<PAGE> 1
VANGUARD
NEW JERSEY
TAX-FREE FUND
Annual Report
November 30, 1996
[PHOTO]
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our
course toward the twenty-first century. Our Report cover reflects that blending
of tradition and innovation, of past, present, and future. The montage includes
a bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's
flagship at The Battle of the Nile); a clock built circa 1816 in Scotland,
featuring a portrait of Nelson (who is also shown, accepting a surrender, in a
detail from a nineteenth-century engraving); and several views of our recently
completed campus, which is steeped in nautical imagery--from our buildings named
after Nelson's warships (Victory, Majestic, and Goliath are three shown), to our
artwork and ornamental compass rose.
<PAGE> 2
VANGUARD HAS ALWAYS STRIVED TO BE THE STANDARD-BEARER for mutual fund
disclosure, going well beyond the "letter of the law" in our shareholder
communications. During the past year, we raised the standard once again by
rewriting and reformatting our Fund prospectuses. They are designed to ensure
that prospective investors fully understand, before they make an investment,
each Fund's investment strategies, risks, and costs. In that spirit, we have
redesigned our Annual Reports to shareholders, which provide a comprehensive
discussion and analysis of the year's results in the context of each Fund's
investment objectives and policies. Since Vanguard has long been recognized for
the quality and content of these Fund Reports, our overriding objective was to
maintain the character of the previous Reports, while adding information to
assist shareholders in understanding the investment characteristics of their
Fund.
THE NEW FUND REPORTS INCLUDE A MESSAGE TO SHAREHOLDERS from Chairman John C.
Bogle and President John J. Brennan. This Message continues to provide a candid
assessment of the Fund's performance relative to an appropriate unmanaged market
benchmark and a peer group of mutual funds with similar investment policies. It
also reviews the principal factors contributing to--and detracting from--the
returns earned by the Fund. To help you evaluate your Fund's current-year
performance, the Message includes a discussion of the Fund's long-term
investment results, as well as a look ahead to the prospects for the coming
year. A recap of the financial markets, which had been included as part of the
Chairman's letter, now appears in The Markets In Perspective. This overview
covers the world's financial markets, putting the results of the Fund's strategy
in a global perspective.
THE PORTFOLIO PROFILE REPRESENTS AN ADDITION TO OUR FUND REPORTS. In this day
and age, many investors use detailed statistical information to evaluate their
mutual fund holdings, and our new Portfolio Profile furnishes shareholders with
comprehensive data on key characteristics--sector diversification, volatility,
top-ten holdings, among others--that ultimately define how a Fund is likely to
perform in various market environments. For this information to be used
effectively, we include a brief description of the profiled characteristics. The
Report From The Adviser (for our traditionally managed Funds) now covers
specific topics that we have defined as being the important ones for the adviser
to address--and we do our best to ensure that this Report is written in the same
simple and candid manner that characterizes all Vanguard communications.
Finally, each Adviser's Report will include an inset reminder of the adviser's
basic investment philosophy.
WE TRUST THAT THIS REDESIGNED FUND REPORT will continue to meet your need for a
fair, candid, and clear presentation of your Fund's investment results and a
thorough portfolio review. We welcome any comments that you might have at any
time regarding these Reports.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Report From
The Adviser
6
Performance
Summaries
8
Portfolio
Profiles
10
Financial
Statements
13
Report Of
Independent
Accountants
24
Trustees And
Officers
INSIDE BACK COVER
<PAGE> 3
[PHOTO]
John C. Bogle
[PHOTO]
John J. Brennan
Dear Shareholder,
The 1996 fiscal year for Vanguard New Jersey Tax-Free Fund, which ended on
November 30, proved notable for one important reason: Relative stability
returned to the municipal bond market for the first time in the past four years.
Interest rates fluctuated in a fairly narrow range during the
year--responding to marked shifts in investor sentiment about the strength of
the U.S. economy and the specter of inflation--but on balance the yield on
long-term U.S. Treasury bonds increased only slightly and the yield available on
long-term tax-exempt bonds was essentially unchanged. In this calmer
environment, the return of our Money Market Portfolio exceeded the results of
its competitive fund group while that of our Insured Long-Term Portfolio fell
just behind its average competitor. The table at right presents each Portfolio's
twelve-month return as well as its income and capital components.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
INVESTMENT RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1996
-----------------------------------
PORTFOLIO NCOME CAPITAL TOTAL
- ---------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term +5.4% -0.7% +4.7%
Money Market +3.2 0.0 +3.2
- ---------------------------------------------------------
</TABLE>
The total return (capital change plus reinvested dividends) of the Insured
Long-Term Portfolio is based on a change in net asset value from $11.78 per
share on November 30, 1995, to $11.64 per share on November 30, 1996, adjusted
for dividends totaling $0.616 per share from net investment income and a
distribution of $0.058 per share from net realized capital gains. As
expected--but is by no means guaranteed--the Money Market Portfolio's net asset
value remained at $1.00 per share. The Portfolio's yield at the end of the
fiscal year stood at 3.2%, down from 3.6% a year earlier.
FISCAL 1996 PERFORMANCE OVERVIEW
In the taxable bond market, yields experienced some interim variability, but
ended the period just a bit higher than their beginning levels. Yields on
municipal bonds remained unchanged on balance at 5.7%, as investor concerns
about the prospect of a "flat tax" all but disappeared.
This environment of relative stability contrasted starkly with the three
previous years. During 1993, interest rates tumbled and bond prices surged, only
to reverse themselves in the rapidly rising interest-rate environment of 1994.
But in 1995, a remarkable about-face in the course of interest rates sent bond
prices soaring once again. The lesson is clear: While bond (and bond fund)
prices can fluctuate sharply over short periods, these price swings tend to be
offsetting over longer periods.
During fiscal 1996, when most municipal bond funds essentially earned their
coupons, the +4.7% annual total return for the New Jersey Insured Long-Term
Portfolio fell just below the +4.8% annual return for the average New Jersey
municipal bond fund, but well behind the +5.9% return of the Lehman Municipal
Bond Index. This national Index is a tough standard for all state tax-free
funds, existing, as it does, only on paper, outside the "real world" in which
operating expenses and transaction costs are very much in evidence.
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For New Jersey residents, the income earned by our Portfolios is exempt
from state, local, and federal income taxes. Given these tax advantages,
investors in the New Jersey Insured Long-Term Portfolio who are taxed at the
highest federal and state marginal tax rates can earn 63% more after-tax income
than they could in a comparable long-term taxable bond fund. For similarly
situated investors in our Money Market Portfolio, the after-tax yield premium of
MIG-1 notes over U.S. Treasury bills was 29% at the end of the twelve-month
period. Put another way, for a New Jersey investor, a yield of 5.7% on a
tax-exempt long-term portfolio would be the equivalent of a 10.6% taxable yield.
(For a tax-exempt short-term yield of 3.6%, the taxable equivalent would be
6.7%.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
---------------------------------
LONG-TERM SHORT-TERM
- -------------------------------------------------------------
<S> <C> <C>
Taxable gross income $6,400 $5,100
Less taxes (46.0%) (2,900) (2,300)
Net after-tax income 3,500 2,800
- -------------------------------------------------------------
Tax-exempt income $5,700 $3,600
- -------------------------------------------------------------
Tax-exempt income advantage $2,200 $ 800
- -------------------------------------------------------------
Percentage advantage 63% 29%
- -------------------------------------------------------------
</TABLE>
Illustration assumes current yields (as of November 30, 1996) of 6.4% for
long-term U.S. Treasury bonds, 5.1% for U.S. Treasury bills, 5.7% for long-term
municipals, and 3.6% for short-term municipals. Tax adjustment assumes federal
tax rate of 39.6% and the top state tax rate of 6.4%; local taxes not
considered. The illustration is not intended to represent future results.
The table at left presents a general comparison of the annual income earned
on tax-exempt and taxable securities as of November 30, 1996, assuming a
$100,000 investment. Please note that these examples ignore two important
quality distinctions between state-specific municipal bond funds and U.S.
Treasury bond funds: (1) U.S. Treasury bond funds hold solely Treasury
securities, which are backed by the full faith and credit of the U.S.
government; and (2) state-specific municipal bond funds incur a significant risk
by concentrating their assets in securities from a particular economic region.
For our Insured Long-Term Portfolio, these added risks are substantially
mitigated by private insurance, which, in effect, guarantees the full payment of
annual income and the return of principal at maturity for the municipal bonds we
hold. Portfolio insurance is generally not available for short-term securities;
thus, the task of preserving principal in our Money Market Portfolio falls to
our investment adviser, Vanguard Fixed Income Group. The Group carefully
scrutinizes the credit quality of our holdings and has earned our Portfolio
Moody's Investor Service's highest quality rating (or the equivalent) for
shorter-term securities. That said, we emphasize that money market fund
investments are not guaranteed by the Federal Deposit Insurance Corporation,
which insures bank accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
The table at the top of page 3 compares the longer-term performance of each New
Jersey Portfolio with that of its mutual fund peer group. It also illustrates
the "Vanguard Advantage"--the performance edge our Portfolios provided over
their respective competitive standards. Our expense ratio advantage over our
typical competitor plays a key role in our performance advantage.
Our Portfolios maintain expense ratios (expenses as a percentage of average
net assets) of 0.20%, compared with the 1.01% charged by the average long-term
state tax-free fund and 0.59% for the average money market state tax-free fund.
This benefit over our competitors has been available to our shareholders year
after year with
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<PAGE> 5
no sacrifice in credit quality. Vanguard Fixed Income Group also plays a key
role in our success, managing the Portfolios ably and maintaining a level of
investment quality that is, in our judgment, second to none in the field.
<TABLE>
<CAPTION>
- -------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FEB. 3, 1988,* TO NOV. 30, 1996
-------------------------------
AVERAGE
VANGUARD COMPETITIVE VANGUARD
PORTFOLIO FUND FUND ADVANTAGE
- -------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term +8.4% +7.8% +0.6%
Money Market +4.0 +3.9 +0.1
- -------------------------------------------------------
</TABLE>
*Fund inception.
IN SUMMARY
The past four years have illustrated the range of market environments that bond
fund investors may enjoy--or be forced to endure. Which of these environments is
normal for municipal bonds? The answer is probably: all of the above. In the
years ahead, there are sure to be more sharp rises in interest rates, more
sustained declines, and more years of relative tranquility. Indeed, this is part
and parcel of investing in bond funds. In the long run, however, the rate of
interest income--"the coupon"--will be the dominant source of our returns.
Whatever the year-to-year turbulence of the bond market, Vanguard New
Jersey Tax-Free Fund will do what it has always done: continue our focus on
providing returns that exceed those of competitive norms, even as we maintain
the highest standards of credit quality. As part of a long-term investment
program that includes stock funds, bond funds, and money market funds, the New
Jersey Tax-Free Portfolios should prove rewarding to investors.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
Chairman of the Board President
December 18, 1996
3
<PAGE> 6
[PHOTO]
THE MARKETS IN PERSPECTIVE: FISCAL YEAR ENDED NOVEMBER 30, 1996
U.S. EQUITY MARKETS
Few investors would have expected the stock market over the past 12 months to
come close to matching the 37.0% return of the prior 12. Yet when the past two
fiscal years are considered cumulatively, the Standard & Poor's 500 Composite
Stock Price Index has risen 75.1%. Not surprisingly, many of the factors that
drove the market higher in 1995 were also in place this year. Once again, steady
economic growth and low inflation were powerful motivators.
The equity markets were decidedly "un-equitable," however, when it came to
size and sectors. Companies with larger market values, such as those that
dominate the S&P 500 Index, prevailed. In fact, even within the Index, it was
the largest companies that turned in the best performance. The 50 biggest
companies in the S&P 500 Index (which account for roughly half its market value)
gained 31.8% in the fiscal year ended November 30, compared with an increase of
27.9% for the entire Index. Looking at the S&P 500 Index's performance by
sector, financial stocks were strongest, closing the year with a 41.9% gain.
Technology stocks were a close second, gaining 39.3%. Utilities, plagued early
in the year by higher interest rates and a rapidly changing competitive
landscape, eked out a 4.4% return, the lowest within the Index.
With the largest companies performing so well, it was difficult for smaller
issues to keep pace. This was evidenced in the considerable difference between
the 27.9% return of the S&P 500 Index and the 16.5% return of the Russell 2000
Small Stock Index. Even for the smaller companies, there was a significant range
of performance among sectors. Energy stocks led the Russell 2000 Index with a
77.0% gain for the year. Here, rising prices, limited exposure to the cyclical
refining business, and a reduced number of competitors created a favorable
environment for the stocks. At the other end of the spectrum were health-care
stocks, which showed a loss of -0.4%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------
1 YEAR 3 YEARS 5 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity
S&P 500 Index 27.9% 21.0% 18.2%
Russell 2000 Index 16.5 14.0 16.8
MSCI-EAFE Index 12.1 11.7 9.9
- --------------------------------------------------------------------------------------
Fixed-Income
Lehman Aggregate Bond Index 6.1% 6.5% 7.9%
Lehman 10-Year Municipal
Bond Index 5.7 6.2 8.0
Salomon 90-Day U.S. Treasury Bills 5.3 5.0 4.4
- --------------------------------------------------------------------------------------
Other
Consumer Price Index 3.2% 2.8% 2.9%
- --------------------------------------------------------------------------------------
</TABLE>
U.S. FIXED-INCOME MARKETS
As the fiscal year ended, the 30-year U.S. Treasury yield of 6.4% was modestly
higher than its 6.1% level on November 30, 1995. The relatively small difference
in these figures belies the turmoil endured by the fixed-income markets over the
past 12 months.
When the fiscal year began, "Steady as she goes" was the common wisdom.
Modest economic growth and benign inflation were expected to continue, giving
the Federal Re-
4
<PAGE> 7
serve no reason to move interest rates higher. That complacency was shattered by
an exceptionally strong February jobs report, the first of what turned out to be
a succession of signs that in fact the economy was growing at a much faster--and
potentially inflation-inducing--pace. The bond market reacted swiftly to
compensate for the perceived risk: The 30-year Treasury yield jumped from just
below 6.0% in late December to 6.7% in late March. The next several months saw a
consistent pattern in which bond yields rose on the Friday of the jobs-report
release only to fall back by the middle of the month. In reality, there was
little bite to the bark. Inflation, as measured by the Consumer Price Index,
remained near an annualized rate of 3.2%. And, as the fiscal year entered its
final quarter, evidence once again pointed to more "acceptable" levels of
growth. That--plus the market's satisfaction with the national election results
and prospects for budget action--helped bonds finish the fiscal year with a
strong rally.
The rally enabled the longer-maturity sectors of the market to overcome
performance deficits and finish the year with positive returns. Although the
specter of the Federal Reserve Board loomed large during the year, in fact the
Board acted only twice, lowering the federal funds rate by a total of 0.5%.
Corporate bonds, mortgage-backed issues, and municipals were three
relatively bright spots over the past year. The strength in earnings that
benefited stock prices extended to the corporate bond sector as well. These
bonds, especially those of lower credit quality, performed well relative to
Treasuries as there appeared to be little risk of skipped interest payments or
bankruptcy against the good earnings backdrop. The stable-to-rising
interest-rate environment throughout most of the year benefited another large
segment of the bond market--mortgages--as the threat of refinancings receded.
Finally, municipal bonds outpaced their U.S. Treasury counterparts. The sector
was shielded to a certain extent from the inflation wars of the Treasury market,
and demand outstripped supply for much of the year.
INTERNATIONAL EQUITY MARKETS
Concern about U.S. Federal Reserve Board policy appeared to drive global markets
as much as it did those in the United States. In aggregate, the markets rose
17.0%, as measured by the Morgan Stanley Capital International-Europe,
Australasia, Far East Index. A stronger dollar reduced this return to 12.1% for
U.S.-based investors.
Regionally, Europe's 22.9% return overshadowed the 1.4% generated by the
Pacific Basin. Europe's major markets continued to work toward the economic
targets that must be attained by 1999 under the Maastricht Treaty. This ongoing,
albeit bumpy, effort kept the continent's economic growth modest and gave
investors confidence. The Pacific region, of course, was dominated by the
influence of the Japanese market. Despite evidence of a strengthening economy
early in the year, Japan's market was shadowed by lingering problems in the
banking and real estate sectors and by tepid interest on the part of Japanese
investors. The dollar's appreciation against the yen had a significant impact on
returns, turning the year's 7.1% gain in yen into a -4.5% loss in dollars. In
contrast, the returns for a number of other countries in the region were quite
strong: for example, Hong Kong, 38.2%, and Malaysia, 31.8% (in U.S. dollars).
5
<PAGE> 8
[PHOTO]
REPORT FROM THE ADVISER
Yields on tax-exempt securities decreased slightly while yields on
short-term securities ended virtually unchanged in the 12 months ended November
30, 1996, the fiscal year for Vanguard New Jersey Tax-Free Fund.
THE INSURED LONG-TERM PORTFOLIO
Over the 12 months, the yield on high-grade, long-term municipal bonds declined
by 8 basis points, or 0.08 percentage point, from 5.74% to 5.66%. By way of
comparison, the yield on the benchmark 30-year U.S. Treasury bond increased by
22 basis points, from 6.13% to 6.35%. However, these relatively small changes
obscure the volatility in both markets during the course of the year.
During the first half, reports of a solid increase in economic activity and
robust employment gains fanned fears of inflation. In reaction, by June the
fixed-income market had driven up the yields on the 30-year Treasury bond and on
long-term, high-grade municipal bonds to 7.19% and 6.22%, respectively. But as
the economy cooled from its earlier torrid pace, investors grew more confident
that the Federal Reserve Board would not have to tighten monetary policy, and
yields fell back nearly to their levels at the start of the year.
For municipal bonds, the issue of tax reform grew in importance in early
1996. Various flat-tax proposals either directly or indirectly threatened the
tax-exempt privilege of municipal securities. In its basic form, a flat tax
would reduce the current hierarchy of income-tax rates to only one lower level
for all earned income. Unearned income (interest, dividends, and capital gains)
would not be taxed at all. Since all interest would be exempt from federal
income tax, municipal bond interest payments would no longer offer a special tax
benefit. Early in the fiscal year, concern about such proposals caused the
prices of municipal bonds to fall relative to those of taxable bonds, enabling
municipal investors to purchase high-grade, tax-exempt bonds with attractive
yields--as high as 94% of comparable U.S. Treasury obligations.
However, as a campaign issue, the complete overhaul of the federal tax
system bombed by early summer. The flat tax suffered a peaceful demise upon the
nomination of Bob Dole and was effectively buried with the reelection of
President Clinton. By the end of the year, with the flat-tax trauma a thing of
the past, the ratio of tax-exempt yields to taxable yields fell to 89%. The
relative outperformance of municipals came despite an increase late in the year
in the supply of new tax-exempt bond issues, which raised the tax-exempt/taxable
yield ratio from a low of 84% in August.
For 1996, the Insured Long-Term Portfolio provided a positive rate of
return, roughly commensurate with the dividends derived from interest income on
the Portfolio. Because market yields changed only slightly over the year, income
was the dominant component of total return. In this environment, Vanguard's low
expense ratio provided a powerful advantage in maximizing the
INVESTMENT PHILOSOPHY
The Fund reflects a belief that it can achieve a high level of current income,
consistent with each Portfolio's stated maturity and stringent quality targets,
that is exempt from federal and New Jersey income taxes by investing in insured
and high-quality uninsured securities issued by state, county, and municipal
governments in New Jersey.
6
<PAGE> 9
tax-exempt return to shareholders. The lower expense ratio allows more
investment income to flow directly to shareholders, which translates into higher
Portfolio returns. Over time, this has the powerful and enduring effect of
contributing to superior performance.
Looking ahead, we believe that the tax-exempt investment arena will
continue to provide above-average value to shareholders who seek a high-quality
investment with durable and attractive after-tax returns. This is especially
true for our State Tax-Free Portfolios, which offer the extra benefit of income
that is exempt from state, as well as federal, taxes.
THE MONEY MARKET PORTFOLIO
Among money market segments, stable Federal Reserve policy during the second
half of the fiscal year allowed yields on U.S. Treasury bills and municipal
notes to move somewhat lower. The yields on one-year municipal notes declined by
15 basis points during the second half, while yields on one-year U.S. Treasury
bills fell 35 basis points. Aside from the Fed's stable policy, two issues had a
significant impact on the short-term securities market.
The first was the onset of the traditional spring/summer municipal
borrowing season. This seasonal deluge of new short-term issues created a
temporary summertime overabundance of municipal notes and bonds in the market.
The excess supply caused a dramatic rise in yields during late July and August
(though in late September yields commenced a steady downward movement). We took
advantage of the opportunity to extend the average maturities of the Money
Market Portfolio, thereby locking in higher yields. Additionally, we further
diversified the Portfolio, thereby further spreading credit risk.
The second big influence on the market was the Securities and Exchange
Commission's decision to postpone the effective date for changes to its Rule
2a-7 under the Investment Company Act of 1940. This rule governs the credit and
maturity risk of money market funds. Under the proposed changes, regulations
would be tightened on tax-exempt money market funds so as to increase the
likelihood that they maintain a stable net asset value. The changes were
expected to take effect on June 3, 1996, but the mutual fund industry made the
SEC aware of the need for numerous technical amendments, and the deadline was
therefore postponed. We anticipate that new regulations will be completed and
made mandatory by the second quarter of 1997. Competing funds that operate under
lower quality standards than Vanguard will need to alter their fund management
policies. Vanguard's tax-exempt money market Portfolios, however, have always
been managed in a conservative, quality-oriented manner, and we anticipate
minimal impact when the new regulations take effect.
In summary, the coming months will require vigilance. Market participants
will be required to adopt more stringent regulations at a time when tax-exempt
assets are growing and the supply of new issues is minimal. Vanguard's
conservative management style will give the Money Market Portfolio a strategic
advantage as stricter regulations dictate that competitors play catch-up in
terms of quality.
Ian A. MacKinnon, Senior Vice President
Pamela W. Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Vanguard Fixed Income Group December 16, 1996
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<PAGE> 10
PERFORMANCE SUMMARY: INSURED LONG-TERM PORTFOLIO
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
both share price and return can fluctuate widely so that an investment in the
Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 2/3/88-11/30/96
- -------------------------------------------------------
INSURED LONG-TERM PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------
<S> <C> <C> <C> <C>
1988 0.1% 5.9% 6.0% 5.3%
1989 4.4 7.4 11.8 11.0
1990 0.7 7.0 7.7 7.7
1991 2.3 6.7 9.0 10.3
1992 4.1 6.4 10.5 10.0
1993 6.6% 5.9% 12.5% 11.1%
1994 -11.2 5.1 -6.1 -5.2
1995 13.3 6.4 19.7 18.9
1996 -0.7 5.4 4.7 5.9
- -------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 22 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: 2/3/88-11/30/96
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1988 02 10000 10000 10000
1988 05 9987 9849 10037
1988 08 10278 10149 10259
1988 11 10598 10506 10532
1989 02 10858 10743 10736
1989 05 11388 11183 11192
1989 08 11484 11322 11386
1989 11 11850 11612 11692
1990 02 11847 11658 11837
1990 05 12071 11849 12011
1990 08 12107 11905 12117
1990 11 12758 12466 12592
1991 02 13158 12788 12928
1991 05 13431 13108 13222
1991 08 13698 13452 13545
1991 11 13911 13740 13884
1992 02 14278 14065 14219
1992 05 14576 14389 14520
1992 08 15168 14930 15057
1992 11 15369 15088 15275
1993 02 16499 16072 16175
1993 05 16654 16158 16257
1993 08 17285 16816 16894
1993 11 17295 16831 16968
1994 02 17390 16897 17070
1994 05 16967 16334 16658
1994 08 17234 16586 16924
1994 11 16240 15589 16082
1995 02 17870 16897 17398
1995 05 18585 17571 18182
1995 08 18674 17694 18426
1995 11 19433 18379 19123
1996 02 19602 18509 19321
1996 05 19224 18178 19012
1996 08 19589 18507 19391
1996 11 20355 19388 20247
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LONG-TERM PORTFOLIO 4.75% 7.91% 8.39% $20,355
AVERAGE NEW JERSEY MUNICIPAL FUND 4.77 7.04 7.79 19,388
LEHMAN MUNICIPAL BOND INDEX 5.88 7.84 8.32 20,247
- --------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insured Long-Term Portfolio 2/3/88 5.73% 7.43% 1.87% 6.37% 8.24%
- ------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
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<PAGE> 11
PERFORMANCE SUMMARY: MONEY MARKET PORTFOLIO
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
returns can fluctuate widely. An investment in a money market fund is neither
insured nor guaranteed by the U.S. government, and there is no assurance that
the fund will be able to maintain a stable net asset value of $1.00 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 2/3/88-11/30/96
- -----------------------------------------------
MONEY MARKET PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------
<S> <C> <C> <C> <C>
1988 0.0% 4.2% 4.2% 4.3%
1989 0.0 6.3 6.3 6.4
1990 0.0 5.8 5.8 5.8
1991 0.0 4.5 4.5 4.5
1992 0.0 3.0 3.0 2.8
1993 0.0% 2.3% 2.3% 2.0%
1994 0.0 2.5 2.5 2.2
1995 0.0 3.6 3.6 3.3
1996 0.0 3.2 3.2 2.9
- ----------------------------------------------
</TABLE>
*Average New Jersey Tax-Exempt Money Market Fund.
See Financial Highlights table on page 22 for dividend information for the past
five years.
CUMULATIVE PERFORMANCE: 2/3/88-11/30/96
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
<S> <C> <C> <C>
1988 02 10000 10000
1988 05 10150 10150
1988 08 10278 10283
1988 11 10420 10429
1989 02 10573 10589
1989 05 10752 10769
1989 08 10917 10934
1989 11 11079 11097
1990 02 11237 11255
1990 05 11402 11420
1990 08 11559 11580
1990 11 11721 11743
1991 02 11869 11890
1991 05 12001 12023
1991 08 12127 12145
1991 11 12253 12268
1992 02 12360 12366
1992 05 12458 12458
1992 08 12541 12531
1992 11 12626 12606
1993 02 12702 12672
1993 05 12774 12734
1993 08 12845 12794
1993 11 12919 12857
1994 02 12986 12914
1994 05 13061 12980
1994 08 13141 13052
1994 11 13241 13139
1995 02 13355 13242
1995 05 13482 13358
1995 08 13598 13462
1995 11 13717 13567
1996 02 13829 13668
1996 05 13940 13768
1996 08 14047 13864
1996 11 14159 13956
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO 3.22% 2.93% 4.02% $14,159
AVERAGE NEW JERSEY TAX-EXEMPT
MONEY MARKET FUND 2.89 2.62 3.85 13,957
- -----------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 2/3/88 3.28% 2.96% 0.00% 4.04% 4.04%
- ------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
9
<PAGE> 12
PORTFOLIO PROFILE: INSURED LONG-TERM PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to an unmanaged index. Key elements of this Profile are
defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -------------------------------------------
<S> <C>
Number of Issues 164
Yield 4.9%
Yield to Maturity* 4.9%
Average Coupon 5.5%
Average Maturity 10.5 years
Average Quality Aaa
Average Duration 7.0 years
Expense Ratio 0.20%
</TABLE>
*After expenses.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
INSURED LONG-TERM LEHMAN
PORTFOLIO INDEX*
- -------------------------------------------
<S> <C> <C>
R-Squared 0.98 1.00
Beta 1.09 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------
<S> <C>
Under 1 Year 12.6%
1-5 Years 9.5
5-10 Years 38.4
10-20 Years 29.4
20-30 Years 9.4
Over 30 Years 0.7
- -------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- -------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Aaa 95.8%
Aa 4.2
A --
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
[PHOTO]
AVERAGE COUPON. The average interest rate, expressed as a percentage of face
value, paid on the securities held by a portfolio.
AVERAGE DURATION. An estimate of how much a portfolio's share price will
fluctuate in response to a change in interest rates. To estimate the price
sensitivity of a portfolio, multiply its duration by the change in rates. If
interest rates rise by one percentage point, the share price of a portfolio with
an average duration of five years would decline by about 5%. If rates decrease
by a percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity and are repaid. In general, the longer the average maturity, the
more a portfolio's share price will fluctuate in response to changes in market
interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
credit ratings assigned to a portfolio's securities holdings by credit-rating
agencies. Agencies assign credit ratings after appraising an issuer's ability to
meet its debt obligations. Quality is graded on a scale, with Aaa indicating the
most creditworthy bond issuers and MIG-1 indicating the most creditworthy issues
of municipal money market securities. (Individual money market securities with a
rating of A, Aa, and Aaa all receive a MIG-1 designation.)
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the fluctuations in the overall market (or appropriate market
index). The market, or index, has a beta of 1.00, so a portfolio with a beta of
1.20 would have seen its share price rise or fall by 12% when the overall market
rose or fell by 10%.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or other
credit problems on securities held by a portfolio.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates. Callable
securities trading at premium to par value are treated as coming due on their
earliest redemption date.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors. The average expense ratio in 1995 for state tax-free bond
funds was 1.01%; for state tax-free money market funds, the figure was 0.59%.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of a portfolio's net asset value, is based on income earned by the
portfolio over the past 30 days (7 days for money market portfolios) and is
annualized, or projected forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
11
<PAGE> 14
PORTFOLIO PROFILE: MONEY MARKET PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to an unmanaged index. Key elements of this Profile are
defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -------------------------------------------
<S> <C>
Yield 3.2%
Average Maturity 67 days
Average Quality MIG-1
Expense Ratio 0.20%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Aaa 24.8%
Aa 56.0
A 19.2
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
12
<PAGE> 15
[PHOTO]
FINANCIAL STATEMENTS
NOVEMBER 30, 1996
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's municipal bond
holdings, including each security's market value on the last day of the
reporting period and information on credit enhancements (insurance or letters of
credit). Securities are grouped and subtotaled according to their insured or
non-insured status. Other assets are added to, and liabilities are subtracted
from, the value of Total Municipal Bonds to calculate the Portfolio's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the
Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the Portfolio's net assets on both a dollar and per-share
basis. Undistributed Net Investment Income is usually zero because the Portfolio
distributes its net income to shareholders as a dividend each day. Any realized
gains must be distributed annually, so the bulk of net assets consists of Paid
in Capital (money invested by shareholders). The balance shown for Accumulated
Net Realized Gains usually approximates the amount available to distribute to
shareholders as taxable capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net realized gains, will appear as
negative balances. Unrealized Appreciation (Depreciation) is the difference
between the value of the Portfolio's investments and their cost, and reflects
the gains (losses) that would be realized if the Portfolio were to sell all of
its investments at their statement-date values.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.1%)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (82.2%)
Atlantic County NJ COP 6.00% 3/1/14 (3) $ 3,685 $ 3,996
Atlantic County NJ COP 6.00% 3/1/15 (3) 1,480 1,600
Atlantic County NJ COP 7.30% 3/1/05 (3) 2,000 2,357
Atlantic County NJ COP 7.30% 3/1/06 (3) 1,800 2,137
Atlantic County NJ COP 7.40% 3/1/10 (3) 1,755 2,138
Atlantic County NJ COP 7.40% 3/1/11 (3) 4,025 4,927
Atlantic County NJ Util. Auth. 5.85% 1/15/15 (2) 3,000 3,070
Bayshore NJ Regional Sewer Auth. 5.40% 5/1/12 (1) 500 502
Bergen County NJ Util. Auth. Water PCR 5.50% 12/15/15 (3) 15,750 15,713
Bergen County NJ Util. Auth. Water PCR 5.75% 12/15/05 (3) 2,000 2,162
Brick Township Ocean County NJ Muni. Util. Auth. 5.00% 12/1/16 (3) 4,350 4,165
Brick Township Ocean County NJ Muni. Util. Auth. 5.00% 12/1/16 (3)+ 1,350 1,292
Camden County NJ GO 5.00% 2/1/10 (3) 1,500 1,473
Camden County NJ GO 5.00% 2/1/11 (3) 2,950 2,880
Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/04 (3) 8,345 5,617
Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/05 (3) 18,545 11,761
Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/06 (3) 18,545 11,059
Camden County NJ Muni. Util. Auth. Sewer Rev. 8.25% 12/1/97 (3)(Prere.) 515 548
Camden County NJ Muni. Util. Auth. Sewer Rev. 8.25% 12/1/17 (3) 335 356
Cape May County NJ IDA (Atlantic City Electric) 6.80% 3/1/21 (1) 15,400 18,460
Cape May County NJ Muni. Util. Auth. 5.75% 1/1/16 (1) 14,975 15,196
Delaware River Port Auth. PA & NJ 5.50% 1/1/26 (3) 26,600 26,408
Delaware River Port Auth. PA & NJ 6.50% 1/1/09 (2) 3,500 3,643
Delaware River Port Auth. PA & NJ 7.375% 1/1/07 (2) 9,500 10,225
Elizabeth City NJ Fiscal Year Adjustment Bonds 6.60% 8/1/06 (1) 8,750 9,642
Essex County NJ GO 4.875% 11/15/97 (2) 2,815 2,847
Essex County NJ Improvement Auth. Lease Rev. GO 5.25% 12/1/16 (2) 10,135 9,987
Essex County NJ Improvement Auth. Lease Rev. GO 5.35% 12/1/24 (2) 5,000 4,929
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Essex County NJ Improvement Auth. Lease Rev. GO 5.50% 12/1/08 (2) $ 2,560 $ 2,656
Essex County NJ Improvement Auth. Lease Rev. GO 5.50% 12/1/13 (2) 7,500 7,580
Essex County NJ Improvement Auth. Lease Rev. GO 7.00% 12/1/04 (2)(Prere.) 9,525 11,174
Essex County NJ Util. Auth. 5.60% 4/1/16 (4) 2,200 2,214
Evesham NJ Muni. Util. Auth. 7.00% 7/1/10 (1) 1,700 1,838
Evesham NJ Muni. Util. Auth. 7.00% 7/1/15 (1) 450 486
Gloucester County NJ Util. Auth. Sewer Rev. 5.40% 1/1/16 (1) 250 249
Gloucester County NJ Util. Auth. Sewer Rev. 5.40% 1/1/16 (1)+ 3,160 3,145
Gloucester Township NJ GO 5.75% 7/15/10 (2) 2,880 3,062
Gloucester Township NJ Muni. Util. Auth. 5.65% 3/1/18 (2) 2,755 2,873
Hamilton Township NJ Muni. Util. Auth. 6.00% 8/15/17 (3) 1,000 1,042
Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/03 (1) 3,800 2,807
Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/04 (1) 3,750 2,635
Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/05 (1) 3,805 2,539
Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/06 (1) 2,000 1,260
Hoboken-Union City-Weehawken NJ Sewer Auth. 6.25% 8/1/13 (1) 9,590 10,657
Hudson County NJ Correctional Fac. COP 6.30% 6/1/04 (1) 1,720 1,866
Hudson County NJ Correctional Fac. COP 6.30% 12/1/04 (1) 1,770 1,920
Hudson County NJ Correctional Fac. COP 6.50% 12/1/11 (1) 9,000 9,859
Hudson County NJ General Improvement GO 6.55% 7/1/04 (3) 1,300 1,463
Hudson County NJ General Improvement GO 6.55% 7/1/05 (3) 1,290 1,462
Hudson County NJ General Improvement GO 6.55% 7/1/06 (3) 700 797
Hudson County NJ General Improvement GO 6.55% 7/1/07 (3) 1,300 1,486
Hudson County NJ General Improvement GO 6.55% 7/1/09 (3) 635 727
Hudson County NJ Improvement Auth. Lease 6.00% 12/1/12 (3) 10,000 10,485
Irvington Township NJ GO 0.00% 8/1/07 (1) 1,000 595
Irvington Township NJ GO 0.00% 8/1/09 (1) 2,580 1,358
Irvington Township NJ GO 0.00% 8/1/10 (1) 2,080 1,028
Jersey City NJ Water Auth. GO 7.60% 10/1/12 (2) 700 737
Jersey City NJ Water Auth. GO 7.60% 10/1/13 (2) 700 737
Middlesex County NJ Util. Auth. Sewer Rev. 5.25% 3/15/10 (2) 2,740 2,744
Middlesex County NJ Util. Auth. Sewer Rev. 5.25% 9/15/10 (2) 1,790 1,793
Middlesex County NJ Util. Auth. Sewer Rev. 5.375% 9/15/15 (2) 3,775 3,764
Middlesex County NJ Util. Auth. Sewer Rev. 6.50% 3/15/01 (3)(Prere.) 6,300 6,953
Middlesex County NJ Util. Auth. Sewer Rev. 6.75% 8/15/09 (2) 3,500 3,593
Monmouth County NJ Improvement Auth. 5.00% 2/1/13 (1) 750 726
Mount Laurel Township NJ Muni. Util. Auth. 6.00% 7/1/15 (1) 4,250 4,426
New Brunswick NJ Housing & Urban Dev. 5.75% 7/1/24 (1) 13,640 13,789
New Brunswick NJ Housing & Urban Dev. 6.00% 7/1/12 (1) 6,000 6,297
New Jersey Econ. Dev. Auth. (Market Transition) 5.80% 7/1/07 (1) 1,000 1,069
New Jersey Econ. Dev. Auth. (Market Transition) 5.80% 7/1/09 (1) 5,500 5,743
New Jersey Econ. Dev. Auth. (Market Transition) 5.875% 7/1/11 (1) 12,675 13,294
New Jersey Econ. Dev. Auth. Water Fac. Rev. VRDO (United Water Co.) 4.05% 12/3/96 (2) 15,100 15,100
New Jersey Econ. Dev. Auth. Water Fac. Rev. (Hackensack Water) 7.00% 1/1/19 (2) 2,400 2,454
New Jersey Educ. Fac. Auth. (Higher Educ. Trust Fund) 5.125% 9/1/97 (2) 10,525 10,645
New Jersey Educ. Fac. Auth. (Higher Educ. Trust Fund) 5.125% 9/1/08 (2) 14,795 14,897
New Jersey Educ. Fac. Auth. (Kean College) 6.60% 7/1/21 (1) 3,700 4,071
New Jersey Educ. Fac. Auth. (NJ Institute of Technology) 6.00% 7/1/24 (1) 1,500 1,570
New Jersey Educ. Fac. Auth. (Rider College) 6.20% 7/1/17 (2) 4,000 4,263
New Jersey Educ. Fac. Auth. (Seton Hall Univ.) 5.60% 7/1/16 (1) 1,765 1,781
New Jersey Educ. Fac. Auth. (Seton Hall Univ.) 5.625% 7/1/19 (1) 4,125 4,162
New Jersey Educ. Fac. Auth. (Trenton State College) 6.00% 7/1/12 (2) 3,005 3,154
New Jersey Health Care Fac. Auth. (Beth Israel) 6.00% 7/1/16 (4) 8,500 8,819
New Jersey Health Care Fac. Auth. (Burdette Tomlin Memorial Hosp.) 6.50% 7/1/12 (3) 1,500 1,631
New Jersey Health Care Fac. Auth. (Community Medical Center) 7.00% 7/1/20 (1) 2,850 3,128
New Jersey Health Care Fac. Auth. (Helene Fuld Medical Center) 6.60% 7/1/21 (2) 4,080 4,452
New Jersey Health Care Fac. Auth. (Memorial Health Alliance) 6.25% 7/1/10 (3) 8,000 8,327
New Jersey Health Care Fac. Auth. (Mercer Medical Center) 6.50% 7/1/10 (1) 6,000 6,522
New Jersey Health Care Fac. Auth. (Mountainside Hosp.) 5.35% 7/1/07 (1) 3,215 3,315
New Jersey Health Care Fac. Auth. (Muhlenberg Medical Center) 8.00% 7/1/18 (2) 750 807
New Jersey Health Care Fac. Auth. (Riverview Medical Center) 6.25% 7/1/10 (2) 2,935 3,251
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey Health Care Fac. Auth. (Shore Medical Center) 6.20% 7/1/13 (2) $ 3,130 $ 3,344
New Jersey Health Care Fac. Auth. (Shore Medical Center) 6.20% 7/1/14 (2) 3,075 3,285
New Jersey Health Care Fac. Auth. (Shore Medical Center) 6.25% 7/1/16 (2) 2,000 2,149
New Jersey Health Care Fac. Auth. (Society of the Valley Hosp.) 6.625% 7/1/10 (1) 2,750 2,944
New Jersey Health Care Fac. Auth.
(St. Clare's Riverside Medical Center) 5.75% 7/1/14 (1) 7,500 7,571
New Jersey Health Care Fac. Auth. (West Jersey Health System) 6.00% 7/1/09 (1) 5,175 5,465
New Jersey Housing & Mortgage Finance Auth 7.875% 10/1/17 (1) 450 469
New Jersey Sports & Exposition Auth. VRDO 3.20% 12/5/96 (1) 1,009 1,009
New Jersey Transp. Trust Fund 5.50% 6/15/11 (1) 5,000 5,100
New Jersey Transp. Trust Fund 5.50% 6/15/13 (1) 3,000 3,036
New Jersey Transp. Trust Fund 5.50% 6/15/15 (1) 4,420 4,430
New Jersey Transp. Trust Fund 6.00% 6/15/11 (1) 31,280 33,564
New Jersey Turnpike Auth. VRDO 3.30% 12/4/96 (3) LOC 12,100 12,100
New Jersey Turnpike Auth 6.50% 1/1/13 (1) 20,000 22,833
Newark NJ General Improvement 5.30% 10/1/06 (2) 1,710 1,784
Newark NJ General Improvement 5.40% 10/1/07 (2) 1,685 1,761
Newark NJ General Improvement 5.50% 10/1/08 (2) 1,660 1,736
Newark NJ Water Util 5.30% 10/1/06 (2) 2,625 2,739
North Bergen Hudson County NJ GO 8.00% 8/15/06 (4) 1,885 2,354
North Hudson NJ Sewer Auth 4.60% 8/1/01 (3) 2,050 2,074
North Hudson NJ Sewer Auth 5.125% 8/1/08 (3) 2,000 2,018
North Hudson NJ Sewer Auth 5.125% 8/1/22 (3) 7,000 6,724
North Hudson NJ Sewer Auth 5.25% 8/1/16 (3)+ 3,310 3,250
North Jersey Water Dist. (Wanaque South Project) 6.00% 7/1/12 (1) 10,125 10,680
Ocean County NJ Util. Waste Water Rev 5.00% 1/1/14 (3) 2,000 1,929
Ocean County NJ Util. Waste Water Rev 6.60% 1/1/18 (3)(ETM) 2,500 2,835
Ocean County NJ Util. Waste Water Rev 6.60% 1/1/18 (3) 4,000 4,336
Ocean County NJ Util. Waste Water Rev 6.75% 1/1/13 (3) 14,810 15,142
Ocean Township NJ Muni. Util. Auth 6.00% 8/1/17 (1) 3,975 4,364
Old Bridge NJ Muni. Util. Auth 6.25% 11/1/16 (3) 1,400 1,502
Old Bridge NJ Muni. Util. Auth 6.40% 11/1/09 (3) 3,000 3,292
Passaic Valley NJ Sewer Comm 5.75% 12/1/08 (2) 4,450 4,668
Passaic Valley NJ Sewer Comm 5.75% 12/1/13 (2) 4,000 4,103
Plainfield NJ GO 6.25% 7/15/07 (2) 6,930 7,605
Salem County NJ PCR Finance Auth
(Public Service Electric & Gas) 5.55% 11/1/33 (1) 6,000 5,925
South Brunswick Township NJ Board of Educ 6.40% 8/1/22 (3) 2,205 2,404
South Brunswick Township NJ Board of Educ 6.40% 8/1/23 (3) 2,315 2,524
South Jersey Transp. Auth 5.90% 11/1/06 (1) 3,435 3,693
South Jersey Transp. Auth 5.90% 11/1/07 (1) 2,545 2,722
South Jersey Transp. Auth 6.00% 11/1/12 (1) 5,250 5,520
Stafford NJ Muni. Util. Auth 5.50% 6/1/11 (3) 3,100 3,142
Sussex County NJ Muni. Util. Auth. Solid Waste Rev. 5.75% 12/1/09 (1) 19,820 20,658
Sussex County NJ Muni. Util. Auth. Waste Water 5.25% 12/1/08 (1) 1,150 1,169
West Windsor-Plainsboro NJ School Dist. COP 7.60% 3/15/97 (5)(Prere.) 5,000 5,158
OUTSIDE NEW JERSEY:
Puerto Rico Electric Power Auth 6.50% 7/1/06 (1) 11,820 13,525
Puerto Rico Public Building Auth 0.00% 7/1/02 (3) 4,000 3,147
-------
698,149
-------
SECONDARY MARKET INSURED (8.8%)
Atlantic County NJ Util. 6.875% 1/1/12 (2)(ETM) 3,000 3,226
New Jersey Highway Auth. (Garden State Parkway) 6.00% 1/1/16 (2) 5,000 5,147
New Jersey Highway Auth. (Garden State Parkway) 6.20% 1/1/10 (2) 20,000 22,203
New Jersey Sports & Exposition Auth. 6.50% 3/1/13 (1) 10,000 11,425
New Jersey Transp. Trust Fund 4.10% 6/15/97 (4)(ETM) 3,775 3,787
New Jersey Turnpike Auth. 6.50% 1/1/16 (1) 18,250 20,930
Port Auth. of New York & New Jersey 6.875% 1/1/25 (2) 3,200 3,442
Univ. of Medicine & Dentistry NJ 6.50% 12/1/12 (1) 4,000 4,589
-------
74,749
-------
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NON-INSURED (8.1%)
Burlington County NJ Bridge Comm. 5.30% 10/1/13 $ 9,500 $ 9,572
Burlington County NJ GO 4.875% 11/15/97 1,200 1,215
Cherry Hill Township NJ GO 6.30% 6/1/12 3,745 4,008
Mercer County NJ GO 5.00% 9/1/97 1,935 1,956
Mercer County NJ Improvement Auth. 5.75% 12/15/07 1,110 1,191
Mercer County NJ Improvement Auth. 5.75% 12/15/08 1,165 1,244
Mercer County NJ Improvement Auth. 5.95% 12/15/12 4,895 5,307
Mercer County NJ Improvement Auth. 6.00% 12/1/14 1,000 1,051
Monmouth County NJ Improvement Auth. GO (Correctional Fac.) 6.40% 8/1/11 1,850 1,968
Morris County NJ BAN 3.98% 8/7/97 8,500 8,523
Morris County NJ GO 6.00% 7/15/97 1,726 1,753
Morris County NJ GO (County College) 6.00% 7/15/97 199 202
New Jersey GO 5.00% 7/15/97 8,330 8,407
New Jersey GO 7.00% 4/1/97 1,350 1,366
New Jersey Health Care Fac. Finance Auth. VRDO
(Hosp. Capital Assets Pooled Programu) 3.25% 12/5/96 LOC 200 200
Ocean County NJ Water Util. 6.30% 1/1/13 2,215 2,378
Ocean County NJ Water Util. 6.35% 1/1/14 2,360 2,541
Ocean County NJ Water Util. 6.35% 1/1/15 2,515 2,700
Rutgers State Univ. NJ GO 6.40% 5/1/13 3,000 3,380
Union County NJ PCR Finance Auth. VRDO (Exxon Project) 3.80% 12/3/96 2,100 2,100
OUTSIDE NEW JERSEY:
Puerto Rico Govt. Dev. Bank VRDO 3.20% 12/4/96 LOC 7,700 7,700
---------
68,762
---------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $787,730) 841,660
- ---------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.9%)
- ---------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 17,204
Liabilities (9,870)
---------
7,334
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------------------------------------------
Applicable to 72,907,126 outstanding shares of beneficial interest
(unlimited authorization--no par value) $848,994
===========================================================================================================================
NET ASSET VALUE PER SHARE $11.64
===========================================================================================================================
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 19.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $793,414 $10.88
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 1,650 .02
Unrealized Appreciation--Note E 53,930 .74
=========================================================================================================================
NET ASSETS $848,994 $11.64
=========================================================================================================================
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.2%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Burlington County NJ BAN 3.75% 1/24/97 $ 11,200 $ 11,208
Burlington County NJ BAN 4.00% 3/13/97 3,000 3,005
Burlington County NJ BAN 4.25% 6/13/97 20,500 20,549
Cape May County NJ BAN 3.50% 2/28/97 2,500 2,499
Cape May County NJ GO 4.20% 2/15/97 475 (4) 475
Chatham Township NJ BAN 4.25% 4/18/97 7,966 7,982
Cherry Hill Township NJ BAN 4.25% 10/15/97 21,263 21,358
Cranbury Township NJ BAN 3.50% 3/13/97 2,200 2,202
Cranford Township NJ BAN 3.75% 3/21/97 5,608 5,611
East Brunswick Township NJ BAN 4.50% 11/3/97 2,950 2,970
East Windsor Township NJ BAN 4.25% 4/18/97 4,140 4,148
Englewood NJ BAN 4.50% 7/17/97 8,277 8,303
Essex County NJ Improvement Auth. Pooled Govt. Loan VRDO 3.40% 12/4/96 32,250 LOC 32,250
Evesham Township NJ BAN 4.30% 9/25/97 9,896 9,919
Franklin Township NJ BAN 4.00% 6/2/97 1,900 1,903
Franklin Township NJ BAN 4.50% 8/21/97 3,496 3,512
Gloucester County NJ PCR VRDO (Mobil Oil Refining Corp. Project) 3.20% 12/4/96 20,200 20,200
Hackensack City NJ BAN 4.00% 6/6/97 7,989 8,001
Hamilton Township NJ BAN 4.30% 9/25/97 2,000 2,005
Holmdel Township NJ BAN 4.00% 1/22/97 4,397 4,400
Lawrence Township NJ BAN 4.125% 11/6/97 3,945 3,957
Linden City NJ BAN 4.50% 6/19/97 3,000 3,006
Mercer County NJ Improvement Auth. BAN
(County Courthouse Project) 3.45% 3/13/97 6,250 6,254
Middlesex County NJ TAN 3.75% 2/7/97 15,000 15,012
Monmouth County NJ VRDO
(Improvement Auth. Pooled Govt. Loan Program) 3.35% 12/4/96 40,000 LOC 40,000
Monmouth County NJ BAN 4.375% 8/28/97 3,000 3,011
Monmouth County NJ GO 5.00% 10/1/97 1,350 1,364
Montgomery Township NJ BAN 4.625% 7/15/97 2,095 2,103
Montvale Borough NJ BAN 4.25% 5/15/97 2,872 2,877
Montville Township NJ BAN 4.40% 8/29/97 9,500 9,535
Morris County NJ BAN 3.98% 8/7/97 4,500 4,501
New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.35% 12/6/96 24,700 LOC 24,700
New Jersey Econ. Dev. Auth. CP (Logan Project) 3.45% 12/11/96 14,000 LOC 14,000
New Jersey Econ. Dev. Auth. CP (Logan Project) 3.45% 12/17/96 5,300 LOC 5,300
New Jersey Econ. Dev. Auth. PCR VRDO (Exxon Project) 3.90% 12/3/96 10,500 10,500
New Jersey Econ. Dev. Auth. PCR VRDO (Public Service Electric
& Gas Co.) 3.20% 12/4/96 29,220 (1) 29,220
New Jersey Econ. Dev. Auth. VRDO (Lawrence School Project) 3.15% 12/5/96 17,000 17,000
New Jersey Econ. Dev. Auth. VRDO (NJ Natural Gas Project) 3.85% 12/3/96 8,900 (2) 8,900
New Jersey Econ. Dev. Auth. VRDO (NJ Natural Gas Project) 4.05% 12/3/96 14,100 (2) 14,100
New Jersey Econ. Dev. Auth. Water Fac. TOB VRDO
(NJ American Water Co. Project) 3.60% 12/5/96 4,850 (3) 4,850
New Jersey Econ. Dev. Auth. Water Fac. VRDO (United Water Co.) 3.85% 12/3/96 14,000 (2) 14,000
New Jersey Econ. Dev. Auth. Water Fac. VRDO (United Water Co.) 4.05% 12/3/96 1,200 (2) 1,200
New Jersey GO 4.50% 7/15/97 31,520 31,647
New Jersey Governmental GO 5.80% 8/1/97 2,000 2,025
New Jersey GO TOB VRDO 3.45% 12/4/96 33,700 33,700
New Jersey GO TOB VRDO 3.55% 12/5/96 9,370 9,370
New Jersey Health Care Fac. Finance Auth. VRDO
(Hosp. Capital Asset Pooled Program) 3.25% 12/5/96 49,900 LOC 49,900
New Jersey Sports & Exposition Auth. VRDO 3.20% 12/5/96 63,541 (1) 63,541
New Jersey TRAN CP 3.65% 12/12/96 2,500 2,500
New Jersey Transp. Trust Fund 4.10% 6/15/97 3,700 (ETM) 3,708
New Jersey Transp. Trust Fund 5.50% 12/15/96 15,000 (ETM) 15,013
New Jersey Turnpike Auth. VRDO 3.30% 12/4/96 71,300 (3) LOC 71,300
Ocean County NJ BAN 4.25% 6/20/97 10,000 10,020
Ocean County NJ General Improvement GO 5.65% 7/1/97 1,125 1,138
Peapack-Gladstone Borough NJ BAN 4.375% 5/15/97 2,400 2,405
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Piscataway Township NJ BAN 4.25% 4/25/97 $ 2,700 $ 2,704
Port Auth. of New York & New Jersey CP 3.30% 12/12/96 9,300 9,300
Port Auth. of New York & New Jersey CP 3.40% 12/5/96 7,940 7,940
Port Auth. of New York & New Jersey CP 3.40% 12/6/96 4,325 4,325
Port Auth. of New York & New Jersey CP 3.50% 2/6/97 17,170 17,170
Port Auth. of New York & New Jersey CP 3.50% 3/10/97 1,800 1,800
Port Auth. of New York & New Jersey CP 3.55% 4/7/97 6,630 6,630
Port Auth. of New York & New Jersey CP 3.60% 12/13/96 9,415 9,415
Port Auth. of New York & New Jersey CP 3.60% 2/19/97 9,730 9,730
Princeton Township NJ BAN 3.50% 3/12/97 1,800 1,800
Rahway NJ BAN 3.80% 12/23/96 3,250 3,251
Readington Township NJ BAN 4.25% 5/2/97 2,061 2,064
Rutgers State Univ. NJ 7.70% 5/1/97 (Prere.) 1,500 1,555
Rutgers State Univ. NJ 8.10% 5/1/97 (Prere.) 1,000 1,037
Rutgers State Univ. NJ 8.125% 5/1/97 (Prere.) 4,750 4,931
Salem County NJ PCR CP (PECO) 3.35% 12/5/96 LOC 5,000 5,000
Salem County NJ PCR CP (PECO) 3.45% 12/11/96 LOC 3,400 3,400
Sayreville NJ TAN 3.90% 4/14/97 3,300 3,302
South Brunswick Township NJ BAN 4.50% 10/8/97 3,515 3,535
South Orange Village Township NJ BAN 4.25% 10/31/97 3,892 3,910
Southeast Morris County Muni. Util. Auth. RAN 4.00% 1/15/97 2,000 2,001
Union County NJ PCR VRDO (Exxon Project) 3.80% 12/3/96 7,500 7,500
Union County NJ PCR VRDO (Exxon Project) 4.00% 12/3/96 7,300 7,300
Watchung NJ BAN 4.125% 5/16/97 2,700 2,704
West Orange Township NJ BAN 3.50% 1/13/97 1,579 1,580
West Orange Township NJ BAN 3.60% 1/13/97 3,025 3,027
West Orange Township NJ BAN 4.50% 6/25/97 1,469 1,474
West Windsor Township NJ BAN 4.50% 10/10/97 2,650 2,664
Wyckoff Township NJ BAN 3.95% 11/24/97 645 647
OUTSIDE NEW JERSEY:
Puerto Rico Govt. Dev. Bank VRDO 3.20% 12/4/96 LOC 52,250 52,250
Puerto Rico Highway & Transp. Auth. VRDO 3.20% 12/4/96 LOC 16,500 16,500
Puerto Rico Industrial Medical & Environmental Fac. Auth. PCR PUT
(Abbott Laboratories) 3.41% 3/1/97 6,250 6,250
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $910,853) 910,853
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.8%)
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 9,122
Liabilities (2,093)
--------
7,029
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------
Applicable to 917,918,882 outstanding shares of beneficial interest
(unlimited authorization--no par value) $917,882
=============================================================================================================================
NET ASSET VALUE PER SHARE $1.00
=============================================================================================================================
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 19.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $917,934 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (52) --
Unrealized Appreciation -- --
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS $917,882 $1.00
============================================================================================================================
</TABLE>
18
<PAGE> 21
KEY TO ABBREVIATIONS
BAN--Bond Anticipation Note.
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
IDR--Industrial Development Revenue Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
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.
+Security purchased on a when-issued or delayed delivery basis for which the
Portfolio has not taken delivery as of November 30, 1996.
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) BIGI (Bond Investors Guaranty Insurance).
(6) Connie Lee Inc.
(7) 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.
SPECIAL 1996 TAX INFORMATION (UNAUDITED)
VANGUARD NEW JERSEY TAX-FREE FUND
This information for the fiscal year ended November 30, 1996, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term Portfolio designates $2,333,000 as capital gain
dividends (from net long-term capital gains), which will be distributed in
December 1996.
Each Portfolio designates 100% of its income dividends as exempt-interest
dividends.
19
<PAGE> 22
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. These
expenses directly reduce the amount of investment income available to pay to
shareholders as tax-exempt income dividends. This Statement also shows any Net
Gain (Loss) realized on the sale of investments, and the increase or decrease in
the Unrealized Appreciation (Depreciation) on investments during the period. If
a Portfolio invested in futures contracts during the period, the results of
these investments are shown separately.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1996
------------------------------
INSURED MONEY
LONG-TERM MARKET
PORTFOLIO PORTFOLIO
(000) (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest $44,754 $29,798
------------------------------
Total Income 44,754 29,798
------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 101 110
Management and Administrative 1,249 1,299
Marketing and Distribution 169 263
Insurance Expense 2 --
Custodian Fees 19 24
Auditing Fees 7 7
Shareholders' Reports 23 22
Annual Meeting and Proxy Costs 5 5
Trustees' Fees and Expenses 2 3
------------------------------
Total Expenses 1,577 1,733
Expenses Paid Indirectly--Note C (19) (24)
------------------------------
Net Expenses 1,558 1,709
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 43,196 28,089
- -----------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 2,344 --
Futures Contracts (274) --
- -----------------------------------------------------------------------------------------
REALIZED NET GAIN 2,070 --
- -----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (5,978) --
Futures Contracts (409) --
- -----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (6,387) --
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,879 $28,089
=========================================================================================
</TABLE>
20
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes information
that is detailed in the Statement of Operations. Because the Portfolio
distributes its income to shareholders each day, the amounts of
Distributions--Net Investment Income generally equal the net income earned as
shown under the Operations section. The amounts of Distributions--Realized
Capital Gain may not match the capital gains shown in the Operations section,
because distributions are determined on a tax basis and may be made in a period
different from the one in which the gains were realized on the financial
statements. The Capital Share Transactions section shows the amount shareholders
invested in the Portfolio, either by purchasing shares or by reinvesting
distributions, and the amounts redeemed. The corresponding numbers of Shares
Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM PORTFOLIO MONEY MARKET PORTFOLIO
----------------------------- ------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------
1996 1995 1996 1995
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 43,196 $ 39,962 $ 28,089 $ 28,764
Realized Net Gain (Loss) 2,070 2,672 -- (34)
Change in Unrealized Appreciation
(Depreciation) (6,387) 84,509 -- --
---------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 38,879 127,143 28,089 28,730
---------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (43,196) (39,962) (28,089) (28,764)
Realized Capital Gain (3,940) -- -- --
---------------------------------------------------------------------------
Total Distributions (47,136) (39,962) (28,089) (28,764)
---------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 174,160 163,327 780,375 715,142
Issued in Lieu of Cash Distributions 36,637 30,789 26,843 27,484
Redeemed (149,600) (129,866) (748,471) (675,705)
---------------------------------------------------------------------------
Net Increase from
Capital Share Transactions 61,197 64,250 58,747 66,921
- -----------------------------------------------------------------------------------------------------------------------
Total Increase 52,940 151,431 58,747 66,887
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 796,054 644,623 859,135 7 92,248
---------------------------------------------------------------------------
End of Year $848,994 $796,054 $917,882 $859,135
=======================================================================================================================
(1)Shares Issued (Redeemed)
Issued 15,151 14,463 780,375 715,142
Issued in Lieu of Cash Distributions 3,178 2,715 26,843 27,484
Redeemed (13,024) (11,589) (748,471) (675,705)
---------------------------------------------------------------------------
Net Increase in Shares Outstanding 5,305 5,589 58,747 66,921
=======================================================================================================================
</TABLE>
21
<PAGE> 24
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total Return
and shows net investment income and expenses as percentages of average net
assets. These data will help you assess: the variability of the Portfolio's net
income and total returns from year to year; the relative contributions of net
income and capital gains to the Portfolio's total return; how much it costs to
operate the Portfolio; and the extent to which the Portfolio tends to distribute
capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
Portfolio for one year. Money market portfolios do not show a Portfolio Turnover
Rate because securities purchased with less than one year to maturity are
excluded from the calculation of turnover rates.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM PORTFOLIO
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.78 $10.40 $11.77 $11.18 $10.75
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .616 .623 .622 .637 .659
Net Realized and Unrealized Gain (Loss) on Investments (.082) 1.380 (1.307) .725 .438
---------------------------------------------------------------
Total from Investment Operations .534 2.003 (.685) 1.362 1.097
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.616) (.623) (.622) (.637) (.659)
Distributions from Realized Capital Gains (.058) -- (.063) (.135) (.008)
---------------------------------------------------------------
Total Distributions (.674) (.623) (.685) (.772) (.667)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.64 $11.78 $10.40 $11.77 $11.18
==========================================================================================================================
Total Return 4.75% 19.66% -6.10% 12.53% 10.48%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $849 $796 $645 $748 $572
Ratio of Total Expenses to Average Net Assets 0.20% 0.21% 0.21% 0.20% 0.25%
Ratio of Net Investment Income to Average Net Assets 5.35% 5.50% 5.53% 5.47% 5.99%
Portfolio Turnover Rate 11% 7% 13% 12% 34%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .032 .035 .025 .023 .030
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
---------------------------------------------------------------
Total from Investment Operations .032 .035 .025 .023 .030
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.032) (.035) (.025) (.023) (.030)
Distributions from Realized Capital Gains -- -- -- -- --
---------------------------------------------------------------
Total Distributions (.032) (.035) (.025) (.023) (.030)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================================================
TOTAL RETURN 3.22% 3.60% 2.49% 2.31% 3.04%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $918 $859 $792 $724 $627
Ratio of Total Expenses to Average Net Assets 0.20% 0.21% 0.21% 0.20% 0.24%
Ratio of Net Investment Income to Average Net Assets 3.17% 3.53% 2.46% 2.29% 2.98%
Portfolio Turnover Rate N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
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, or mutual fund, and comprises 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 conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Money Market Portfolio: investment securities are
valued at amortized cost, which approximates market value. Insured Long-Term
Portfolio: Bonds, and temporary cash investments acquired more than 60 days to
maturity, are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and credit ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. FUTURES CONTRACTS: The Insured Long-Term Portfolio may use Municipal
Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with
the objectives of enhancing returns, managing interest-rate risk, maintaining
liquidity, diversifying credit risk, and minimizing transaction costs. The
Portfolio may purchase or sell futures contracts instead of bonds to take
advantage of pricing differentials between the futures contracts and the
underlying bonds. The Portfolio may also seek to take advantage of price
differences among bond market sectors by simultaneously buying futures (or
bonds) of one market sector and selling futures (or bonds) of another sector.
Futures contracts may also be used to simulate a fully invested position in the
underlying bonds while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of bonds held by the Portfolio and the prices
of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date. Capital gains distributions are determined on a tax basis and
may differ from realized capital gains for financial reporting purposes due to
differences in the timing of realization of gains.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
original issue discounts are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Trustees. At November 30, 1996, the Fund had contributed capital aggregating
$160,000 to Vanguard (included in Other Assets), representing 0.8% of Vanguard's
capitalization. The Fund's trustees and officers are also directors and officers
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 custody account. For the
year ended November 30, 1996,
23
<PAGE> 26
custodian fee offset arrangements reduced expenses of the Insured Long-Term and
Money Market Portfolios by $19,000 and $24,000, respectively (0.01% of average
net assets of each Portfolio).
D. During the year ended November 30, 1996, the Insured Long-Term Portfolio
purchased $138,501,000 of investment securities and sold $80,966,000 of
investment securities, other than temporary cash investments.
E. At November 30, 1996, net unrealized appreciation of Insured Long-Term
Portfolio investment securities for financial reporting and federal income tax
purposes was $53,930,000, consisting of unrealized gains of $53,999,000 on
securities that had risen in value since their purchase and $69,000 on
securities that had fallen in value since their purchase.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Trustees of
Vanguard New Jersey Tax-Free Fund
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Insured Long-Term Portfolio and Money Market Portfolio (constituting Vanguard
New Jersey Tax-Free Fund, hereafter referred to as the "Fund") at November 30,
1996, and the results of each of their operations, the changes in each of their
net assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 31, 1996
24
<PAGE> 27
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director
of The Vanguard Group, Inc. and of
each of the investment companies in
The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer,
and Director of The Vanguard Group,
Inc. and of each of the investment
companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and
Director of Rhone-Poulenc Rorer
Inc.; Director of Sun Company, Inc.
and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great
Atlantic and Pacific Tea Co., Alco
Standard Corp., Raytheon Co.,
Knight-Ridder, Inc., and Massa-
chusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's
Professor of Economics, Princeton
University; Director of Prudential
Insurance Co. of America, Amdahl
Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New
England Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and
Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO
Industries, The BFGoodrich Co., and
The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive
Officer of The Nature Conservancy;
formerly, Director and Senior Partner of
McKinsey & Co. and President of New
York University; Director of Pacific Gas
and Electric Co., Procter & Gamble
Co., and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of
Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR
Nabisco; Director of TECO Energy,
Inc. and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive
Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.;
Trustee of Vanderbilt University.
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice P
resident and Secretary of The
Vanguard Group, Inc.; Secretary of
each of the investment companies in
The Vanguard Group.
RICHARD F. HYLAND, Treasurer; Principal of The
Vanguard Group, Inc.; Treasurer of
each of the investment companies in
The Vanguard Group.
KAREN E. WEST, Controller; Principal of The
Vanguard Group, Inc.; Controller of
each of the investment companies in
The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President,
Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President,
Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[VANGUARD LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
[email protected] http://www.vanguard.com
All Vanguard Funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses may
be obtained directly from The Vanguard Group.
(c) 1996 Vanguard Marketing Corporation Distributor
<PAGE> 28
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity-International
Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q140-1/96
