<PAGE> 1
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
During the six months ended May 31, 1995--the first half of the fiscal year for
Vanguard State Tax-Free Portfolios--a fairly substantial decline in long-term
interest rates resulted in higher prices for long-term tax-exempt bonds. These
price increases pushed the six-month total returns (capital change plus income)
of all our Insured Longer-Term Portfolios well into double-digit territory.
While long rates declined during the past six months, shorter-term interest
rates actually increased marginally. In this environment, the yields of our
Money Market Portfolios increased nicely and remained comfortably ahead of the
yields offered by comparable funds.
THE STATE INSURED LONG-TERM PORTFOLIOS
In the wake of repeated interest rate increases by the Federal Reserve during
1994, long-term municipal bond yields peaked in November 1994 at 7.1%. As these
rate hikes seemed to slow the economy's growth, concerns about future inflation
were allayed, and rates began to decline. By the end of May, municipal bond
yields had fallen to 5.8%, a decline of 130 basis points.
In this environment, longer-term municipal bond funds enjoyed outstanding
returns. Indeed, each of Vanguard's Insured Long-Term Portfolios provided
six-month total returns (capital change plus income) in the area of +14%. This
sharp price rally overwhelmed the negative returns of the prior six months,
bringing our total returns for the twelve months strongly into positive
territory. Although fluctuating net asset values are part and parcel of bond
fund investing, the recent swings in market value demonstrate the benefit of
remaining committed to a long-term investment strategy.
The table opposite shows the Longer-Term Portfolios' twelve-month returns,
reflecting a full year's income. To provide some perspective on how fluctuating
interest rates have impacted our Insured Longer-Term Portfolios over this
period, the table breaks down our Portfolios' total returns into their income
and capital components. I would emphasize that the table conceals the fact that
the full period was composed of two vastly different six-month sub-periods, one
in which returns were sharply negative, the other strongly positive.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
INVESTMENT RETURNS
TWELVE MONTHS ENDED
MAY 31,1995
----------------------------------------------------------------
INSURED LONGER-TERM PORTFOLIO INCOME CAPITAL TOTAL
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE-TERM +5.2% +2.2% +7.4%
CALIFORNIA LONG-TERM +6.1 +3.8 +9.9
NEW YORK LONG-TERM +6.0 +3.0 +9.0
PENNSYLVANIA LONG-TERM +6.2 +2.1 +8.3
NEW JERSEY LONG-TERM +6.0 +3.5 +9.5
OHIO LONG-TERM +5.9 +3.2 +9.1
FLORIDA LONG-TERM +5.8 +3.6 +9.4
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The current tax-exempt yields on our Insured Longer-Term Portfolios are
presently in the area of 5.2%, compared with 6.3% six months ago. The yield for
each Portfolio is presented in the table on page 3 of this report, which also
includes per share net asset values, dividends, and total returns over the past
six and twelve months.
THE STATE MONEY MARKET PORTFOLIOS
As noted earlier, the Federal Reserve Board has remained relatively
tight-fisted in its monetary policy during the past six months, bringing some
stability to money market yields. This stability is a stark contrast to fiscal
1994, when the Board raised the Fed funds rate (at which banks borrow from one
another) on fully six separate occasions. It would appear that the Fed's tough
policy is bearing fruit: inflation so far remains quite subdued, and business
activity has slowed to a more normal growth rate.
While rates have been stable in recent months, the table below shows the
impact of the dramatic surge in short-term rates on our annualized yields over
the past year and one-half. You will note that, during this period, the yields
on our Money Market Portfolios have risen by more than 60%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SEVEN-DAY ANNUALIZED YIELD
--------------------------------------------------------------------
MONEY MARKET MAY 31, NOV. 30, MAY 31, NOV. 30,
PORTFOLIO 1995 1994 1994 1993
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
CALIFORNIA 3.8% 3.4% 2.6% 2.3%
PENNSYLVANIA 3.8 3.5 2.6 2.3
NEW JERSEY 3.7 3.3 2.5 2.2
OHIO 3.9 3.5 2.6 2.4
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(CONTINUED)
1
<PAGE> 2
Regardless of future interest rate movements, the yield advantage of our
Vanguard State Money Market Portfolios is virtually certain to remain
attractive relative to other comparable money market funds. The principal
reason for this advantage, as you know, is that our operating expenses are so
much lower than industry norms. Our Portfolios, for example, operate at an
annual expense ratio of about 0.2%, compared with 0.6% for our average
competitor. This advantage of 0.4% carries directly to the bottom line: the
yield you receive. Thus, in a market in which gross yields are, say, 4.0%, our
Portfolios should provide a net yield of 3.8%, compared with 3.4% for other
comparable money market portfolios.
I want to underscore that our higher yields do not arise from the
ownership of lower quality money market instruments. The quality of our
Portfolios is, we believe, as high as any tax-exempt money market fund in the
field. Funds which stinted on quality last year ran the risk that their net
asset values might fall below the $1.00 value that investors have come to take
for granted. Our focus on quality--along with, we acknowledge, some good
luck--spared us the consequences of this risk, and we owned no direct
obligations of Orange County, California, the most troubled credit of the
period. Each of our Money Market Portfolios' net asset values remained at $1.00
per share, which as you know, is our objective, but is not guaranteed.
IN SUMMARY
The recent swings in total returns we have witnessed help to demonstrate that
"staying the course"--even in the face of turbulent markets-- will more often
than not lead to a successful long-term investment program. In contrast,
attempting to jump into and out of mutual funds in hopes of timing the
movements of the market is almost certain to result in failure.
Whether rates remain volatile or not, the benefits of investing in
Vanguard State Tax-Free Portfolios endure: high quality, low cost, and
professional management. Along with these advantages, the Portfolios distribute
income that is 100% exempt from both Federal and state income taxes. Together,
these factors should ensure our ability to provide shareholders with efficient
and effective Portfolios in the years to come.
I look forward to reporting to you on our results for the full year in our
1995 Annual Report six months hence.
Sincerely,
/S/ JOHN C. BOGLE
- -----------------
John C. Bogle
Chairman of the Board
June 9, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
A FEW WORDS ABOUT POSSIBLE CHANGES IN THE TAX LAW
The uncertainties related to a variety of new tax proposals seem to have
unnerved some participants in the tax-exempt bond market. Of the options which
have been considered, perhaps the most significant to municipal bond investors
is the "flat tax." Indeed, under one proposed version, municipal bond yields
would have no advantage over taxable yields. Because of this uncertainty, the
rise in municipal bond prices has been significantly less than the rise in U.S.
Treasury bond prices over the past few months.
As a result, the yield on high-quality long-term municipal bonds is at 94%
of the yield on taxable U.S. Treasuries giving municipal bonds their largest
after-tax yield advantage in recent years. What this means is that an investor
in the highest marginal tax bracket (40%) would currently earn an after-tax
yield of about 3.8% on a U.S. Treasury bond (60% of 6.4%). A high-grade
municipal bond, on the other hand, would provide a tax-exempt yield of
6.0%--fully 58% higher. Thus, it would appear that tax uncertainty has created
unusual yield opportunity.
In any event, the flat tax option is no longer high on the legislative
agenda, and neither of the tax bills adopted by the Senate or the House of
Representatives would disturb the existing tax-exempt status of municipal bond
interest. Until the details of any tax law changes become clearer, we would
caution municipal bond investors to give careful consideration before making any
shifts in their holdings of municipal bonds. In the meantime, we will keep you
abreast of our views on the possible effects of any proposed legislation that
could materially impact the tax status of your municipal bond fund holdings.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSET VALUE
NET ASSETS PER SHARE DIVIDENDS TOTAL RETURN
------------------ -------------- --------------
(MILLIONS) AVERAGE AVERAGE NOV. 30, MAY 31, SIX TWELVE SIX TWELVE CURRENT
PORTFOLIO MAY 31, 1995 MATURITY QUALITY* 1994 1995 MONTHS MONTHS MONTHS MONTHS YIELD**
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . . . . . $1,114 24 DAYS MIG 1 $ 1.00 $ 1.00 $.019 $.033 + 1.9% +3.3% 3.80%
PENNSYLVANIA . . . . . . 1,148 26 DAYS MIG 1 1.00 1.00 .018 .033 + 1.9 +3.3 3.80
NEW JERSEY . . . . . . . 818 51 DAYS MIG 1 1.00 1.00 .018 .032 + 1.8 +3.2 3.71
OHIO . . . . . . . . . . 166 60 DAYS MIG 1 1.00 1.00 .019 .033 + 1.9 +3.4 3.92
- --------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM
CALIFORNIA
INTERMEDIATE-TERM . . $ 171 6.6 YEARS AAA $ 9.64 $ 10.26 $.253 $.499 + 9.2% +7.4% 4.86%
CALIFORNIA . . . . . . . 936 12.7 YEARS AAA 9.92 11.06 .301 .606 +14.7 +9.9 5.29
NEW YORK . . . . . . . . 799 11.1 YEARS AAA 9.70 10.80 .293 .587 +14.5 +9.0 5.18
PENNSYLVANIA . . . . . . 1,482 12.8 YEARS AAA 10.07 11.08 .308 .625 +13.2 +8.3 5.28
NEW JERSEY . . . . . . . 742 10.5 YEARS AAA 10.40 11.57 .316 .628 +14.4 +9.5 5.12
OHIO . . . . . . . . . . 175 9.5 YEARS AAA 10.28 11.43 .307 .611 +14.3 +9.1 5.22
FLORIDA . . . . . . . . 362 13.1 YEARS AAA 9.61 10.75 .281 .562 +14.9 +9.4 5.27
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* MIG 1 and Aaa are Moody's highest ratings for short-term and long-term
municipal bonds, respectively.
** Money Market Portfolios' yields are 7-day annualized yields; others are
30-day SEC yields.
Note: The shares of each of the Vanguard "single-state" Portfolios are
available for purchase solely by residents of the designated states.
3
<PAGE> 4
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, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
--------------------------------
INCEPTION TOTAL INCOME CAPITAL
DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
---------- ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA INSURED INTERMEDIATE-TERM 3/4/94 +6.72% -- +5.61% +4.96% +0.65%
CALIFORNIA INSURED LONG-TERM 4/7/86 +8.14 +8.33% +7.75 +6.55 +1.20
CALIFORNIA MONEY MARKET 6/1/87 +3.09 +3.47 +4.18 +4.18 0.00
NEW YORK INSURED TAX-FREE 4/7/86 +7.84 +8.72 +7.30 +6.54 +0.76
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +7.54 +8.73 +8.04 +6.75 +1.29
PENNSYLVANIA MONEY MARKET 6/13/88 +3.04 +3.52 +4.19 +4.19 0.00
NEW JERSEY INSURED LONG-TERM 2/3/88 +8.06 +8.69 +8.57 +6.55 +2.02
NEW JERSEY MONEY MARKET 2/3/88 +2.96 +3.48 +4.17 +4.17 0.00
OHIO INSURED LONG-TERM 6/18/90 +7.57 -- +8.80 +6.08 +2.72
OHIO MONEY MARKET 6/18/90 +3.08 -- +3.44 +3.44 0.00
FLORIDA INSURED TAX-FREE 9/1/92 +8.74 -- +7.68 +5.44 +2.24
</TABLE>
ALL OF 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
PORTFOLIOS OF 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.
4
<PAGE> 5
REPORT FROM THE INVESTMENT ADVISER
Two significant events occurred during the first six months of the fiscal year.
The first was the stunning market rally that drove long-term municipal yields
approximately -1.1 percentage points lower. The second was the turmoil
surrounding the bankruptcy of Orange County, California.
MONEY MARKETS
The aggressive tightening of monetary policy by the Federal Reserve Board in
1994 slowed down dramatically in the first half of fiscal year 1995. The only
intervention occurred on February 1, 1995, when the Federal Reserve Board
increased the discount and Federal funds rates 0.5%. Participants in the
short-term municipal market reacted favorably to this relative stability in
interest rates and 1-year notes rallied roughly +1%. While yields on 1-year
notes declined, yields on shorter-term variable rate instruments moved in the
opposite direction, resulting in what is known as a flattening of the
short-term municipal yield curve. The average weighted maturities of the
Portfolios were positioned at the lower end of their maturity spectrum, and
consequently benefited from this flattening. During the fiscal half, the
average monthly yield on all non-institutional state-specific money funds rose
+0.78%.
In the upcoming months, increased supply of short-term municipal issuance
should present an opportunity for our Money Market Portfolios to extend their
average maturities, but not at the expense of sacrificing quality.
BOND MARKETS
For the first half of the fiscal year, investors pushed long-term interest
rates lower as economic indices pointed increasingly to slower domestic
economic growth. Investors viewed the slowing as beneficially affecting
inflation. Long-term interest rates declined for virtually the entire six
months. For example, the benchmark 30-year U.S. Treasury bond began the fiscal
year yielding 8.0%, and by the end of May, the yield had fallen -1.4% to 6.6%.
Long-term tax-exempt bond yields followed suit, however, not in quite the same
magnitude as the taxable market. The Bond Buyer 20 Municipal Bond Index yield
declined -1.1% (from 6.9% to 5.8%) over the same period. The Florida, New
Jersey, New York, Ohio, California, and Pennsylvania Insured Long-Term
Portfolios performed well over the six-month period. The Portfolios benefited
from an extension in their average weighted maturity that began in the fourth
quarter of the last fiscal year. Additionally, the Portfolios' structure, with
superior protection from early calls, aided in maintaining the price
responsiveness of the Portfolios during the market rally.
Looking ahead there are three main strategies that we expect to pursue
regarding the management of the money invested in the Florida, New Jersey, New
York, Ohio, California, and Pennsylvania Insured Long-Term Portfolios. The
first is a continued focus on improvements in call protection to enhance the
durability of dividends; second is investing to minimize taxable capital gains
distributions when it does not interfere with superior total return potential;
and third is a focus on higher coupon bonds that would position the Portfolios
more defensively should interest rates reverse direction and move higher.
ORANGE COUNTY
During the afternoon of December 1, 1994, reports began to appear in the media
that Orange County, California, had experienced massive losses from its
investment pool in the range of $1.5 billion. Several days later, a news
conference convened by county officials confirmed the losses. On December 6,
acting to prevent creditors from forcing the county to become insolvent, the
officials filed for bankruptcy protection under Chapter 9 of the Federal
Bankruptcy Code. This was the first municipal bankruptcy filing by a major
government since the Great Depression. So far, there have been no major
defaults on bonds by the county or the other 187 government pool participants
(mainly from Orange County). However, if plans for a financial rescue of the
County are not completed before the end of June 1995, a series of defaults
could occur which would rival the $2.5 billion default by the Washington Public
Power Supply System in 1984. Importantly, Vanguard has no direct exposure to
losses stemming from Orange County.
How this debacle happened is still being discussed and investigated. The
County Treasurer used reverse repurchase agreements to leverage the
5
<PAGE> 6
portfolio to roughly three times the value of the underlying investments. He
then invested about a quarter of the pool in exotic derivative securities which
had coupons that reset inversely to changes in interest rates. As rates rose
rapidly during 1994, the portfolio suffered massive unrealized market value
losses. Orange County was not the only jurisdiction to have experienced massive
investment losses in 1994. Highly publicized, but less serious problems
occurred in the investments of the State of Wisconsin, Cuyahoga County (Ohio),
and Odessa (Texas) Junior College District. As a result, state and local
government investments, investment policies, and investment oversight will be
more carefully scrutinized in the future.
Nevertheless, the aftershock of the bankruptcy extended well beyond the
boundaries of California, and consequently, all municipal money market funds
experienced its effects. The immediate reaction in the short-term municipal
market resulted in a rise in yields of +0.75 percentage points on all general
market notes. Orange County Tax and Revenue Anticipation Notes, and any related
credits, faced a much more severe crisis with virtually no bid for these
securities. Since then, liquidity for general market notes has returned, and
yields have rallied through their December levels. However, illiquidity
persists for Orange County investors as bondholders negotiate payment on the
notes that are due in July.
The Orange County bankruptcy underscores the benefit of the additional
layer of credit protection provided by the AAA-rated insurance policies attached
to the bonds that are owned by the State Insured Long-Term Portfolios. As the
bankruptcy story unfolded, most uninsured Orange County investment pool related
bonds were illiquid. In contrast, while insured Orange County related bonds
underperformed other insured bonds by three points, the insured market was
liquid. By late December, much of that underperformance had disappeared, and at
the end of the fiscal half, insured Orange County related bonds were trading at
prices just slightly lower than other insured bonds.
CONCLUSION
The Orange County bankruptcy has reinforced our commitment to rigorous credit
evaluation of the municipal securities in which we invest. This conservative
approach to assessing credit quality combined with Vanguard's low expenses
provides a high-quality investment that is exempt from both Federal and state
income taxes.
Respectfully,
Ian A. MacKinnon
Senior Vice President
Jerome J. Jacobs
Vice President
Pamela W. Tynan
Vice President
David E. Hamlin
Assistant Vice President
Reid O. Smith
Assistant Vice President
Danine A. Mueller
Portfolio Manager
Vanguard Fixed Income Group
June 14, 1995
6
<PAGE> 7
FINANCIAL STATEMENTS
(unaudited)
May 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
Amount Value
INSURED LONG-TERM PORTFOLIO (000) (000)+
- -------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.2%)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ISSUER INSURED (81.2%)
Atlantic County COP
6.00%, 3/1/14 (3) $ 3,685 $ 3,894
6.00%, 3/1/15 (3) 1,480 1,566
7.30%, 3/1/05 (3) 2,000 2,325
7.30%, 3/1/06 (3) 1,800 2,134
7.40%, 3/1/10 (3) 1,755 2,113
7.40%, 3/1/11 (3) 4,025 4,847
Atlantic County Utilities Auth.
5.85%, 1/15/15 (2) 3,000 3,059
Bayshore Regional Sewer Auth.
5.40%, 5/1/12 (1) 500 499
Bergen County Utilities Auth.
Water Pollution Control Rev.
5.50%, 12/15/15 (3) 15,750 15,795
5.75%, 12/15/05 (3) 2,000 2,118
Bordentown Sewer Auth.
5.375%, 12/1/15 (1) 6,250 6,185
5.40%, 12/1/20 (1) 1,400 1,372
Camden County GO
5.00%, 2/1/10 (3) 1,500 1,450
5.00%, 2/1/11 (3) 2,950 2,832
Camden County Municipal Utilities Auth.
Sewer Rev.
0.00%, 9/1/04 (3) 8,345 5,318
0.00%, 9/1/05 (3) 18,545 11,179
0.00%, 9/1/06 (3) 18,545 10,524
8.25%, 12/1/17 (3) 850 938
Cape May County Industrial
Development Auth.
(Atlantic City Electric)
6.80%, 3/1/21 (1) 15,400 17,926
Cape May County Municipal
Utility Auth.
5.75%, 1/1/16 (1) 14,975 15,139
Delaware River Port Auth.
6.50%, 1/1/09 (2) 3,500 3,695
7.375%, 1/1/07 (2) 9,500 10,483
Elizabeth City Fiscal Year
Adjustment Bonds
6.60%, 8/1/06 (1) 8,750 9,653
Essex County Improvement
Auth. Lease Rev. GO
5.50%, 12/1/08 (2) 2,560 2,615
5.50%, 12/1/13 (2) 7,500 7,548
7.00%, 12/1/24 (2) 9,525 10,993
Essex County Improvement Auth.
Township of Irvington GO
6.625%, 10/1/02 (4) (Prere.) 7,000 7,927
Evesham Municipal Utility Auth.
7.00%, 7/1/10 (1) 1,700 1,855
7.00%, 7/1/15 (1) 450 490
Gloucester Township GO
5.75%, 7/15/10 (2) 2,880 2,980
Gloucester Township Municipal
Utilities Auth.
5.65%, 3/1/18 (2) 2,755 2,790
Hamilton Township Municipal
Utility Auth.
6.00%, 8/15/17 (3) 1,000 1,024
Hoboken-Union City-Weehawken
Sewer Auth.
0.00%, 8/1/03 (1) 3,800 2,567
0.00%, 8/1/04 (1) 3,750 2,400
0.00%, 8/1/05 (1) 3,805 2,303
0.00%, 8/1/06 (1) 2,000 1,140
6.25%, 8/1/13 (1) 9,590 10,478
Hudson County Correctional
Facility COP
6.30%, 6/1/04 (1) 1,720 1,844
6.30%, 12/1/04 (1) 1,770 1,897
6.50%, 12/1/11 (1) 9,000 9,708
Hudson County General
Improvement GO
6.55%, 7/1/04 (3) 1,300 1,452
6.55%, 7/1/05 (3) 1,290 1,442
6.55%, 7/1/06 (3) 700 788
6.55%, 7/1/07 (3) 1,300 1,462
6.55%, 7/1/09 (3) 635 710
Hudson County Improvement
Auth. Lease
6.00%, 12/1/12 (3) 10,000 10,321
Irvington Township GO
0.00%, 8/1/07 (1) 1,000 535
0.00%, 8/1/09 (1) 2,580 1,209
0.00%, 8/1/10 (1) 2,080 909
Jersey City Water Auth. GO
7.60%, 10/1/12 (2) 700 758
7.60%, 10/1/13 (2) 700 758
Lacey Township Municipal
Utility Auth.
7.00%, 12/1/99 (6) (Prere.) 3,000 3,352
Middlesex County Utility Auth.
6.50%, 9/15/11 (3) 6,300 6,801
6.75%, 8/15/09 (2) 3,500 3,681
Monmouth County
Improvement Auth.
5.00%, 2/1/13 (1) 750 716
6.75%, 2/1/01 (1) (Prere.) 1,250 1,399
6.875%, 8/1/00 (1) (Prere.) 2,700 3,023
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Monroe Township Municipal
Utility Auth.
6.875%, 2/1/17 (1) $ 1,700 $ 1,829
Mount Laurel Township Municipal
Utility Auth.
6.00%, 7/1/15 (1) 4,250 4,369
Muscanectong Sewer Auth.
7.15%, 1/1/00 (1) (Prere.) 1,000 1,121
New Brunswick Housing &
Urban Development
5.75%, 7/1/24 (1) 8,640 8,639
6.00%, 7/1/12 (1) 6,000 6,190
New Brunswick Housing Auth.
5.50%, 8/1/16 (1) 525 499
New Brunswick Parking Auth.
5.40%, 9/1/15 (3) 1,000 987
New Jersey Economic
Development Auth.
(Hackensack Water)
7.00%, 1/1/19 (2) 2,400 2,525
(Market Transition)
5.80%, 7/1/09 (1) 5,500 5,612
5.875%, 7/1/11 (1) 12,675 12,896
New Jersey Educational
Facilities Auth.
(Kean College)
6.60%, 7/1/21 (1) 3,700 3,965
(NJ Institute of Technology)
6.00%, 7/1/24 (1) 1,500 1,537
6.25%, 7/1/11 (2) 5,165 5,637
(Rider College)
6.20%, 7/1/17 (2) 4,000 4,162
(Trenton State College)
6.00%, 7/1/12 (2) 3,005 3,116
New Jersey Health Care
Facilities Auth.
(Beth Israel)
6.00%, 7/1/16 (4) 8,500 8,707
(Burdette Tomlin
Memorial Hosp.)
6.50%, 7/1/12 (3) 1,500 1,597
(Community Medical Center)
7.00%, 7/1/20 (1) 2,850 3,134
(Helene Fuld Medical
Center)
6.60%, 7/1/21 (2) 4,080 4,334
(Jersey Shore Medical Center)
8.00%, 7/1/98 (2) (Prere.) 1,905 2,133
(Memorial Health Alliance)
6.25%, 7/1/10 (3) 8,000 8,284
(Mercer Medical Center)
6.50%, 7/1/10 (1) 6,000 6,428
(Mountainside Hosp.)
3.45%, 7/1/95 (1) 1,620 1,619
5.35%, 7/1/07 (1) 3,215 3,225
5.50%, 7/1/14 (1) 3,975 3,961
(Muhlenberg Medical Center)
8.00%, 7/1/97 (2) (Prere.) 750 835
(Riverview Medical Center)
6.25%, 7/1/10 (2) 2,935 3,177
(Shore Medical Center)
6.20%, 7/1/13 (2) 3,130 3,255
6.20%, 7/1/14 (2) 3,075 3,205
(Society of the Valley Hosp.)
6.625%, 7/1/10 (1) 2,750 2,923
(St. Clare's Riverside
Medical Center)
5.75%, 7/1/14 (1) 7,500 7,555
(West Jersey Health System)
6.00%, 7/1/09 (1) 5,175 5,369
New Jersey Housing & Mortgage
Finance Auth.
7.875%, 10/1/17 (1) 450 481
New Jersey Sports &
Exposition Auth. VRDO
3.90%, 6/8/95 (1) 6,450 6,450
New Jersey Turnpike Auth.
VRDO 3.25%, 6/7/95 (3) 36,455 36,455
6.50%, 1/1/13 (1) 20,000 22,355
6.50%, 1/1/16 (1) 18,250 20,288
Newark General Improvement
5.30%, 10/1/06 (2) 1,710 1,743
5.40%, 10/1/07 (2) 1,685 1,720
5.50%, 10/1/08 (2) 1,660 1,695
Newark Water Utility
5.30%, 10/1/06 (2) 2,625 2,676
North Bergen Hudson City
GO 8.00%, 8/15/06 (4) 1,885 2,351
North Jersey Water Dist.
(Wanaque South Proj.)
6.00%, 7/1/12 (1) 10,125 10,496
Ocean County Utilities Waste
Water Rev.
5.00%, 1/1/14 (3) 2,000 1,865
6.60%, 1/1/18 (3) (ETM) 2,500 2,889
6.60%, 1/1/18 (3) 4,000 4,258
6.75%, 1/1/13 (3) 14,810 15,531
Ocean Township Municipal
Utility Auth.
6.00%, 8/1/17 (1) 3,975 4,201
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Old Bridge Municipal Utility Auth.
6.25%, 11/1/16 (3) $ 1,400 $ 1,472
6.40%, 11/1/09 (3) 3,000 3,274
Passaic Valley Sewer Comm.
5.75%, 12/1/08 (2) 4,450 4,611
5.75%, 12/1/13 (2) 4,000 4,061
Plainfield GO
6.25%, 7/15/07 (2) 6,930 7,541
Roselle GO
5.05%, 10/15/07 (1) 1,435 1,436
5.10%, 10/15/08 (1) 1,405 1,400
Salem County Improvement Auth.
7.125%, 5/1/99 (2) (Prere.) 1,000 1,110
Salem County Pollution Control
Finance Auth.
(Public Service Electric & Gas)
5.55%, 11/1/33 (1) 8,000 7,777
5.70%, 5/1/28 (1) 5,000 4,956
South Brunswick Township
Board of Education
6.40%, 8/1/22 (3) 2,205 2,340
6.40%, 8/1/23 (3) 2,315 2,457
South Jersey Transportation Auth.
5.90%, 11/1/06 (1) 3,435 3,710
5.90%, 11/1/07 (1) 2,545 2,729
6.00%, 11/1/12 (1) 5,250 5,445
Stafford Municipal Utility Auth.
5.50%, 6/1/11 (3) 3,100 3,126
Sussex County Solid Waste Rev.
5.75%, 12/1/09 (1) 19,820 20,256
Sussex Municipal Utility Auth.
5.25%, 12/1/08 (1) 1,150 1,155
5.375%, 12/1/14 (1) 2,000 1,970
West Windsor-Plainsboro School
Dist. COP
7.60%, 3/15/97 (6) (Prere.) 5,000 5,378
OUTSIDE NEW JERSEY:
Puerto Rico Public Building Auth.
0.00%, 7/1/02 (3) 4,000 2,829
-------------
GROUP TOTAL 602,231
-------------
- -----------------------------------------------------------------------------------------------------
PORTFOLIO INSURED (.2%)
Rutgers State Univ.
7.375%, 5/1/96 (Prere.) 1,500 1,575
-------------
- -----------------------------------------------------------------------------------------------------
SECONDARY MARKET INSURED (6.8%)
Atlantic County Utility
6.875%, 1/1/12 (2) (ETM) 3,000 3,310
New Jersey Educational Facilities Auth.
(Montclair State College)
7.20%, 7/1/10 (1) 1,000 1,047
New Jersey Highway Auth.
(Garden State Parkway)
6.00%, 1/1/16 (2) 5,000 5,098
6.20%, 1/1/10 (2) 20,000 21,620
New Jersey Sports &
Exposition Auth.
6.50%, 3/1/13 (1) 10,000 11,208
Port Auth. of New York &
New Jersey
6.875%, 1/1/25 (2) 3,200 3,454
Univ. of Medicine & Dentistry
6.50%, 12/1/12 (1) 4,000 4,494
-------------
GROUP TOTAL 50,231
-------------
- -----------------------------------------------------------------------------------------------------
NON-INSURED (10.0%)
Burlington County Bridge Comm.
5.30%, 10/1/13 9,500 9,228
Cherry Hill Township GO
6.30%, 6/1/12 3,745 3,936
Mercer County Improvement Auth.
5.75%, 12/15/07 1,110 1,148
5.75%, 12/15/08 1,165 1,198
5.95%, 12/15/12 4,895 5,068
6.00%, 12/1/14 1,000 1,023
Monmouth County Improvement Auth.
GO (Correctional Facilities)
6.40%, 8/1/11 1,850 1,965
New Jersey Health Care
Facilities Auth. VRDO
3.90%, 6/8/95 (LOC) 11,000 11,000
New Jersey TRAN
5.00%, 6/15/95 13,300 13,303
Ocean County Water Utility
6.30%, 1/1/13 2,215 2,330
6.35%, 1/1/14 2,360 2,486
6.35%, 1/1/15 2,515 2,641
Port Auth. of New York &
New Jersey VRDO
3.95%, 6/2/95 2,800 2,800
Rutgers State Univ. GO
6.40%, 5/1/13 3,000 3,287
OUTSIDE NEW JERSEY:
Puerto Rico Govt. Development Bank
VRDO 3.45%, 6/7/95 (LOC) 12,700 12,700
-------------
GROUP TOTAL 74,113
-------------
- -----------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $681,603) 728,150
- -----------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
(000)+
- ----------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.8%)
- ----------------------------------------------------------------------------------------------------
Other Assets--Note B 15,443
Liabilities (1,737)
----------
13,706
- ----------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------
Applicable to 64,095,492 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $741,856
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.57
====================================================================================================
</TABLE>
+ See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 12.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AT MAY 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------
Amount Per
(000) Share
-----------------------------
<S> <C> <C>
Paid in Capital $691,906 $10.79
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 3,403 .05
Unrealized Appreciation
of Investments--Note D 46,547 .73
- ----------------------------------------------------------------------------------------------------
NET ASSETS $741,856 $11.57
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORFOLIO (000) (000)+
- ----------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.4%)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Bergen County BAN
4.59%, 7/31/95 $ 18,400 $ 18,400
Bernards Township BAN
4.50%, 5/24/96 4,581 4,605
Borough of Bernardsville BAN
4.625%, 8/11/95 4,190 4,196
Burlington County BAN
5.50%-5.75%, 1/25/96 11,200 11,265
East Brunswick Township BAN
4.50%, 5/24/96 3,256 3,271
Essex County Auth. Pooled Govt.
Loan VRDO
3.40%, 6/7/95 (LOC) 34,150 34,150
Florence Township BAN
5.25%, 2/15/96 1,170 1,173
Franklin Lake Borough Notes
6.00%, 12/14/95 5,000 5,026
Freehold Township BAN
6.00%, 9/12/95 7,979 8,008
Gloucester County PCR VRDO
(Mobil Oil Corp.)
3.45%, 6/7/95 12,500 12,500
Hamilton Township BAN
5.50%, 10/4/95 5,215 5,224
Hunterdon General
Improvement BAN
3.95%, 5/24/96 10,950 10,951
Lenape Regional School
Dist. RAN
4.50%, 6/30/95 4,575 4,577
Manalapan BAN
5.00%, 10/20/95 3,752 3,756
Mendham Township BAN
5.00%, 10/18/95 2,000 2,006
Monmouth County Improvement
Auth. Rev.
(Pooled Govt. Loan Program)
VRDO 3.40%, 6/7/95 (LOC) 30,000 30,000
Monmouth County BAN
4.75%, 8/31/95 5,200 5,209
Monroe Township
Board of Education RAN
4.46%, 6/30/95 2,200 2,201
Moorestown Township BAN
4.12%, 9/6/95 5,135 5,135
Morristown Township BAN
4.50%, 5/24/96 13,310 13,379
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
New Jersey Economic
Development Auth. CP
(Chambers Cogeneration)
4.00%, 7/11/95 (LOC) $ 24,700 $ 24,700
(Keystone Project)
4.00%,
7/12/95-7/14/95 (LOC) 19,300 19,300
New Jersey Economic
Development Auth.
PCR VRDO
(Exxon Corp.)
4.10%, 6/7/95 4,800 4,800
(NJ American Water Co.)
3.75%, 6/7/95 (3) 17,000 17,000
New Jersey GO
TOB 4.65%, 8/15/95* 22,000 22,000
TOB VRDO 4.056%, 6/8/95 9,370 9,370
New Jersey Health Care
Facilities Finance Auth. VRDO
(Pooled Capital Assets Program)
3.90%, 6/8/95 (LOC) 38,100 38,100
(Carrier Foundation)
3.45%, 6/7/95 (3) 4,800 4,800
New Jersey Sports & Exposition
Auth. VRDO
3.90%, 6/8/95 (1) 77,055 77,055
New Jersey TRAN
5.00%, 6/15/95 1,400 1,400
New Jersey Transportation Trust
Fund Auth.
3.50%, 6/15/95 20,000 19,998
New Jersey Turnpike
Auth. VRDO
3.25%, 6/7/95 (3) 86,245 86,245
Passaic County BAN
4.75%, 9/28/95 10,000 10,019
Piscataway BAN
5.00%, 4/26/96 4,000 4,026
Port Auth. of New York &
New Jersey VRDO
3.95%, 6/2/95 36,500 36,500
CP 4.00%-4.10%,
7/12/95-8/10/95 64,645 64,645
(Kiac Partners) VRDO
3.55%, 6/7/95 (LOC) 51,000 51,000
Princeton BAN
5.00%-5.25%,
3/14/96-4/12/96 6,784 6,829
Rahway BAN
5.75%, 1/23/96 2,285 2,291
Randolph Township BAN
4.75%, 9/8/95 2,365 2,369
Salem County PCR CP (PECO)
4.00%, 7/12/95 (LOC) 5,000 5,000
Sparta Township BAN
4.50%, 6/16/95 1,775 1,776
Voorhees Township BAN
4.50%, 11/1/95 5,320 5,334
Waldwick Borough BAN
4.08%, 5/29/96 3,046 3,047
Woodbridge Township BAN
4.48%, 10/6/95 8,365 8,366
OUTSIDE NEW JERSEY:
Puerto Rico Electric Power Auth.
9.125%, 7/1/95 (Prere.) 9,010 9,319
Puerto Rico Facilities
Finance Auth. PCR
(Abbott Laboratories)
5.10%, 3/1/96* 4,500 4,522
Puerto Rico Govt.
Development Bank VRDO
3.45%, 6/7/95 (LOC) 40,050 40,050
Puerto Rico Highway &
Transportation Auth. VRDO
3.45%, 6/7/95 (LOC) 39,600 39,600
Puerto Rico Public Building Auth.
8.875%, 7/1/95 (Prere.) 8,000 8,195
- ----------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $812,688) 812,688
- ----------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.6%)
- ----------------------------------------------------------------------------------------------------
Other Assets--Note B 13,169
Liabilities (8,076)
-----------
5,093
- ----------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------
Applicable to 817,821,830 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $817,781
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
====================================================================================================
</TABLE>
+See Note A to Financial Statements.
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AT MAY 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $817,838 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (57) --
Unrealized Appreciation
of Investments -- --
- ----------------------------------------------------------------------------------------------------
NET ASSETS $817,781 $1.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
COP=Certificate of Participation
CP=Commercial Paper
GO=General Obligation
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.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(5) CGI (Capital Guaranty Insurance)
(6) BIGI (Bond Investors Guaranty Insurance)
(7) Connie Lee Inc.
(8) FHA (Federal Housing Authority)
The insurance does not guarantee the market value of the
municipal bonds.
(LOC)=Scheduled principal and interest payments are guaranteed by
bank letter of credit.
12
<PAGE> 13
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Insured Long-Term Money Market
Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
May 31, 1995 May 31, 1995
(000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . $20,553 $15,326
- ----------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . 20,553 15,326
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . . $ 44 $ 51
Management and Administrative . . . . . . . . . 611 679
Marketing and Distribution . . . . . . . . . . . 72 727 112 842
------ ------
Insurance Expense . . . . . . . . . . . . . . . . 2 --
Auditing Fees . . . . . . . . . . . . . . . . . . 3 4
Shareholders' Reports . . . . . . . . . . . . . . 14 13
Annual Meeting and Proxy Costs . . . . . . . . . . 2 1
Trustees' Fees and Expenses . . . . . . . . . . . 1 1
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . 749 861
- ----------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 19,804 14,465
- ----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . 1,607 (39)
Futures Contracts . . . . . . . . . . . . . . . . 948 --
- ----------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . 2,555 (39)
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . 69,676 --
Futures Contracts . . . . . . . . . . . . . . . . 1,063 --
- ----------------------------------------------------------------------------------------------------------------------
Change in Unrealized . . . . . .
Appreciation (Depreciation) . 70,739 --
- ----------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . $93,098 $14,426
======================================================================================================================
</TABLE>
13
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
MAY 31, November 30,
1995 1994
(000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,804 $ 39,526
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . 2,555 4,088
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . . 70,739 (89,286)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . 93,098 (45,672)
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,804) (39,526)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,995)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . (19,804) (43,521)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . 50,269 120,507
-- In Lieu of Cash Distributions . . . . . . . . . . . . . . . 15,165 34,307
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . 34,111 57,419
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . (40,255) (103,810)
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . (35,351) (122,738)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions . . . . . . . 23,939 (14,315)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . . . . 97,233 (103,508)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,623 748,131
- ----------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $741,856 $ 644,623
============================================================================================================================
(1) Distributions Per Share
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . $.316 $.622
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . -- $.063
- ----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,597 15,697
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 1,358 3,048
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,872) (20,279)
- ----------------------------------------------------------------------------------------------------------------------------
2,083 (1,534)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
MONEY MARKET PORFOLIO
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
MAY 31, November 30,
1995 1994
(000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,465 $ 19,162
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . (39) (18)
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . 14,426 19,144
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . (14,465) (19,162)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . (14,465) (19,162)
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . . . . . 306,984 516,267
-- In Lieu of Cash Distributions . . . . . . . . . . . . . 13,801 18,247
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . 77,903 208,722
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . . . . . (272,296) (503,920)
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . (100,820) (170,862)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions . . . . . . 25,572 68,454
- ------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . . . 25,533 68,436
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 792,248 723,812
- ------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 817,781 $ 792,248
========================================================================================================================
(1) Distributions Per Share
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . $.018 $.025
Realized Net Gain. . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384,887 724,989
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . 13,801 18,247
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (373,116) (674,782)
- ------------------------------------------------------------------------------------------------------------------------
25,572 68,454
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED ---------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . $10.40 $11.77 $11.18 $10.75 $10.51 $10.45
------- ------ ------- ------- ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . .316 .622 .637 .659 .676 .692
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . 1.170 (1.307) .725 .438 .245 .073
------- ------ ------- ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . 1.486 (.685) 1.362 1.097 .921 .765
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . (.316) (.622) (.637) (.659) (.676) (.692)
Distributions from Realized Capital Gains . . . . . . . . -- (.063) (.135) (.008) (.005) (.013)
------- ------ ------- ------- ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . (.316) (.685) (.772) (.667) (.681) (.705)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $11.57 $10.40 $11.77 $11.18 $10.75 $10.51
====================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +14.44% -6.10% +12.53% +10.48% +9.01% +7.66%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . $742 $645 $748 $572 $434 $245
Ratio of Expenses to Average Net Assets . . . . . . . . . . . .22%* .21% .20% .25% .24%+ .25%+
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . 5.72%* 5.53% 5.47% 5.99% 6.33% 6.73%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . 7%* 13% 12% 34% 18% 7%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Insurance expense represents .01% and .01%.
* Annualized.
16
<PAGE> 17
<TABLE>
<CAPTION>
MONEY MARKET PORFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED -----------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<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 . . . . . . . . . . . . . . . . . . .018 .025 .023 .030 .045 .056
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
------- ------ ------- ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . .018 .025 .023 .030 .045 .056
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . (.018) (.025) (.023) (.030) (.045) (.056)
Distributions from Realized Capital Gains . . . . . . . . -- -- -- -- -- --
------- ------ ------- ------- ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . (.018) (.025) (.023) (.030) (.045) (.056)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +1.82% +2.49% +2.31% +3.04% +4.54% +5.78%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . $818 $792 $724 $627 $547 $464
Ratio of Expenses to Average Net Assets . . . . . . . . . . . .22%* .21% .20% .24% .24% .24%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . 3.62%* 2.46% 2.29% 2.98% 4.43% 5.61%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Insurance expense represents .01% and .01%.
* Annualized.
17
<PAGE> 18
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 Municipal Bond Index,
U.S. Treasury Bond, and U.S. Treasury Note futures contracts to a limited
extent, with the objectives of enhancing returns, managing interest rate
risk, maintaining liquidity, diversifying credit risk and minimizing
transaction costs. The Portfolio may purchase futures contracts instead of
municipal bonds when futures contracts are believed to be priced more
attractively than municipal bonds. The Portfolio may also seek to take
advantage of price differences among bond market sectors by simultaneously
buying futures (or bonds) of one market sector and selling futures (or
bonds) of another sector. Futures contracts may also be used to simulate
a fully invested position in the underlying bonds while maintaining a cash
balance for liquidity.
The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of bonds held by
the Portfolio and the prices of futures contracts, and the possibility of
an illiquid market. Futures contracts are valued based upon their quoted
daily settlement prices. Fluctuations in the values 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. At May 31, 1995, the Fund had contributed capital aggregating
$214,000 to Vanguard (included in Other Assets), representing 1.1% of
Vanguard's capitalization. The Fund's officers and trustees are also officers
and directors of Vanguard.
18
<PAGE> 19
C. During the six months ended May 31, 1995, the Insured Long-Term Portfolio
made purchases of $21,247,000 and sales of $41,912,000 of investment securities
other than temporary cash investments.
At November 30, 1994, the Insured Long-Term Portfolio had available a capital
loss carryforward of $214,000 to offset future net capital gains through
November 30, 2002.
D. At May 31, 1995, unrealized appreciation of investment securities of the
Insured Long-Term Portfolio for financial reporting and Federal income tax
purposes aggregated $46,547,000 of which $47,152,000 related to appreciated
securities and $605,000 related to depreciated securities.
19
<PAGE> 20
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
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 Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
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
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
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.
Q142-5/95
VANGUARD
NEW JERSEY
TAX-FREE FUND
SEMI-ANNUAL REPORT
MAY 31, 1995
