<PAGE> 1
A MESSAGE TO SHAREHOLDERS
DEAR SHAREHOLDER:
The declining interest rate environment that prevailed for most of fiscal 1995
reversed course during the first six months of our current fiscal year.
Short-term tax-exempt yields, after falling through late February, stabilized
and then abruptly rose to end the six-month period slightly higher than where
they began. Long-term tax-exempt yields also moved lower at the outset of the
period, before creeping higher to end above their starting point. This overall
increase in interest rates resulted in lower prices for municipal bonds.
During the past twelve months, the net asset values of our Insured
Longer-Term Portfolios were negatively impacted by rising rates, but each
Portfolio's income component more than compensated for any decrease in
principal. Our Money Market Portfolios all gave good accounts of themselves,
providing returns that fully reflect the current level of interest rates. The
table on page 3 of this Report provides detailed results for each of our State
Tax-Free Portfolios, including per share net asset values, dividend and capital
gains distributions, and total returns over the past six and twelve months, as
well as current yields. In summary form, here are the Portfolio highlights:
THE STATE MONEY MARKET PORTFOLIOS--provided total returns ranging from +3.4% to
+3.6% for the past year. As expected, net asset values remained at $1.00 per
share. As the following table illustrates, current yields are in the area of
3.4%, moderately lower than they were twelve months ago:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SEVEN-DAY
ANNUALIZED YIELD
---------------------------------
MONEY MARKET MAY 31, NOV. 30, MAY 31,
PORTFOLIO 1996 1995 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA 3.39% 3.61% 3.80%
PENNSYLVANIA 3.44 3.64 3.80
NEW JERSEY 3.30 3.57 3.71
OHIO 3.43 3.71 3.92
- ---------------------------------------------------------
</TABLE>
THE STATE INSURED LONGER-TERM PORTFOLIOS--earned sufficient income to offset
the modest decrease in long-term municipal bond prices, providing total returns
(capital change plus reinvested dividends) ranging from +3.4% to +5.0% for the
twelve months. Despite the swings in interest rates during the period, the
current yields on the Insured Longer-Term Portfolios (roughly 5.2%) are nearly
identical to their levels of twelve months ago.
To provide some perspective on how our Insured Longer-Term Portfolios
performed during the past year, the table below breaks out the two components
of total return--income return and capital return. As you can see, the positive
contribution of each Portfolio's income return was marginally reduced by its
negative capital return.
<TABLE>
<CAPTION>
- --------------------------------------------------------
INVESTMENT RETURNS
------------------------------
TWELVE MONTHS ENDED
MAY 31, 1996
------------------------------
INSURED LONGER-TERM
PORTFOLIO INCOME CAPITAL TOTAL
- --------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA
INTERMEDIATE-TERM +5.1% -0.1% +5.0%
CALIFORNIA LONG-TERM +5.5 -1.7 +3.8
NEW YORK +5.4 -1.6 +3.8
PENNSYLVANIA +5.6 -1.3 +4.3
NEW JERSEY +5.3 -1.9 +3.4
OHIO +5.4 -1.6 +3.8
FLORIDA +5.2 -1.4 +3.8
- --------------------------------------------------------
</TABLE>
FIXED-INCOME MARKET REVIEW
Although the Federal Reserve lowered short-term interest rates in December and
January, the bond market fretted over the apparent strength of the U.S. economy
and the possibility of an increase in inflation. During the past six months,
the yield on the long-term U.S. Treasury bond, the benchmark for the bond
market, rose from 6.1% to 6.9%, engendering a price decline of approximately
- -10% (excluding interest income).
The long-term municipal bond market fared much better. On balance for
the six-month period, yields on high-grade municipal bonds increased less
dramatically (5.5% to 5.9%), resulting in a price
1
<PAGE> 2
decline of only -6%. Yields on top-grade (MIG 1) short-term municipal notes
remained essentially unchanged on balance at 3.7%.
Although the future direction of interest rate movements is virtually
impossible to predict with any level of accuracy and consistency, the relative
performance of bond funds with comparable quality and maturity guidelines is
surprisingly predictable. That is to say, bond funds holding similar types of
securities--say, high-quality, long-term municipal bonds--should, on average,
earn roughly equivalent gross returns. What that absolute return will be,
however, is anyone's guess. On the other hand, what can be predicted with some
semblance of accuracy is the relative performance differential due to the
expense ratios of the funds. The average Vanguard Insured Longer-Term
Portfolio, for example, operates with an annual expense ratio of 0.2%, compared
to 0.9% for our average competitor. Therefore, holding all other factors equal,
a typical Vanguard Insured Longer-Term Portfolio begins each year with an
income advantage of +0.7% over a comparable municipal bond fund.
IN SUMMARY
As you may know, one of the benefits of Vanguard's State Insured Longer-Term
Portfolios is their reliance on insured municipal bonds, in which the timely
payment of principal and interest is guaranteed by a private insurer. Such
insurance provides protection against the possibility of deteriorating
creditworthiness, but not against fluctuations in principal value based on
changes in interest rates.
There are, of course, "costs" associated with insuring our Portfolios
against potential default. First, bonds that are issued with insurance
typically offer slightly lower yields than non-insured bonds. A second cost is
the explicit expense of purchasing insurance on non-insured bonds. Despite
these costs, however, our top-quality Portfolios continue to benefit from our
expense ratio advantage and provide yields that are fully competitive with
those of uninsured municipal bond portfolios.
Over time, given our high-quality, low-cost advantage, Vanguard State
Tax-Free Portfolios should remain attractive relative to our competitors'
funds. We look forward to reporting to you in further detail in our 1996 Annual
Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- --------------------
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
- --------------------
John J. Brennan
President
June 8, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE INCOME
TOTAL PER SHARE DIVIDENDS TOTAL RETURN
NET ASSETS ----------------- -------------- ---------------
(MILLIONS) AVERAGE AVERAGE NOV. 30, MAY 31, SIX TWELVE SIX TWELVE CURRENT
PORTFOLIO MAY 31, 1996 MATURITY QUALITY* 1995 1996 MONTHS MONTHS MONTHS MONTHS YIELD**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
CALIFORNIA . . . $1,276 42 DAYS MIG 1 $ 1.00 $ 1.00 $.017 $.034 +1.7% +3.5% 3.39%
PENNSYLVANIA . . 1,306 32 DAYS MIG 1 1.00 1.00 .017 .035 +1.7 +3.5 3.44
NEW JERSEY . . . 888 57 DAYS MIG 1 1.00 1.00 .016 .033 +1.6 +3.4 3.30
OHIO . . . . . . 199 60 DAYS MIG 1 1.00 1.00 .017 .035 +1.7 +3.6 3.43
- --------------------------------------------------------------------------------------------------------------------
INSURED
INTERMEDIATE-TERM
CALIFORNIA . . . $ 264 7.4 YEARS Aaa $10.44 $10.25 $.254 $.512 +0.6% +5.0% 4.77%
INSURED LONG-TERM
CALIFORNIA . . . 978 14.1 YEARS Aaa 11.27 10.87 .299 .600 -0.9 +3.8 5.33
NEW YORK . . . . 879 11.7 YEARS Aaa 11.01 10.57 .286 .574 -0.8+ +3.8+ 5.23
PENNSYLVANIA . . 1,565 11.4 YEARS Aaa 11.28 10.90 .304 .608 -0.4+ +4.3+ 5.28
NEW JERSEY . . . 796 11.9 YEARS Aaa 11.78 11.29 .310 .617 -1.1+ +3.4+ 5.23
OHIO . . . . . . 203 10.9 YEARS Aaa 11.63 11.25 .302 .605 -0.7 +3.8 5.29
FLORIDA . . . . 453 14.2 YEARS Aaa 10.94 10.60 .275 .554 -0.6 +3.8 5.22
- --------------------------------------------------------------------------------------------------------------------
</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.
+ Includes capital gains distributions of $.065 for New York, $.037 for
Pennsylvania, and $.058 for New Jersey. 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 QUOTED IN THE MESSAGE TO SHAREHOLDERS ARE CALCULATED IN
ACCORDANCE WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED MARCH 31, 1996) 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 +7.60% -- +6.56% +5.08% +1.48%
CALIFORNIA INSURED LONG-TERM 4/7/86 +7.73 +8.17% +7.75 +6.47 +1.28
CALIFORNIA MONEY MARKET 6/1/87 +3.57 +3.12 +4.11 +4.11 0.00
NEW YORK INSURED TAX-FREE 4/7/86 +7.50 +8.37 +7.32 +6.44 +0.88
PENNSYLVANIA INSURED LONG-TERM 4/7/86 +7.15 +8.41 +7.95 +6.64 +1.31
PENNSYLVANIA MONEY MARKET 6/13/88 +3.62 +3.12 +4.11 +4.11 0.00
NEW JERSEY INSURED LONG-TERM 2/3/88 +7.13 +8.10 +8.39 +6.43 +1.96
NEW JERSEY MONEY MARKET 2/3/88 +3.50 +3.08 +4.09 +4.09 0.00
OHIO INSURED LONG-TERM 6/18/90 +7.13 +8.08 +8.50 +5.97 +2.53
OHIO MONEY MARKET 6/18/90 +3.72 +3.17 +3.49 +3.49 0.00
FLORIDA INSURED TAX-FREE 9/1/92 +7.50 -- +7.62 +5.43 +2.19
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' 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
The two major factors affecting the Longer-Term Insured Portfolios over the
last six months were the sharp rise in interest rates and the relatively
better performance of municipal bonds versus their taxable counterparts. The
yield on the 30-year U.S. Treasury bond increased 0.8 percentage points (from
6.1% to 6.9%). This was a decidedly unpleasant turn of events for bondholders
and their total returns. The increase in interest rates was prompted by signs
of an improving economy and investor concerns about inflation. During the same
period, the yield on high-grade, long-term municipal bonds rose 0.4 percentage
points (from 5.5% to 5.9%). The question of tax reform first raised by Senator
Armey (R-TX) and later championed by Steve Forbes in the Republican
Presidential primaries seemed to have been, at least in part, answered. The
reduced intensity of the rhetoric around the question of tax reform was a
contributing factor in explaining why the municipal market performed better
than the Treasury market.
The Federal Reserve Board's last action on January 31, 1996, was to
reduce the Federal funds rate and the discount rate by 0.25 percentage points.
At that time, the economy appeared to be struggling, a situation further
exacerbated by the severity of the winter. Unfortunately for bond investors,
the release of February's economic statistics showed a much stronger than
anticipated economy. Concurrently, an increase in the prices of oil, gasoline,
wheat, and corn prodded some investors to become concerned about the specter of
higher inflation. The combined effects caused the yield on the 30-year U.S.
Treasury bond to increase sharply. The beginning of the Presidential primary
season added an extra degree of uncertainty to the market.
While bear markets are never pleasant, they often offer investment
opportunities that can be exploited to the shareholders' eventual benefit.
First, the Portfolios' dividend distribution can be positively impacted by
swapping bonds with lower yields to maturity for bonds with higher yields to
maturity. Second, capital gains distributions can usually be reduced by
realizing offsetting capital losses. Finally, bear markets are generally the
best time to buy bonds that have superior protection from early redemption. As
interest rates rise, bonds which are noncallable or have long periods before
they are callable are often available at close to the same price as bonds with
less desirable characteristics. When the time comes for interest rates to
reverse course and fall, these bonds will furnish excellent capital returns
while providing a more stable dividend.
The past six months have been a very volatile period of time. The
future remains unknown, but the State Insured Longer-Term Portfolios will
continue to focus on their objectives. It is through this commitment to
high-quality Federal and state tax-exempt municipal bonds and low-cost,
prudent management that superior and durable investment results can be
achieved.
MONEY MARKETS
The volatility experienced in the Treasury market over the past six months has
had little impact on yields in the short-term municipal bond market. Yields on
one-year municipal notes ended the period very close to where they began,
despite a 0.3% rise in yields on one-year Treasury bills. Nevertheless, there
were two issues which had a substantial impact on the short-term market.
First, seasonal supply constraints that typically plague the short-term
municipal market in the spring dampened the average weighted maturities of
money market funds. Second, and most notably, the Securities and Exchange
Commission (SEC) announced changes in the regulations governing money market
funds which became effective June 3, 1996.
In April, the SEC adopted amendments to rule 2a-7 under the Investment
Company Act of 1940. Section 2a-7 contains regulations that protect the quality
and safety of money market funds. For the most part, the changes emphasize
higher quality and increased diversification. The new guidelines were designed
to tighten the regulations imposed on tax-exempt money market funds and improve
the likelihood that the funds maintain a stable net asset value. Compliance
with the amendments may prove challenging for the industry. Many of our
competitors operate under somewhat lower quality standards and, as a result,
may be forced to significantly restructure their funds in order to meet the
standards. In contrast, our Money Market Portfolios have
5
<PAGE> 6
always been managed quite conservatively with credit quality our most important
consideration. Consequently, we expect the impact of the changes on Vanguard's
State Tax-Free Money Market Portfolios to be minimal.
The scarcity of new issue supply in the short-term municipal market
contributed to the relative stability in yields over the period. The supply of
short-term municipals tends to be quite seasonal, the timing of which depends
upon an issuer's fiscal year. The vast majority of issuers have fiscal years
beginning July 1 and ending June 30, causing new issue supply to decline in the
months leading up to June and increase dramatically in July. Looking forward,
the glut of new issue supply should provide ample opportunities for us to
extend our average maturities, increase our diversification, and further
enhance our overall quality.
In conclusion, the months ahead should be challenging for the
industry, with tighter regulations governing tax-free money market funds coming
at a time when short-term issuance is at its peak. Hopefully, the new
amendments adopted by the SEC will "level the playing field," bringing
competitors closer to Vanguard's already conservative style of management,
thereby further enhancing the performance advantage that arises from our "rock
bottom" expense ratios.
Sincerely,
Ian A. MacKinnon David E. Hamlin
Senior Vice President Principal
Pamela W. Tynan Danine A. Mueller
Principal Principal
Reid O. Smith Jerome J. Jacobs
Principal Principal
Vanguard Fixed Income Group
June 18, 1996
6
<PAGE> 7
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
May 31, 1996
<TABLE>
<CAPTION>
Face Market
INSURED Amount Value
LONG-TERM PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (98.2%)
- ----------------------------------------------------------------------------
ISSUER INSURED (81.4%)
Atlantic County NJ COP
6.00%, 3/1/14 (3) $ 3,685 $ 3,778
6.00%, 3/1/15 (3) 1,480 1,510
7.30%, 3/1/05 (3) 2,000 2,297
7.30%, 3/1/06 (3) 1,800 2,081
7.40%, 3/1/10 (3) 1,755 2,057
7.40%, 3/1/11 (3) 4,025 4,728
Atlantic County NJ Utilities Auth.
5.85%, 1/15/15 (2) 3,000 2,960
Bayshore NJ Regional Sewer Auth.
5.40%, 5/1/12 (1) 500 484
Bergen County NJ Utilities Auth.
Water Pollution Control Rev.
5.50%, 12/15/15 (3) 15,750 15,113
5.75%, 12/15/05 (3) 2,000 2,094
Bordentown NJ Sewer Auth.
5.375%, 12/1/15 (1) 6,250 5,894
5.40%, 12/1/20 (1) 1,400 1,310
Camden County NJ GO
5.00%, 2/1/10 (3) 1,500 1,394
5.00%, 2/1/11 (3) 2,950 2,719
Camden County NJ Municipal
Utilities Auth. Sewer Rev.
0.00%, 9/1/04 (3) 8,345 5,521
0.00%, 9/1/05 (3) 18,545 11,587
0.00%, 9/1/06 (3) 18,545 10,867
3.60%, 7/15/97 (3) 1,500 1,498
5.00%, 7/15/10 (3) 2,750 2,552
5.20%, 7/15/11 (3) 4,085 3,863
5.25%, 7/15/12 (3) 4,795 4,530
6.00%, 7/15/08 (3) 6,625 6,914
8.25%, 12/1/97 (3) (Prere.) 515 557
8.25%, 12/1/17 (3) 335 359
Cape May County NJ IDA
(Atlantic City Electric)
6.80%, 3/1/21 (1) 15,400 17,255
Cape May County NJ Municipal
Utility Auth.
5.75%, 1/1/16 (1) 14,975 14,647
Delaware River Port Auth. NJ
5.50%, 1/1/26 (3) 26,600 24,942
6.50%, 1/1/09 (2) 3,500 3,583
7.375%, 1/1/07 (2) 9,500 10,219
Elizabeth City NJ Fiscal Year
Adjustment Bonds
6.60%, 8/1/06 (1) 8,750 9,395
Essex County NJ GO
4.875%, 11/15/97 (2) 2,815 2,855
Essex County NJ Improvement
Auth. Lease Rev. GO
5.25%, 12/1/06 (2) 10,135 9,391
5.50%, 12/1/08 (2) 2,560 2,571
5.50%, 12/1/13 (2) 7,500 7,303
7.00%, 12/1/24 (2) 9,525 10,921
Essex County NJ Utility Auth.
5.60%, 4/1/16 (4) 2,200 2,123
Evesham NJ Municipal Utility Auth.
7.00%, 7/1/10 (1) 1,700 1,818
7.00%, 7/1/15 (1) 450 481
Gloucester Township NJ GO
5.75%, 7/15/10 (2) 2,880 2,941
Gloucester Township NJ Municipal
Utilities Auth.
5.65%, 3/1/18 (2) 2,755 2,684
Hamilton Township NJ Municipal
Utility Auth.
6.00%, 8/15/17 (3) 1,000 1,004
Hoboken-Union City-Weehawken NJ
Sewer Auth.
0.00%, 8/1/03 (1) 3,800 2,662
0.00%, 8/1/04 (1) 3,750 2,491
0.00%, 8/1/05 (1) 3,805 2,387
0.00%, 8/1/06 (1) 2,000 1,177
6.25%, 8/1/13 (1) 9,590 10,216
Hudson County NJ Correctional
Facility COP
6.30%, 6/1/04 (1) 1,720 1,832
6.30%, 12/1/04 (1) 1,770 1,885
6.50%, 12/1/11 (1) 9,000 9,481
Hudson County NJ General
Improvement GO
6.55%, 7/1/04 (3) 1,300 1,436
6.55%, 7/1/05 (3) 1,290 1,429
6.55%, 7/1/06 (3) 700 776
6.55%, 7/1/07 (3) 1,300 1,439
6.55%, 7/1/09 (3) 635 701
Hudson County NJ Improvement
Auth. Lease
6.00%, 12/1/12 (3) 10,000 10,200
Irvington Township NJ GO
0.00%, 8/1/07 (1) 1,000 552
0.00%, 8/1/09 (1) 2,580 1,244
0.00%, 8/1/10 (1) 2,080 936
Jersey City NJ Water Auth. GO
7.60%, 10/1/12 (2) 700 741
7.60%, 10/1/13 (2) 700 741
Middlesex County NJ Utility Auth.
5.25%, 3/15/10 (2) 2,740 2,623
5.25%, 9/15/10 (2) 1,790 1,712
5.375%, 9/15/15 (2) 3,775 3,565
6.50%, 9/15/11 (3) 6,300 6,865
6.75%, 8/15/09 (2) 3,500 3,643
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
INSURED LONG-TERM Amount Value
PORTFOLIO (continued) (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
Monmouth County NJ
Improvement Auth.
5.00%, 2/1/13 (1) $ 750 $ 681
Mount Laurel Township NJ
Municipal Utility Auth.
6.00%, 7/1/15 (1) 4,250 4,271
New Brunswick NJ Housing &
Urban Development
5.75%, 7/1/24 (1) 13,640 13,251
6.00%, 7/1/12 (1) 6,000 6,099
New Brunswick NJ Housing Auth.
5.50%, 8/1/16 (1) 525 499
New Brunswick NJ Parking Auth.
5.40%, 9/1/15 (3) 1,000 946
New Jersey Economic
Development Auth.
(Hackensack Water)
7.00%, 1/1/19 (2) 2,400 2,483
(Market Transition)
5.80%, 7/1/07 (1) 1,000 1,028
5.80%, 7/1/09 (1) 5,500 5,573
5.875%, 7/1/11 (1) 12,675 12,794
New Jersey Educational
Facilities Auth.
(Higher Education Trust Fund)
5.125%, 9/1/97 (2) 10,525 10,704
5.125%, 9/1/08 (2) 14,795 14,384
(Kean College)
6.60%, 7/1/21 (1) 3,700 3,905
(NJ Institute of Technology)
6.00%, 7/1/24 (1) 1,500 1,503
(Rider College)
6.20%, 7/1/17 (2) 4,000 4,079
(Trenton State College)
6.00%, 7/1/12 (2) 3,005 3,072
New Jersey Health Care
Facilities Auth.
(Beth Israel)
6.00%, 7/1/16 (4) 8,500 8,519
(Burdette Tomlin Memorial Hosp.)
6.50%, 7/1/12 (3) 1,500 1,569
(Community Medical Center)
7.00%, 7/1/20 (1) 2,850 3,066
(Helene Fuld Medical Center)
6.60%, 7/1/21 (2) 4,080 4,306
(Memorial Health Alliance)
6.25%, 7/1/10 (3) 8,000 8,178
(Mercer Medical Center)
6.50%, 7/1/10 (1) 6,000 6,312
(Mountainside Hosp.)
5.35%, 7/1/07 (1) 3,215 3,205
5.50%, 7/1/14 (1) 3,975 3,795
(Muhlenberg Medical Center)
8.00%, 7/1/18 (2) 750 811
(Riverview Medical Center)
6.25%, 7/1/10 (2) 2,935 3,128
(Shore Medical Center)
6.20%, 7/1/13 (2) 3,130 3,232
6.20%, 7/1/14 (2) 3,075 3,163
(Society of the Valley Hosp.)
6.625%, 7/1/10 (1) 2,750 2,908
(St. Clare's Riverside
Medical Center)
5.75%, 7/1/14 (1) 7,500 7,343
(West Jersey Health System)
6.00%, 7/1/09 (1) 5,175 5,304
New Jersey Housing & Mortgage
Finance Auth.
7.875%, 10/1/17 (1) 450 472
New Jersey Market Transition Trust
5.50%, 6/15/11 (1) 5,000 4,910
5.50%, 6/15/13 (1) 3,000 2,906
New Jersey Sports & Exposition
Auth. VRDO
3.50%, 6/6/96 (1) 10,184 10,184
New Jersey Transportation
Trust Fund
5.50%, 6/15/15 (1) 4,420 4,263
New Jersey Turnpike Auth.
VRDO 3.25%, 6/5/96 (3) LOC 15,200 15,200
6.50%, 1/1/13 (1) 20,000 21,813
Newark NJ General Improvement
5.30%, 10/1/06 (2) 1,710 1,727
5.40%, 10/1/07 (2) 1,685 1,699
5.50%, 10/1/08 (2) 1,660 1,678
Newark NJ Water Utility
5.30%, 10/1/06 (2) 2,625 2,651
North Bergen Hudson City NJ GO
8.00%, 8/15/06 (4) 1,885 2,302
North Jersey Water Dist.
(Wanaque South Project)
6.00%, 7/1/12 (1) 10,125 10,373
Ocean County NJ Utilities Waste
Water Rev.
5.00%, 1/1/14 (3) 2,000 1,799
6.60%, 1/1/18 (3) (ETM) 2,500 2,695
6.60%, 1/1/18 (3) 4,000 4,184
6.75%, 1/1/13 (3) 14,810 15,278
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
Ocean Township NJ Municipal
Utility Auth.
6.00%, 8/1/17 (1) $ 3,975 $ 4,095
Old Bridge NJ Municipal
Utility Auth.
6.25%, 11/1/16 (3) 1,400 1,433
6.40%, 11/1/09 (3) 3,000 3,190
Passaic Valley NJ Sewer Comm.
5.75%, 12/1/08 (2) 4,450 4,549
5.75%, 12/1/13 (2) 4,000 4,003
Plainfield NJ GO
6.25%, 7/15/07 (2) 6,930 7,383
Roselle NJ GO
5.10%, 10/15/08 (1) 1,405 1,357
Salem County NJ Pollution Control
Finance Auth.
(Public Service Electric & Gas)
5.55%, 11/1/33 (1) 8,000 7,476
5.70%, 5/1/28 (1) 5,000 4,836
South Brunswick Township NJ
Board of Education
6.40%, 8/1/22 (3) 2,205 2,285
6.40%, 8/1/23 (3) 2,315 2,399
South Jersey Transportation Auth.
5.90%, 11/1/06 (1) 3,435 3,592
5.90%, 11/1/07 (1) 2,545 2,644
6.00%, 11/1/12 (1) 5,250 5,371
Stafford NJ Municipal Utility Auth.
5.50%, 6/1/11 (3) 3,100 3,056
Sussex County NJ Solid Waste Rev.
5.75%, 12/1/09 (1) 19,820 20,059
Sussex NJ Municipal Utility Auth.
5.25%, 12/1/08 (1) 1,150 1,132
5.375%, 12/1/14 (1) 2,000 1,891
West Windsor-Plainsboro NJ School
Dist. COP
7.60%, 3/15/97 (6) (Prere.) 5,000 5,248
OUTSIDE NEW JERSEY:
Puerto Rico Electric Power Auth.
6.50%, 7/1/06 (1) 11,820 13,082
Puerto Rico Public Building Auth.
0.00%, 7/1/02 (3) 4,000 3,006
-----------
GROUP TOTAL 647,866
-----------
- ----------------------------------------------------------------------------
SECONDARY MARKET INSURED (9.2%)
Atlantic County NJ Utility
6.875%, 1/1/12 (2) (ETM) 3,000 3,158
New Jersey Educational
Facilities Auth.
(Montclair State College)
7.20%, 7/1/10 (1) 1,000 1,022
New Jersey Highway Auth.
(Garden State Parkway)
6.00%, 1/1/16 (2) 5,000 5,019
6.20%, 1/1/10 (2) 20,000 21,326
New Jersey Sports &
Exposition Auth.
6.50%, 3/1/13 (1) 10,000 10,912
New Jersey Transportation Trust
4.10%, 6/15/97 (4)(ETM) 3,775 3,789
New Jersey Turnpike Auth.
6.50%, 1/1/16 (1) 18,250 19,800
Port Auth. of New York &
New Jersey
6.875%, 1/1/25 (2) 3,200 3,369
Univ. of Medicine & Dentistry NJ
6.50%, 12/1/12 (1) 4,000 4,384
-----------
GROUP TOTAL 72,779
-----------
- ----------------------------------------------------------------------------
NON-INSURED (7.6%)
Burlington County NJ GO
4.875%, 11/15/97 1,200 1,219
Burlington County NJ Bridge Comm.
5.30%, 10/1/13 9,500 9,084
Cherry Hill NJ Township GO
6.30%, 6/1/12 3,745 3,910
Mercer County NJ GO
5.00%, 9/1/97 1,935 1,965
Mercer County NJ Improvement Auth.
5.75%, 12/15/07 1,110 1,148
5.75%, 12/15/08 1,165 1,196
5.95%, 12/15/12 4,895 5,023
6.00%, 12/1/14 1,000 1,014
Monmouth County NJ Improvement
Auth. GO
(Correctional Facilities)
6.40%, 8/1/11 1,850 1,938
Morris County NJ GO
6.00%, 7/15/97 1,726 1,770
(County College)
6.00%, 7/15/97 199 204
New Jersey GO
5.00%, 7/15/97 8,330 8,447
7.00%, 4/1/97 1,350 1,387
New Jersey Health Care
Facilities Auth. VRDO
(Capital Assets Pooled Program)
3.45%, 6/6/96 LOC 2,500 2,500
Ocean County NJ Water Utility
6.30%, 1/1/13 2,215 2,310
6.35%, 1/1/14 2,360 2,461
6.35%, 1/1/15 2,515 2,613
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
INSURED LONG-TERM Amount Value
PORTFOLIO (continued) (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
Port Auth. of New York &
New Jersey VRDO
(Versatile Structure)
3.60%, 6/4/96 $ 2,500 $ 2,500
Rutgers State Univ. NJ GO
6.40%, 5/1/13 3,000 3,219
Rutgers State Univ. NJ Rev.
7.70%, 5/1/97 (Prere.) 1,500 1,583
8.125%, 5/1/97 (Prere.) 4,750 5,029
------------
GROUP TOTAL 60,520
------------
- ----------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $753,917) 781,165
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
- ----------------------------------------------------------------------------
Other Assets--Note B 16,507
Liabilities (1,879)
------------
14,628
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 70,509,898 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $795,793
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.29
============================================================================
</TABLE>
+See Note A to Financial Statements.
For explanations of abbreviations and other references, see page 12.
- -----------------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PER
(000) SHARE
----------- ---------
<S> <C> <C>
PAID IN CAPITAL $765,970 $10.86
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED GAINS 2,816 .04
UNREALIZED APPRECIATION
(DEPRECIATION)--NOTE E:
INVESTMENT SECURITIES 27,248 .39
FUTURES CONTRACTS (241) --
- -----------------------------------------------------------------------
NET ASSETS $795,793 $11.29
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
MONEY MARKET Amount Value
PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (100.1%)
- ----------------------------------------------------------------------------
Bergen County NJ BAN
3.41%, 7/8/96 $10,000 $ 10,000
Bergen County NJ GO
4.70%, 7/15/96 1,800 1,802
Burlington County NJ BAN
3.75%-4.25%, 8/9/96-1/24/97 18,200 18,238
Cape May County NJ GO
4.20%, 2/15/97 (4) 475 476
Chatham Township NJ BAN
4.25%, 4/18/97 7,966 8,004
Clifton NJ BAN
4.50%, 6/28/96 8,000 8,005
Cranbury Township NJ BAN
3.50%, 3/13/97 2,200 2,204
Cranford Township NJ BAN
3.75%, 3/21/97 5,608 5,615
East Windsor Township NJ BAN
4.25%, 4/18/97 4,140 4,159
Essex County NJ Improvement Auth.
Pooled Govt. Loan VRDO
3.20%, 6/5/96 LOC 32,250 32,250
Evesham Township NJ BAN
4.25%, 9/27/96 1,000 1,002
Franklin Township NJ BAN
4.00%, 6/2/97 1,900 1,905
Gloucester County NJ PCR VRDO
(Mobil Oil Corp.)
3.25%, 6/5/96 20,200 20,200
Hackensack City NJ BAN
4.00%, 6/6/97 7,989 8,012
Lawrence Township NJ BAN
4.50%, 11/7/96 1,525 1,529
Mercer County NJ BAN
4.25%, 9/18/96 5,000 5,006
Mercer County NJ Improvement
Auth. BAN
(County Courthouse Project)
3.45%, 3/13/97 6,250 6,262
Middlesex County NJ TAN
3.75%, 2/7/97 15,000 15,045
Monmouth County NJ BAN
4.375%, 8/29/96 8,000 8,008
Monmouth County NJ Improvement
Auth. VRDO
(Pooled Govt. Loan Program)
3.30%, 6/5/96 LOC 38,000 38,000
Montvale Borough NJ BAN
4.25%, 5/15/97 2,872 2,883
Montville Township NJ BAN
4.375%, 8/29/96 6,898 6,905
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
New Jersey Economic Development
Auth. CP
(Chambers Cogeneration Project)
3.60%, 8/8/96 LOC $24,700 $ 24,700
(Logan Project)
3.55%-3.60%,
7/23/96-10/15/96 LOC 19,300 19,300
New Jersey Economic Development
Auth. VRDO
(Exxon Corp.)
PCR 3.35%, 6/4/96 13,000 13,000
(American Water Co. Inc.)
TOB 3.70%, 6/6/96 (3) 4,850 4,850
(NJ Natural Gas)
3.40%, 6/4/96 (2) 20,400 20,400
(Public Service Electric & Gas Co.)
PCR 3.25%, 6/5/96 (1) 29,220 29,220
(Toys R Us)
3.00%, 6/4/96 LOC 8,500 8,500
New Jersey GO
TOB 3.45%, 6/5/96 33,700 33,700
TOB VRDO 3.60%, 6/6/96 9,370 9,370
4.50%, 7/15/96 10,000 10,008
New Jersey Health Care Facilities
Finance Auth. VRDO
(Capital Asset Pooled Program)
3.45%, 6/6/96 LOC 46,600 46,600
New Jersey Sports &
Exposition Auth.
VRDO 3.50%, 6/6/96 (1) 55,996 55,996
New Jersey TRAN CP
3.65%-3.80%, 6/11/96-6/14/96 30,000 30,000
New Jersey Transportation
Trust Fund
4.10%, 6/15/97 3,700 3,715
5.50%, 12/15/96 (ETM) 15,000 15,181
New Jersey Turnpike Auth. VRDO
3.25%, 6/5/96 (3) LOC 80,900 80,900
Nutley Township NJ BAN
4.25%, 7/19/96 1,879 1,880
Ocean County NJ BAN
4.00%, 6/28/96 10,000 10,003
Park Ridge NJ BAN
4.25%, 8/2/96 1,300 1,301
Peapack-Gladstone Borough NJ BAN
4.375%, 5/15/97 2,400 2,411
Piscataway Township NJ BAN
4.25%, 4/25/97 2,700 2,709
Port Auth. of New York &
New Jersey
CP 3.25%-3.60%,
7/18/96-10/22/96 39,035 39,035
(Kiac Partners)
VRDO 3.60%, 6/5/96 LOC 14,800 14,800
(Versatile Structure)
VRDO 3.70%-3.75%, 6/4/96 33,000 33,000
Princeton Township NJ BAN
3.50%-4.125%, 8/29/96-3/12/97 4,350 4,351
Rahway NJ BAN
3.80%-4.00%, 6/27/96-12/23/96 5,525 5,532
Readington Township NJ BAN
4.25%, 5/2/97 2,061 2,069
Salem County NJ PCR CP
(PECO)
3.40%-3.60%,
7/23/96-8/20/96 LOC 8,400 8,400
Sayreville NJ TAN
3.90%, 4/14/97 3,300 3,306
Somerset County NJ BAN
3.71%, 10/25/96 16,550 16,551
South Brunswick Township BAN
4.375%, 10/24/96 8,360 8,379
South Orange Village Township
NJ BAN
3.84%, 11/1/96 3,892 3,893
Southeast Morris County Municipal
Utilities Auth.
4.00%, 1/15/97 2,000 2,005
Sussex County NJ BAN
4.50%, 9/13/96 3,182 3,187
Union County NJ GO
4.40%, 9/1/96 1,730 1,732
Union County NJ PCR VRDO
(Exxon Corp.)
3.30%, 6/4/96 23,800 23,800
Warren Township NJ BAN
3.84%, 7/25/96 1,413 1,413
Watchung NJ BAN
4.125%, 5/16/97 2,700 2,708
West Orange Township NJ BAN
3.50%-3.60%, 1/13/97 4,604 4,616
West Windsor Township NJ BAN
4.25%, 10/11/96 2,650 2,654
Woodbridge Township NJ BAN
3.87%, 8/2/96 10,000 10,000
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
MONEY MARKET Amount Value
PORTFOLIO (continued) (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
OUTSIDE NEW JERSEY:
Puerto Rico Govt.
Development Bank
VRDO 3.25%, 6/5/96 LOC $40,550 $ 40,550
Puerto Rico Highway &
Transportation Auth. VRDO
3.25%, 6/5/96 LOC 20,900 20,900
Puerto Rico Industrial Medical &
Environmental Facilities Auth.
PCR PUT
(Abbott Laboratories)
3.41%, 3/1/97 6,250 6,274
- ----------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $888,409) 888,409
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.1%)
- ----------------------------------------------------------------------------
Other Assets--Note B 12,152
Liabilities (12,899)
------------
(747)
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 887,698,183 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $887,662
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
============================================================================
</TABLE>
+See Note A to Financial Statements.
- ----------------------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PER
(000) SHARE
----------- ----------
<S> <C> <C>
PAID IN CAPITAL $887,714 $1.00
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (52) --
UNREALIZED APPRECIATION
OF INVESTMENTS -- --
- ----------------------------------------------------------------------------
NET ASSETS $887,662 $1.00
- ----------------------------------------------------------------------------
</TABLE>
BAN=Bond Anticipation Note
COP=Certificate of Participation
CP=Commercial Paper
GO=General Obligation
IDA=Industrial Development Authority Bond
PCR=Pollution Control Revenue
PUT=Put Option Obligation
RAN=Revenue Anticipation Note
Rev.=Revenue Bond
TAN=Tax Anticipation Note
TOB=Tender Option Bond
TRAN=Tax Revenue Anticipation Note
VRDO=Variable Rate Demand Obligation
(ETM)=Escrowed to Maturity
(Prere.)=Prerefunded
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
(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, 1996 May 31, 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 22,129 $15,026
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . 22,129 15,026
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . . . . $ 47 $ 51
Management and Administrative . . . . . . . . . . . 635 662
Marketing and Distribution . . . . . . . . . . . . . 88 770 135 848
----- -----
Insurance Expense . . . . . . . . . . . . . . . . . . . 2 --
Custodian Fees . . . . . . . . . . . . . . . . . . . . 9 12
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 4 4
Shareholders' Reports . . . . . . . . . . . . . . . . . 13 13
Annual Meeting and Proxy Costs . . . . . . . . . . . . 3 3
Trustees' Fees and Expenses . . . . . . . . . . . . . . 1 1
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . 802 881
Expenses Paid Indirectly--Note C . . . . . . (9) (12)
- -------------------------------------------------------------------------------------------------------------------
Net Expenses . . . . . . . . . . . . . . . . 793 869
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . 21,336 14,157
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold . . . . . . . . . . . . . . 3,205 --
Futures Contracts . . . . . . . . . . . . . . . . . . . 30 --
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . 3,235 --
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . (32,660) --
Futures Contracts . . . . . . . . . . . . . . . . . . . (650) --
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . . . . (33,310) --
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . $ (8,739) $14,157
===================================================================================================================
</TABLE>
13
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INSURED LONG-TERM PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
MAY 31, 1996 November 30, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,336 $ 39,962
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . 3,235 2,672
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . (33,310) 84,509
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . (8,739) 127,143
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . (21,336) (39,962)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,939) --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . (25,275) (39,962)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,918 163,327
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 19,818 30,789
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82,983) (129,866)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . 33,753 64,250
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . (261) 151,431
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . 796,054 644,623
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $795,793 $796,054
===================================================================================================================
(1)Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,377 14,463
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . 1,709 2,715
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,178) (11,589)
- -------------------------------------------------------------------------------------------------------------------
2,908 5,589
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
MAY 31, 1996 November 30, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,157 $ 28,764
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . -- (34)
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 14,157 28,730
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . (14,157) (28,764)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . (14,157) (28,764)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423,293 715,142
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 13,536 27,484
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (408,302) (675,705)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . 28,527 66,921
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . . . . . . . . 28,527 66,887
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . 859,135 792,248
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 887,662 $ 859,135
===================================================================================================================
(1)Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423,293 715,142
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . 13,536 27,484
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (408,302) (675,705)
- -------------------------------------------------------------------------------------------------------------------
28,527 66,921
- -------------------------------------------------------------------------------------------------------------------
</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, 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $11.78 $10.40 $11.77 $11.18 $10.75 $10.51
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . .310 .623 .622 .637 .659 .676
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . (.432) 1.380 (1.307) .725 .438 .245
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . (.122) 2.003 (.685) 1.362 1.097 .921
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . (.310) (.623) (.622) (.637) (.659) (.676)
Distributions from Realized Capital Gains . . . . . . (.058) -- (.063) (.135) (.008) (.005)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.368) (.623) (.685) (.772) (.667) (.681)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $11.29 $11.78 $10.40 $11.77 $11.18 $10.75
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . -1.07% +19.66% -6.10% +12.53% +10.48% +9.01%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . $796 $796 $645 $748 $572 $434
Ratio of Total Expenses to Average Net Assets . . . . . . .20%* .21% .21% .20% .25% .24%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . 5.33%* 5.50% 5.53% 5.47% 5.99% 6.33%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 8%* 7% 13% 12% 34% 18%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
16
<PAGE> 17
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended, November 30,
SIX MONTHS ENDED -----------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<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 . . . . . . . . . . . . . . . . .016 .035 .025 .023 .030 .045
Net REALIZED and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . .016 .035 .025 .023 .030 .045
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . (.016) (.035) (.025) (.023) (.030) (.045)
Distributions from Realized Capital Gains . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.016) (.035) (.025) (.023) (.030) (.045)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . +1.63% +3.60% +2.49% +2.31% +3.04% +4.54%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . $888 $859 $792 $724 $627 $547
Ratio of Total Expenses to Average Net Assets . . . . . . .20%* .21% .21% .20% .24% .24%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . 3.22%* 3.53% 2.46% 2.29% 2.98% 4.43%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*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 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, 1996, the Fund had contributed capital
18
<PAGE> 19
aggregating $174,000 to Vanguard (included in Other Assets), representing .9%
of Vanguard's capitalization. The Fund's officers and trustees are also
officers and directors of Vanguard.
C. The Fund's custodian bank has agreed to reduce its fees when the Fund
maintains cash on deposit in the non-interest bearing custodian account. For
the six months ended May 31, 1996, custodian fee offset arrangements reduced
expenses of the Insured Long-Term and Money Market Portfolios by $9,000 and
$12,000, respectively.
D. During the six months ended May 31, 1996, the Insured Long-Term
Portfolio made purchases of $53,690,000 and sales of $30,634,000 of investment
securities other than temporary cash investments.
E. At May 31, 1996, unrealized appreciation of investment securities of
the Insured Long-Term Portfolio for financial reporting and Federal income tax
purposes aggregated $27,248,000 of which $32,827,000 related to appreciated
securities and $5,579,000 related to depreciated securities.
At May 31, 1996, the Insured Long-Term Portfolio had long positions in U.S.
Treasury Bond futures contracts expiring in September 1996, with an aggregate
settlement value and net unrealized depreciation of $15,592,000 and $241,000,
respectively. The market value of securities deposited as initial margin for
open futures contracts was $2,237,000.
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 Selected Value Portfolio
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 Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
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]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1 (800) 662-7447 1 (800) 662-2739
This Report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus.
All Funds in the Vanguard Family are offered by prospectus only.
Q142-5/96
VANGUARD
NEW JERSEY
TAX-FREE FUND
SEMI-ANNUAL REPORT
MAY 31, 1996
