2.15%, 3/1/94 (1) 59,300 59,300
New Jersey State Highway Auth.
(Garden State Parkway) 6.3%, 1/1/94 1,000 1,003
New Jersey Turnpike Auth.
VRDO 2.2%, 1/1/94 (3) 54,200 54,200
Parsippany--Troy Hills Township BAN
2.79%, 12/1/93 16,000 16,000
Passaic County BAN
2.82%, 12/7/93 2,000 2,000
2.75%, 4/7/94 10,900 10,908
3.25%, 7/7/94 33,000 33,129
Pequannock Township BAN 2.78%, 12/23/93 4,633 4,633
Piscataway Township BAN 3.125%, 9/9/94 6,310 6,332
Port Auth. of New York & New Jersey CP
2.25%, 12/6/93 $ 7,820 $ 7,820
2.4%, 12/7/93 7,330 7,330
2.45%, 12/7/93 1,300 1,300
2.4%, 12/10/93 13,900 13,900
2.55%, 1/25/94 1,210 1,210
2.7%, 2/8/94 23,400 23,401
2.7%, 10/1/94 2,500 2,500
Port Auth. of New York & New Jersey VRDO
(Kiac Partners) 2.2%, 12/1/93 28,000 28,000
Randolph Township BAN 3.0%, 6/24/94 4,658 4,670
Readington Township BAN 2.625%, 5/4/94 1,284 1,285
Rockaway Township BAN 2.87%, 12/17/93 4,500 4,500
Rutgers Univ.
GO 3.0%, 5/1/94 1,450 1,452
4.25%, 5/1/94 3,215 3,235
Salem County PCR CP
(Philadelphia Electric) 2.65%, 1/27/94 5,000 5,000
Scotch Plains Township BAN 2.53%, 4/29/94 2,000 2,000
Sussex County BAN
2.5%, 4/19/94 5,000 5,000
3.25%, 6/28/94 6,650 6,674
Union County PCR Finance Auth. VRDO
(Exxon Corp.) 1.8%, 12/1/93 14,000 14,000
OUTSIDE NEW JERSEY:
Puerto Rico Govt. Development Bank
VRDO 2.25%, 12/1/93 43,150 43,150
Puerto Rico Electric Power Auth.
10.25%, 7/1/94 (Prere.) 6,725 7,221
Puerto Rico Highway & Transportation Auth.
VRDO 2.0%, 12/1/93 13,800 13,800
Puerto Rico Industrial, Medical &
Environmental Finance Auth.
(American Home Products) 3.35%, 12/1/93* 10,500 10,500
- -----------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $725,034) 725,034
- -----------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
(000)+
- -----------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-.2%)
- -----------------------------------------------------------------------------------------------------
Other Assets--Note B $18,117
Liabilities (19,339)
--------
(1,222)
- -----------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------
Applicable to 723,795,880 outstanding shares
of beneficial interest
(unlimited authorization--no par value) $723,812
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
=====================================================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1993, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $723,810 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 2 --
Unrealized Appreciation of Investments -- --
- -----------------------------------------------------------------------------------------------------
NET ASSETS $723,812 $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.
14
<PAGE> 17
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO MONEY MARKET PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
November 30, 1993 November 30, 1993
(000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . $39,041 $16,723
- ---------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . 39,041 16,723
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . $ 63 $ 64
Management and Administrative . . . . . 1,072 983
Marketing and Distribution . . . . . . . 176 1,311 231 1,278
-------- ------
Insurance Expense . . . . . . . . . . . . . 4 --
Auditing Fees . . . . . . . . . . . . . . . 8 7
Shareholders' Reports . . . . . . . . . . . 32 35
Annual Meeting and Proxy Costs . . . . . . 4 4
Trustees' Fees and Expenses . . . . . . . . 2 2
- ---------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . 1,361 1,326
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 37,680 15,397
- ---------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note C
Investment Securities Sold . . . . . . . . 4,373 2
Futures Contracts . . . . . . . . . . . . . (3,619) --
- ---------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . 754 2
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Notes C and D
Investment Securities . . . . . . . . . . . 38,842 --
Futures Contracts . . . . . . . . . . . . . 646 --
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . 39,488 --
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . $77,922 $15,399
===============================================================================================================
</TABLE>
15
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO MONEY MARKET PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended
NOVEMBER 30, November 30, NOVEMBER 30, November 30,
1993 1992 1993 1992
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $37,680 $30,435 $15,397 $17,236
Realized Net Gain--Note C . . . . . . . . . . 754 7,009 2 1
Change in Unrealized Appreciation
(Depreciation)--Notes C and D . . . . . . . 39,488 11,855 -- --
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . 77,922 49,299 15,399 17,237
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (37,680) (30,435) (15,397) (17,236)
Realized Net Gain . . . . . . . . . . . . . . (7,008) (315) -- --
- ---------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (44,688) (30,750) (15,397) (17,236)
- ---------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . 205,923 181,645 551,033 430,492
-- In Lieu of Cash Distributions . . 36,036 24,378 14,556 16,242
-- Exchange . . . . . . . . . . . . . 76,871 76,719 130,139 139,940
Redeemed -- Regular . . . . . . . . . . . . (93,405) (78,027) (458,197) (359,476)
-- Exchange . . . . . . . . . . . . . (82,075) (85,298) (140,713) (147,171)
- ---------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions . . . . . . . . . 143,350 119,417 96,818 80,027
- ---------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . 176,584 137,966 96,820 80,028
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year . . . . . . . . . . . . . . 571,547 433,581 626,992 546,964
- ---------------------------------------------------------------------------------------------------------------
End of Year . . . . . . . . . . . . . . . $748,131 $571,547 $723,812 $626,992
===============================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.637 $.659 $.023 $.030
Realized Net Gain . . . . . . . . . . . $.135 $.008 -- --
- ---------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . 24,358 23,484 681,172 570,432
Issued in Lieu of Cash Distributions . . 3,114 2,214 14,556 16,242
Redeemed . . . . . . . . . . . . . . . . (15,067) (14,872) (598,910) (506,647)
- ---------------------------------------------------------------------------------------------------------------
12,405 10,826 96,818 80,027
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
-----------------------------------------------------------------
Year Ended November 30,
-----------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . $11.18 $10.75 $10.51 $10.45 $10.01
------- ------- ------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .637 .659 .676 .692 .708
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .725 .438 .245 .073 .440
------- ------- ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . 1.362 1.097 .921 .765 1.148
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.637) (.659) (.676) (.692) (.708)
Distributions from Realized Capital Gains . . (.135) (.008) (.005) (.013) --
------- ------- ------ ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.772) (.667) (.681) (.705) (.708)
NET ASSET VALUE, END OF YEAR . . . . . . . . . . $11.77 $11.18 $10.75 $10.51 $10.45
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . +12.53% +10.48% +9.01% +7.66% +11.80%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . . . $748 $572 $434 $245 $129
Ratio of Expenses to Average Net Assets . . . . . .20% .25% .24%+ .25%+ .24%+
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . . . . . . . . 5.47% 5.99% 6.33% 6.73% 6.88%
Portfolio Turnover Rate . . . . . . . . . . . . . 12% 34% 18% 7% 0%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Insurance expense represents .01%, .01% and .02%.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------------------------------------------------
Year Ended November 30,
----------------------------------------------------------------
For a Share Outstanding Throughout Each Year 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .023 .030 .045 .056 .062
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . .023 .030 .045 .056 .062
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.023) (.030) (.045) (.056) (.062)
Distributions from Realized Capital Gains . . -- -- -- -- --
------- ------- ------ ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.023) (.030) (.045) (.056) (.062)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . +2.31% +3.04% +4.54% +5.78% +6.33%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . . . $724 $627 $547 $464 $259
Ratio of Expenses to Average Net Assets . . . . . .20% .24% .24% .24% .23%
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . . . . . . . . 2.29% 2.98% 4.43% 5.61% 6.16%
Portfolio Turnover Rate . . . . . . . . . . . . . N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
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 may utilize 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 $241,000 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 year ended November 30, 1993, the Insured Long-Term Portfolio
made purchases of $210,307,000 and sales of $74,917,000 of investment
securities other than temporary cash investments.
18
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (continued)
At November 30, 1993, unrealized appreciation of investment securities of the
Insured Long-Term Portfolio for financial reporting and Federal income tax
purposes aggregated $64,449,000 of which $64,453,000 related to appreciated
securities and $4,000 related to depreciated securities.
* D. At November 30, 1993, the Insured Long-Term Portfolio had long positions
in Municipal Bond Index futures contracts expiring through March 1994, with an
aggregate settlement value and net unrealized depreciation of $33,122,000 and
$397,000, respectively. The aggregate settlement value and net unrealized
appreciation related to short positions in U.S. Treasury Bond and U.S. Treasury
Note futures contracts expiring through March 1994, were $91,720,000 and
$1,042,000, respectively. The market value of securities deposited as initial
margin for open futures contracts was $1,698,000.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
Vanguard New Jersey 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
the Insured Long-Term Portfolio and the Money Market Portfolio (constituting
the Vanguard New Jersey Tax-Free Fund, hereafter referred to as the "Fund") at
November 30, 1993, the results of each of their operations, the changes in each
of their net assets and the financial highlights for each of the respective
periods presented, 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 by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 27, 1993
19
<PAGE> 22
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 Director of Rohm & Haas Company; Director of
Cummins Engine Company and Vanderbilt University; Trustee of 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
20
<PAGE> 23
(Continued from inside front cover)
toward those of the 1970s. However, the current level of inflation suggests
that future real returns may prove to be satisfactory. Looking forward, the
main risks to the investor are two: (1) that yields on financial assets will
rise sharply, reducing the prices of stocks and bonds alike; and (2) that
inflation, presently at moderate levels, will accelerate.
SOME COURSES OF ACTION
What, if any, present action should be taken by investors to deal with these
two major risks? Should your allocation of assets among stock funds, bond
funds, and money market funds be adjusted? Here are some reasonable courses of
action to consider:
* For long-term investors who have built a substantial balanced portfolio of
stock, bond, and money market funds, stay the course. Even if
withdrawing from the stock market proves to be justified, the next
decision--when to return--will one day be required. "Being right
twice" is no mean challenge.
* For long-term investors gradually accumulating assets for, say,
retirement, stay your present course. Continue to invest regularly.
By doing so, you buy more shares of a mutual fund when its price
falls, and fewer shares when its price rises, virtually assuring a
reasonable average cost.
* For risk-averse investors who are highly confident that stock prices are
"too high," make only marginal--not "all or nothing"-- changes in
your portfolio balance. Given the perils of predicting the future,
any changes should be limited to, say, 15 percentage points. That is,
if your normal portfolio allocation is 60% in stock funds, it might
be reduced to 45%; if 85%, to 70%.
* For investors who simply must have more income, never lose sight of the
added principal risk involved in shifting from money market funds to
bond funds. Long-term bond funds provide a generous and durable
income stream, but their prices are highly volatile. Short-term and
intermediate-term bond funds offer a "middle way" of increasing
income with more modest risk to principal.
* For investors who are tempted to find an "easy way" to higher returns,
never forget that risk and reward go hand in hand. Precipitously
replacing certificates of deposit with broad-based common stock funds
verges on the irrational. Funds investing in other securities
markets--emerging nations, international stocks and bonds, and small
U.S. companies--carry their own special risks. Generally, limit such
alternative investments to, say, 20% of your total portfolio.
For all investors, be prepared for sharp interim swings in stock and bond
prices. The central tenet of investing is "prices fluctuate," and sensible
long-term investors simply must take such fluctuations in their stride.
Successful investing is as much a function of your own discipline and
equanimity as it is of the returns available in the securities markets.
THREE ESSENTIAL PRINCIPLES
As we confront the brave new world of investing that may well lie ahead in the
coming decade--and it is important to think in decade-length terms--we would
underscore three caveats:
1. Have "rational expectations" for future returns. At prices prevailing
today, it seems highly unlikely that the returns enjoyed by investors
in the past decade will be repeated in the coming decade.
2. Maintain a balanced portfolio consisting of stock, bond, and money market
funds. Each asset class has its own risk and reward characteristics.
By allocating your resources among the three asset classes according
to your own requirements, you can build a portfolio providing
appropriate elements of capital appreciation, capital conservation,
and current income.
3. In balancing risk against reward, be sure to consider cost. Many mutual
funds carry hefty sales charges or high expense ratios, or both.
Other factors held equal, expenses reduce returns, dollar for dollar.
Put another way, high-cost funds must select investments with higher
prospective gross returns--which entail higher risks--to match the
net returns earned by low-cost funds.
This brief Annual Report essay can provide only an elementary look at the
challenges investors face today. History can give us perspective, but it cannot
give us performance. Famed British economist Lord Keynes had it right when he
said, "the inevitable never happens. It is the unexpected always."
<PAGE> 24
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
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Long-Term Portfolios
(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 Small Capitalization Stock Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
[VANGUARD LOGO]
Vanguard Financial Center * Valley Forge, Pennsylvania 19482
<TABLE>
<C> <C>
New Account Information 1-(800) 662-7447 Shareholder Account Services: 1-(800) 662-2739
</TABLE>
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.
Q140-11/93
<PAGE> 25
EDGAR Appendix
This appendix describes components of the printed version of this
report that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features the flags of
The United States of America and Vanguard flying from a halyard.
A bar chart called "A Tale of Two Decades" appears on the inside front
cover. This chart illustrates Average Annual Total Return, in nominal and real
terms, of Stocks, Bonds and Reserves (U.S. Treasury bills) for the two decades
since 1973.
A running head featuring the Vanguard flag logo appears at the top of
pages one through 24.
A photograph of John C. Bogle appears at the upper-right of page one.
A line chart of the Month-End Yields shows 30-Year Prime Municipal Bond
for the 90-Day MIG 1 Note on upper-left on page 2.
Line charts illustrating Cumulative Performance of the Vanguard New
Jersey Insured Long-Term compared to Lehman and Average Municipal New Jersey
Bond Fund for the Fiscal Periods 1988-1993 on page 3.
