<PAGE> 1
VANGUARD NEW JERSEY
TAX-EXEMPT FUNDS
VANGUARD NEW JERSEY TAX-EXEMPT
MONEY MARKET FUND
VANGUARD NEW JERSEY INSURED LONG-TERM
TAX-EXEMPT FUND
[PHOTO]
Annual Report
November 30, 1998
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto--"Leading the way"--serves as a guiding principle
for our company.
- - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington
Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was
friend and mentor to Vanguard founder John C. Bogle, and helped to shape the
standards and business principles that Mr. Bogle laid down for Vanguard at
its beginning nearly 25 years ago: a stress on balanced, diversified
investments; insistence on fair dealing and candor with clients; and a focus
on long-term investing. To our great regret, Mr. Morgan died on September 2.
- - The 70th anniversary, on December 28, of the incorporation of Vanguard
Wellington Fund. It was the nation's oldest balanced mutual fund, and one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
7
REPORT FROM
THE ADVISER
9
PERFORMANCE SUMMARIES
11
FUND PROFILES
13
FINANCIAL STATEMENTS
16
REPORT OF
INDEPENDENT ACCOUNTANTS
31
All comparative mutual fund data are
from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
DEAR SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
Interest rates declined on balance during the twelve months ended November 30,
1998--the fiscal year for the Vanguard New Jersey Tax-Exempt Funds--providing a
significant boost to prices of tax-exempt municipal bonds. In this bond-friendly
environment of lower rates and tame inflation, our New Jersey Insured Long-Term
Tax-Exempt Fund provided an excellent total return of +7.6% that surpassed the
return of its average peer. Our New Jersey Tax-Exempt Money Market Fund's return
of +3.2% also outdistanced that of its competitors.
The adjacent table presents each fund's twelve-month return along with
its income and capital components. The total return (capital change plus
reinvested dividends) of the Insured Long-Term Tax-Exempt Fund is based on a
change in net asset value from $11.72 per share on November 30, 1997, to $11.98
per share on November 30, 1998, adjusted for dividends totaling $0.599 per share
paid from net investment income and for a distribution of $0.011 per share paid
from net realized capital gains. The Money Market Fund's net asset value
remained at $1 per share, as was expected but not guaranteed. At the end of the
fiscal year, the Insured Long-Term Fund's yield stood at 4.26%, the Money Market
Fund's yield at 2.92%.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
COMPONENTS OF TOTAL RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1998
---------------------------------------------
NEW JERSEY
TAX-EXEMPT FUND INCOME CAPITAL TOTAL
- -----------------------------------------------------------------
<S> <C> <C> <C>
Money Market +3.2% 0.0% +3.2%
(SEC 7-Day Annualized
Yield: 2.92%)
Insured Long-Term +5.3 +2.3 +7.6
- -----------------------------------------------------------------
</TABLE>
FINANCIAL MARKETS IN REVIEW
During the twelve months ended November 30, investors fretted over a variety of
developments both here and abroad, from the debt problems of foreign governments
to a huge hedge-fund bailout to growing concern about corporate profits.
Overall, the uncertainty made for a tumultuous, but ultimately rewarding, period
in the equity markets and a fine fiscal year for bonds.
The yield of the benchmark 30-year U.S. Treasury bond fell about 100
basis points on balance, ending the period at 5.06% after bottoming out at 4.72%
in early October. During the autumn, the Federal Reserve Board trimmed
short-term rates three times in seven weeks by a total of 0.75 percentage point,
citing the strain of international woes on the U.S. economy. The economy
continued to exhibit steady growth (about 3% during the period) and inflation
remained low. Consumer prices were up just 1.5% for the fiscal year.
Of course, as interest rates drop, bond prices rise. That meant
outstanding returns for bonds during the fiscal year, particularly for
longer-maturity issues, which benefit most from interest-rate declines. The
Lehman Brothers Long U.S. Treasury Bond Index earned a total return of +15.7%,
with its +7.2% income return augmented by an +8.5% capital return.
Yields on high-grade long-term municipal bonds did not fall as far as
those for Treasury securities. Top-rated long-term municipal bonds ended the
fiscal year with a yield of 4.89%, down from 5.25% at the end of November 1997.
Yields on top-grade (MIG-1) 3-month notes, which are more sensitive than
longer-term issues to changes
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in short-term interest rates, declined on balance to 2.95% from 3.80% a year
earlier. For the twelve months, the Lehman 10 Year Municipal Bond Index, a good
measure of the long-term municipal market, returned +8.1%--an outstanding
return considering the tax advantages of municipal bonds and the extremely low
inflation rate.
The U.S. stock market, meanwhile, weathered a severe summer storm that
drove the broad market down nearly 20% and clipped more than 40% from the value
of many smaller stocks. A swift recovery ensued during the final three months of
the fiscal year, and for the twelve months, the Standard & Poor's 500 Composite
Stock Price Index was up +23.7%.
The 1998 fiscal year will likely be remembered as a period of
extraordinary relative value in the municipal bond market. On November 30,
yields on long-term U.S. Treasuries and long-term municipal bonds were nearly
identical--a truly remarkable occurrence, given that income from state-specific
municipal bond funds is exempt from federal, state, and local taxes for state
residents. The yield convergence has been the result of several factors.
Treasury bonds benefited from both an easing of inflation fears and a "flight to
quality" by foreign investors--particularly from Asia--who bought Treasury
securities to protect themselves from declines in their currencies versus the
U.S. dollar. Meanwhile, new Treasury issuance dropped--thanks to the federal
budget surplus--and issuance of new municipal bonds soared, dampening prices a
bit and keeping yields high in relation to Treasuries.
Throughout the summer and into the fall, yields of long-term municipal
bonds were equal to about 98% of the yield on comparable Treasuries, and on
several occasions muni yields matched or even slightly exceeded Treasury yields.
To be sure, this phenomenon is temporary, but it made municipal bonds as
valuable in relation to Treasuries as they've ever been. Historically, municipal
bonds have offered a yield equal to about 84% of the yield on Treasury bonds.
It's always important to view the performance of bonds in the proper
perspective, especially after a year when declining interest rates pushed
returns higher. As you may recall, during the past two fiscal years bond prices
received only a small capital boost. Just four years ago, in 1994, interest
rates rose sharply and bond prices plunged, providing a painful lesson about the
volatility of bond-fund returns. It is also important for investors to
understand that the ever-present fluctuations in the bond market tend to offset
each other over longer periods, leaving the rate of interest income as the
dominant long-term source of bond returns.
FISCAL 1998 PERFORMANCE OVERVIEW
The +7.6% return of Vanguard New Jersey Insured Long-Term Tax-Exempt Fund topped
the +7.0% return of the average New Jersey municipal bond fund and fell a bit
short of the +7.8% return of the unmanaged Lehman Municipal Bond Index. This
index, which includes municipal bonds from across the country, is a notoriously
tough competitor because it does not incur the "real world" operating expenses
and transaction costs that all mutual funds must bear. Though the majority of
our total return came from interest income, the fund earned a capital return of
+2.3% that reflected the interest-rate decline. The Tax-Exempt Money Market Fund
provided a total return of +3.2%, outpacing the +2.8% return of its average
peer.
THE MUNICIPAL BOND TAX ADVANTAGE
For New Jersey residents, the income earned by our funds is exempt from state,
local, and federal income taxes. At current yields, that means that investors in
long-term
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municipal bonds who are taxed at the highest marginal tax rate can earn an
astounding 65% more after-tax income than they could in a comparable long-term
U.S. Treasury bond fund. Our Tax-Exempt Money Market Fund also offers New Jersey
residents a distinct advantage over Treasuries with similar maturities. On
November 30, the yield of MIG-1 notes was 11% higher than the after-tax yield of
90-day U.S. Treasury bills. To look at this another way, a yield of 5.1% on a
tax-exempt long-term bond would be the equivalent of an 8.4% taxable yield for
New Jersey taxpayers subject to the highest tax rates. For a tax-exempt
short-term yield of 3.0%, the taxable equivalent would be 5.0%.
These remarkable advantages are illustrated in the table below, which
compares the annual net income earned on U.S. Treasury and tax-exempt securities
as of November 30, 1998, assuming a $100,000 investment.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
ILLUSTRATION OF INCOME FROM
A HYPOTHETICAL $100,000 INVESTMENT
----------------------------------
SHORT-TERM LONG-TERM
- ------------------------------------------------------------------------
<S> <C> <C>
Taxable gross income $4,500 $5,100
Less taxes (39.6%) (1,800) (2,000)
Net after-tax income 2,700 3,100
- ------------------------------------------------------------------------
Tax-exempt income $3,000 $5,100
- ------------------------------------------------------------------------
Tax-exempt income advantage 300 $2,000
- ------------------------------------------------------------------------
Percentage advantage 11% 65%
- ------------------------------------------------------------------------
</TABLE>
This illustration assumes current yields (as of November 30, 1998) of 5.1% for
long-term U.S. Treasury bonds, 4.5% for U.S. Treasury bills, 5.1% for long-term
municipals, and 3.0% for short-term municipals. The tax adjustment assumes a
typical itemized tax return based on a federal tax rate of 39.6%. Income from
U.S. Treasuries is not subject to state taxes; local taxes are not considered.
The illustration is not intended to represent future results.
Of course, in terms of credit quality, state-specific municipal bond
funds, by definition, don't match up to U.S. Treasury bond funds, whose
securities are backed by the full faith and credit of the U.S. government. Also,
single-state municipal bond funds lack geographic diversification. Private
insurance on the bonds in our New Jersey Long-Term Tax-Exempt Fund, however,
substantially mitigates these additional credit risks. Though the insurance does
not provide protection against fluctuations in the fund's value, it guarantees
full payment of interest and principal for our bond holdings.
Portfolio insurance generally is not available for short-term securities,
so our investment adviser, Vanguard Fixed Income Group, is responsible for
preserving the principal of the Tax-Exempt Money Market Fund--a responsibility
the group fulfilled admirably. We remind you that money market investments are
not guaranteed by the Federal Deposit Insurance Corporation, which insures bank
accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
The adjacent table compares the longer-term performance of our funds with those
of their average peer mutual funds. It also illustrates our performance edge
over our competitors, based on hypothetical investments of $10,000 made a decade
ago in the funds and their average competitors.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED NOVEMBER 30, 1998
---------------------------------------------------------------
AVERAGE FINAL VALUE OF A
ANNUAL RATE $10,000 INITIAL INVESTMENT*
--------------------- -------------------------------------
AVERAGE AVERAGE
NEW JERSEY VANGUARD COMPETING VANGUARD COMPETING VANGUARD
TAX-EXEMPT FUND FUND FUND FUND FUND ADVANTAGE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market +3.8% +3.5% $14,486 $14,169 $317
Insured Long-Term +8.2 +7.7 21,986 21,020 966
- -------------------------------------------------------------------------------------
</TABLE>
*Assuming reinvestment of all income dividends and capital gains distributions.
Our advantage is explained, in part, by our much lower expenses, a factor
that helps us toward our goal of
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providing returns that exceed those of competitive norms. Our funds had expense
ratios (annual expenses as a percentage of average net assets) of 0.20% during
the fiscal year, far below both the 1.03% charged by the average long-term
state tax-exempt fund and the 0.53% charged by the average state tax-exempt
money market fund. We believe this powerful advantage is sustainable. Another
reason for our success is the skillful management of Vanguard Fixed Income
Group, which has helped guide our funds to their superior record while
maintaining the highest investment quality in the industry.
We emphasize that the longer-term returns shown in the table are
higher than investors should expect with interest rates at current levels. Our
Insured Long-Term Fund's returns have been boosted by capital appreciation due
to generally declining interest rates during the past decade. But interest rates
cannot decline forever. Investors looking for a realistic forecast of future
returns on long-term bonds should not regard past returns as a guide. The best
indicator of the average future return on long-term bonds--and it is not a
perfect predictor--is the current yield on those bonds.
IN SUMMARY
The excellent returns earned by bonds over the past twelve months--as well as
over the past decade--should not lull investors into a false sense of security
about the safety of bonds or the reliability of returns. Bond returns will
inevitably revert to their historical (lower) averages, possibly with little or
no warning.
We believe that the specific risks of bonds, and the general risks of
investing, can be managed by a balanced investment program that includes stock
funds, bond funds, and money market funds suited to an individual's objectives,
time horizon, tolerance for risk, and financial situation. Once you have such a
program, you should be prepared to stick with it through good times and bad.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
December 18, 1998
NOTE: You'll observe that we have made minor changes in the names of the
Vanguard New Jersey Tax-Exempt Funds. We replaced the word "Tax-Free" with
"Tax-Exempt" and replaced "Portfolio" with "Fund" as part of a broader effort to
clarify the names in our fund lineup.
4
<PAGE> 7
NOTICE TO SHAREHOLDERS
At a special meeting on July 24, 1998, shareholders of Vanguard New Jersey
Tax-Exempt Funds overwhelmingly approved five proposals. The proposals and
voting results were:
1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. Based on the funds' assets at
the time of the vote, this change will reduce the amount of state taxes paid
each year by some Vanguard funds. The Vanguard New Jersey Tax-Exempt Funds will
not realize any tax savings as a result of the change, but the funds will
benefit from the efficiency of being organized the same way as all other
Vanguard Funds. Approved by 95.15% of the shares voted, as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------------------
<S> <C> <C>
618,147,395 17,548,973 13,933,265
--------------------------------------------------------------------
</TABLE>
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This change
permits the New Jersey Tax-Exempt Funds to participate in Vanguard's interfund
lending program, which allows funds to loan money to each other if--and only
if--it makes good financial sense to do so on both sides of the transaction. The
interfund lending program won't be an integral part of the funds' investment
programs; it is a contingency arrangement for managing unusual cash flows.
Approved as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 529,285,862 52,565,513 19,194,182 88.06%
- -------------------------------------------------------------------------------------------
Insured Long-Term 45,205,314 2,122,248 1,256,513 93.05%
- ------------------------------------------------------------------------------------------
</TABLE>
2b. INVESTMENT LIMITATION CHANGES--BORROWING MONEY AND PLEDGING ASSETS. This
change sets standard limits of 15% of net assets on the amount of money Vanguard
funds can borrow from all sources and on the amount of assets that can be
pledged to secure any loans. Approved as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 515,764,863 66,381,817 18,898,877 85.81%
- -------------------------------------------------------------------------------------------
Insured Long-Term 44,262,635 3,016,812 1,304,629 91.11%
- -------------------------------------------------------------------------------------------
</TABLE>
2c. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN SECURITIES OWNED BY
AFFILIATES. This change eliminates the funds' policy of avoiding investments in
securities that are owned in certain amounts by Trustees, officers, and key
advisory personnel. This policy was well-intentioned but wrongly focused and
unnecessary in light
(continued on next page)
5
<PAGE> 8
of the funds' Code of Ethics and other regulatory protections against conflicts
of interest on the part of fund management. Approved as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 524,059,695 59,776,663 17,209,200 87.19%
- ------------------------------------------------------------------------------------------
Insured Long-Term 44,795,927 2,644,023 1,144,126 92.20%
- ------------------------------------------------------------------------------------------
</TABLE>
2d. INVESTMENT LIMITATION CHANGES--BONDS SECURED BY INTERESTS IN OIL, GAS, OR
MINERAL PROGRAMS. This change amends a policy prohibiting investments in
interests in oil, gas, or other mineral exploration or development programs.
While the funds still cannot invest directly in oil, gas, or mineral programs,
the change clarifies that the funds can invest in bonds and money market
instruments secured by interests in these programs. Approved as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 517,659,858 58,596,692 24,789,008 86.13%
- ------------------------------------------------------------------------------------------
Insured Long-Term 44,696,235 2,590,564 1,297,277 92.00%
- ------------------------------------------------------------------------------------------
</TABLE>
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[PHOTO]
THE MARKETS IN PERSPECTIVE
YEAR ENDED NOVEMBER 30, 1998
U.S. financial markets produced solid overall gains during the fiscal year ended
November 30. The S&P 500 Index gained 23.7% for the 12-month period, overcoming
a sharp summer setback. Bond prices rose as interest rates declined. Returns
from overseas stock markets varied widely, with big gains in Europe and losses
in most other markets.
U.S. STOCK MARKETS
The stock market's gains during the fiscal year were concentrated in
large-capitalization growth stocks. Within the S&P 500 Index, the growth stocks
rose 33.7%, while the value stocks were up 13.2%. The market's overall bias
toward large-caps showed starkly in the contrast between the S&P 500 and other
indexes. While the S&P 500 was rising 23.7%, the rest of the market returned a
paltry 2.6%, as measured by the Wilshire 4500 Equity Index. Small-cap stocks, as
represented by the Russell 2000 Index, did even worse--a negative return of
6.6%.
The market's ascent was not without incident, even for large-cap stocks.
After rising strongly to a record high on July 17, the S&P 500 fell by 19.2%
during the following six weeks, just shy of the 20% mark generally considered
the boundary distinguishing a bear market from a mere "correction." Declines
were certifiably bearish for smaller stocks, however.
The July-August tumble in stock prices reflected a number of factors that
collectively raised the anxiety level for many investors. Among these were
deteriorating corporate earnings reports and forecasts, Russia's default on its
debts, and a continuance of economic weakness in Asia. The persistence of Asia's
economic troubles--which first surfaced in mid-1997--began to slow the economic
expansions in the United States and Europe.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1998
-------------------------------------
1 YEAR 3 YEARS 5 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 23.7% 26.7% 23.0%
Russell 2000 Index -6.6 10.3 11.3
MSCI EAFE Index 16.8 9.3 10.2
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 9.5% 7.7% 7.3%
Lehman 10 Year Municipal Bond Index 8.1 6.9 6.8
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.1 5.2 5.1
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.5% 2.2% 2.4%
- --------------------------------------------------------------------------------
</TABLE>
The rebound in stocks late in the fiscal year occurred even though
several sources of uncertainty remained, including doubts about global economic
growth and reductions in securities analysts' forecasts of future corporate
earnings. Stock prices got considerable help from the decline in interest rates.
(Low inflation and low interest rates help stock prices by raising the estimated
value of future dividends and earnings.)
Three forces clearly shaped the performance of industry sectors. They
could be summarized as faith (the buoyant confidence of consumers), fear
(related to the effects of economic troubles abroad), and fortresses (companies
somewhat protected from competition).
7
<PAGE> 10
In contrast to the cautious stance of investors during fiscal 1998, U.S.
consumers threw caution to the wind. Feeling flush because of plentiful jobs
(the nation's unemployment rate was 4.4% at fiscal year-end) and rising wages,
consumers spent a record proportion of their income. Not surprisingly, then, two
big gainers among sectors of the S&P 500 Index were consumer discretionary
firms, such as retailers (+26%) and consumer staples (+22%).
Fear was a factor in the lagging returns in industry groups considered to
be vulnerable to slowing global growth, falling commodity prices, and tougher
price competition from foreign suppliers. Among these--all traditional value
sectors--were firms in the "other energy" category (-37%); chemical and other
materials & processing firms (essentially a zero return); and makers of producer
durables such as airplanes and machinery (+2%). Conversely, utilities did well
(+35%) in part because they are seen as relatively insulated from foreign
competition or economic woes. Fortresses are companies perceived as relatively
safe from competitors because of patented products or brands. Such companies led
the year's best-performing sectors: technology (+49%) and health care (+43%).
U.S. BOND MARKETS
Interest rates declined during the fiscal year, especially for U.S. Treasury
securities, which benefited from heightened aversion to risk among investors and
from a slight decrease in supply, thanks to a $70 billion federal budget
surplus. The Federal Reserve Board had the flexibility to cut short-term rates
in three quarter-point steps in the autumn because inflation was remarkably
tame--consumer prices rose just 1.5% for our fiscal year.
In this bond-friendly environment, yields on long-term Treasury issues
fell by roughly 100 basis points (1 percentage point), with the 30-year Treasury
bond ending the fiscal year at 5.06%. Lower rates mean higher prices for bonds,
and the Lehman Brothers Long U.S. Treasury Bond Index earned a total return of
15.7%, an astounding margin of some 14 percentage points over the inflation
rate.
Reflecting investors' flight to quality and worries about slowing
economic growth, prices fell for high-yield "junk" bonds. Even high-quality
corporate bonds and mortgage-backed securities did not rise in price as far as
Treasury securities. Mortgage bonds tend to lag Treasuries during periods when
falling rates lead to greater refinancing activity by homeowners, resulting in
unwanted prepayments of principal. The Lehman Aggregate Bond Index, which
comprises high-quality corporate and mortgage-backed bonds as well as
Treasuries, and has an intermediate-term average maturity, earned 9.5%.
Yields on long-term municipal bonds declined only modestly during the
fiscal year, and by November 30 were only slightly lower than yields on
comparable Treasury securities. This was striking because the interest on
municipals is exempt from federal income tax.
INTERNATIONAL STOCK MARKETS
Europe's stock markets outdistanced even the S&P 500 Index, but Asian and Latin
American markets were generally down during the fiscal year. As a group,
European stocks earned 27.8% in U.S.-dollar terms. Europe's bull market was
fueled by continuing economic growth, lower interest rates, increased corporate
merger activity, and optimism about the effects of the euro, a common currency
due to be adopted in 1999 by 11 nations.
Japan's stock market continued to suffer from the effects of a severe
recession and a shaky banking system. Stocks in Tokyo fell 4.5% in U.S.-dollar
terms. Elsewhere in Asia, returns were mixed, ranging from a rebound of 21% in
South Korea, through Australia's 11% gain, to big losses in Indonesia (-52%),
Malaysia (-42%), New Zealand (-25%), and Singapore (-18%). Losses were steep
throughout Latin America, including Mexico (-32%), Venezuela (-59%), Brazil
(-20%), and Chile (-22%).
8
<PAGE> 11
REPORT FROM THE ADVISER [PHOTO]
During the fiscal year ended November 30, nervous global investors flocked to
the safety of U.S. Treasury securities. The "flight to quality" began with the
collapse of Asian markets early in the year, then spread throughout the emerging
economies of the world. With each round of negative world events, U.S. Treasury
yields fell as investors bid up bond prices. In contrast to the volatility on
world financial markets, sailing was smooth for the U.S. economy, which produced
stable growth and low inflation. The Federal Reserve Board initially was
reluctant to lower short-term interest rates in the face of the fundamental
strength of the domestic economy; however, signs of international economic
calamity loomed ever larger, threatening future U.S. growth. By the second half
of our fiscal year, it was clear that domestic export-sensitive sectors were
slowing, and stock market volatility increased. The Fed then cut short-term
interest rates by a total of three-quarters of a percentage point. To date, the
Fed's action has helped calm the fears of a worldwide credit crunch and stemmed
investors' flight from risk. We will have to wait and see whether the worst is
over for global markets.
As one would expect, municipal bond yields fell in sympathy with the
decline in Treasury yields. However, a large supply of new tax-exempt bonds
muted the price increases. Consequently, municipal bonds underperformed their
Treasury bond counterparts. During the fiscal year, the benchmark 30-year U.S.
Treasury bond yield declined nearly 1 percentage point (from 6.05% to 5.06%). In
contrast, the yield on an AAA-rated tax-exempt bond of similar maturity
declined only three-tenths of 1 percent (from roughly 5.2% to 4.9%), and
produced commensurately less price appreciation.
As noted, the supply of new tax-exempt bonds grew dramatically during our
fiscal year. Two factors led to this increase in municipal debt. First, as
interest rates declined, municipalities rushed to issue new bonds that would
refinance their older, higher-coupon debt. Second, the financial strength of
many states and localities improved as robust economic performance boosted tax
revenues. This increased financial sustenance allowed many issuers to fund new
capital projects with tax-exempt debt. In all, tax-exempt issuance for the year
was up 27% to $278 billion in new bonds.
This abundance of new bonds offers unique value to investors in
longer-term municipal issues. As of our fiscal year-end, the yield on a
high-quality, long-maturity municipal bond was equal to an unusually high 96.8%
of the yield on a comparable U.S. Treasury security. At certain points during
the fiscal period, AAA-rated insured municipal bonds actually offered yields
higher than Treasury bonds, a situation not seen since 1986. For investors in
the maximum federal tax bracket (39.6%), high-grade municipal bonds offer about
3 percentage points in additional taxable-equivalent yield over comparable U.S.
Treasuries. Our state tax-exempt funds further boost after-tax returns by
providing income exempt from state tax. In the past, municipal bond yields
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<PAGE> 12
have not stayed high relative to Treasury bonds for long. However, because of
the persistence of global uncertainty and its beneficial effect on prices of
Treasury bonds, it's hard to predict when municipal yields will return to
more-normal levels. In the meantime, longer-term municipal bonds are a steal.
The high credit quality of the Vanguard New Jersey Tax-Exempt Funds
played an important role in our strong performance relative to peers. Early in
our fiscal year, demand was quite strong for the higher yields of uninsured
bonds and those of speculative-grade credit quality. Market participants
disregarded the added credit risk they were assuming. Demand for lower-quality
securities was so high that investors accepted ever-smaller yield premiums for
assuming the extra credit risk, and yield spreads between bonds of different
quality tightened. But the bankruptcy of a major Pennsylvania hospital group in
summer 1998 caused many bondholders to reconsider the relationship between yield
and credit quality.
Investors in Vanguard's insured single-state tax-exempt funds receive
additional credit protection. Although this municipal bond insurance does not
protect against changes in market value, it does guarantee the timely payment of
principal and interest. Our single-state tax-exempt funds are able to offer the
dual benefits of high credit quality and attractive yields year after year
because of our low expenses. Our emphasis on high credit quality should allow
our shareholders to sleep comfortably.
Over time, the simple combination of a disciplined risk approach with low
expenses has proven to be a powerful force for maximizing total return for
shareholders. Our continued focus on these basics produced the desired results
in fiscal 1998.
Yields on 1-year tax-exempt money market instruments fell 76 basis points
(0.76 percentage point) during the second half of our fiscal year, even though
summer is traditionally a season for heavy municipal borrowing. Over the full 12
months, the decline was 82 basis points, leaving the yield on the benchmark
1-year MIG-1 note at 2.99% on November 30. By comparison, the yield on 1-year
U.S. Treasury bills fell 92 basis points during the second half and 99 basis
points for the full year, closing with a yield of 4.50%. The plunge in
short-term yields was fueled by the global "flight to quality" and by the Fed's
75-basis-point cut in the federal funds rate. At fiscal year-end, the yield on
1-year MIG-1 notes therefore was equal to 66.4% of the yield on comparable
Treasury bills. Though this ratio is less favorable than that for yields of
long-term municipal bonds in relation to those of Treasury bonds, municipal
money markets still offer value for investors in the highest tax brackets.
As the new year begins, the New Jersey Tax-Exempt Money Market Fund is
positioned to take advantage of its dual strengths of conservative,
quality-oriented management and low expenses. We believe these attributes will,
over time, generate superior risk-adjusted returns.
Ian A. MacKinnon, Managing Director
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Christopher M. Ryon, Principal
Kathryn Allen, Principal
Vanguard Fixed Income Group
December 10, 1998
INVESTMENT PHILOSOPHY
The adviser believes that each fund, while operating within stated maturity and
stringent quality targets, can achieve a high level of current income that is
exempt from federal and New Jersey income taxes by investing in insured and
high-quality uninsured securities issued by New Jersey state, county, and
municipal governments.
10
<PAGE> 13
PERFORMANCE SUMMARY
NEW JERSEY TAX-EXEMPT MONEY MARKET FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. 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 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS:FEBRUARY 3, 1988-NOVEMBER 30, 1998
- -----------------------------------------------------------
NEW JERSEY TAX-EXEMPT AVERAGE
MONEY MARKET FUND 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
1997 0.0 3.3 3.3 3.0
1998 0.0 3.2 3.2 2.8
- -----------------------------------------------------------
</TABLE>
SEC 7-Day Annualized Yield (11/30/1998): 2.92%
*Average New Jersey Tax-Exempt Money Market Fund.
See Financial Highlights table on page 26 for dividend information for the past
five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998
- -----------------------------------------------------------
New Jersey Average
Tax-Exempt New Jersey
Money Market Tax-Exampt Money
Fund Market Fund
<S> <C> <C>
1988 11 10000 10000
1989 02 10147 10153
1989 05 10319 10326
1989 08 10477 10483
1989 11 10633 10638
1990 02 10785 10790
1990 05 10943 10948
1990 08 11094 11099
1990 11 11249 11256
1991 02 11391 11397
1991 05 11518 11529
1991 08 11638 11635
1991 11 11760 11758
1992 02 11862 11855
1992 05 11956 11948
1992 08 12036 12005
1992 11 12118 12083
1993 02 12190 12148
1993 05 12260 12214
1993 08 12328 12257
1993 11 12399 12324
1994 02 12463 12382
1994 05 12535 12450
1994 08 12612 12504
1994 11 12708 12595
1995 02 12817 12695
1995 05 12939 12813
1995 08 13050 12897
1995 11 13164 13006
1996 02 13272 13104
1996 05 13379 13206
1996 08 13482 13282
1996 11 13589 13382
1997 02 13695 13482
1997 05 13809 13589
1997 08 13923 13672
1997 11 14040 13781
1998 02 14151 13885
1998 05 14268 13991
1998 08 14378 14069
1998 11 14486 14169
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1998
-------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey Tax-Exempt Money Market Fund 3.18% 3.16% 3.78% $14,486
Average New Jersey Tax-Exempt Money Market Fund 2.82 2.83 3.55 14,169
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998*
- -------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ----------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Tax-Exempt Money Market Fund 2/3/1988 3.25% 3.14% 0.00% 3.82% 3.82%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
PERFORMANCE SUMMARY
NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: FEBRUARY 3, 1988-NOVEMBER 30, 1998
- -----------------------------------------------------------
NEW JERSEY INSURED
LONG-TERM TAX-EXEMPT FUND 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
1997 1.0 5.4 6.4 7.2
1998 2.3 5.3 7.6 7.8
- -----------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 27 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
New Jersey Insured
Long-Term Average Lehman
Tax-Exempt New Jersey Municipal Bond
Fund Tax-Exempt Fund Index
<S> <C> <C> <C>
1988 11 10000 10000 10000
1989 02 10245 10226 10194
1989 05 10745 10683 10627
1989 08 10836 10816 10811
1989 11 11181 11117 11101
1990 02 11178 11212 11239
1990 05 11389 11332 11404
1990 08 11423 11385 11505
1990 11 12038 11937 11956
1991 02 12412 12301 12275
1991 05 12669 12525 12554
1991 08 12922 12818 12861
1991 11 13122 13134 13182
1992 02 13468 13521 13500
1992 05 13749 13744 13786
1992 08 14308 14234 14296
1992 11 14498 14421 14504
1993 02 15563 15466 15358
1993 05 15710 15411 15435
1993 08 16304 16011 16041
1993 11 16314 16111 16111
1994 02 16404 16303 16208
1994 05 16005 15639 15817
1994 08 16257 15791 16069
1994 11 15319 14923 15270
1995 02 16857 16303 16519
1995 05 17531 16909 17263
1995 08 17615 16923 17495
1995 11 18331 17614 18157
1996 02 18490 17847 18345
1996 05 18134 17484 18052
1996 08 18478 17710 18412
1996 11 19201 18454 19224
1997 02 19307 18637 19355
1997 05 19502 18762 19547
1997 08 19999 19159 20115
1997 11 20430 19643 20603
1998 02 20936 20205 21125
1998 05 21207 20372 21380
1998 08 21678 20696 21855
1998 11 21986 21020 22202
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1998
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey Insured Long-Term Tax-Exempt Fund 7.59% 6.15% 8.20% $21,986
Average New Jersey Tax-Exempt Fund 7.01 5.46 7.71 21,020
Lehman Municipal Bond Index 7.76 6.62 8.30 22,202
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998*
- -------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ----------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Insured Long-Term
Tax-Exempt Fund 2/3/1988 8.44% 5.89% 2.17% 6.14% 8.31%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
12
<PAGE> 15
FUND PROFILE
NEW JERSEY TAX-EXEMPT MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1998. Key elements of this Profile are defined on page 14.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------
<S> <C>
Yield 2.9%
Average Maturity 64 days
Average Quality MIG-1
Expense Ratio 0.20%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
MIG-1/SP-1+ 72.1%
A-1/P-1 21.6
AAA/AA 5.5
A 0.8
- ----------------------------------------------
Total 100.0%
</TABLE>
13
<PAGE> 16
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund'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
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund 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%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund 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
fund 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 fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days (7 days for money market funds) 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 fund were held to their maturity dates.
14
<PAGE> 17
FUND PROFILE
NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 14.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
NEW JERSEY INSURED LEHMAN
LONG-TERM INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 190 47,383
Yield 4.3% 4.4%
Yield to Maturity 4.5% --
Average Coupon 5.3% 5.5%
Average Maturity 8.0 years 13.5 years
Average Quality AAA AA+
Average Duration 6.2 years 7.2 years
Expense Ratio 0.20% --
Cash Reserves 0.0% --
</TABLE>
*Lehman Municipal Bond Index.
INVESTMENT FOCUS
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------------------
NEW JERSEY INSURED LEHMAN
LONG-TERM INDEX*
- -----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.98 1.00
Beta 1.06 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
AAA 94.9%
AA 5.1
A 0.0
BBB 0.0
BB 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
Under 1 Year 2.1%
1-5 Years 20.7
5-10 Years 39.7
10-20 Years 35.7
20-30 Years 1.8
Over 30 Years 0.0
- ------------------------------------------------------
Total 100.0%
</TABLE>
15
<PAGE> 18
[PHOTO]
FINANCIAL STATEMENTS
NOVEMBER 30, 1998
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund'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 noninsured
status. Other assets are added to, and liabilities are subtracted from, the
value of Total Municipal Bonds to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund 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 fund's net assets on both a dollar and
per-share basis. Undistributed Net Investment Income is usually zero because the
fund 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 fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
NEW JERSEY TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.5%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bernards Township NJ BAN 4.00% 5/21/1999 $ 4,311 $ 4,317
Burlington County NJ BAN 3.90% 2/10/1999 20,000 20,015
Burlington County NJ BAN 4.00% 3/11/1999 4,842 4,848
Chatham Township NJ BAN 3.875% 2/18/1999 1,215 1,215
Cherry Hill Township NJ 3.75% 10/13/1999 44,522 44,814
Cranbury Township NJ BAN 3.875% 3/10/1999 2,845 2,847
Essex County NJ Improvement Auth. Pooled Govt. Loan VRDO 2.75% 12/2/1998 LOC 32,650 32,650
Essex Fells NJ BAN 4.25% 12/11/1998 4,750 4,751
Gloucester County NJ PCR VRDO (Mobil Oil Refining Corp. Project) 3.00% 12/2/1998 20,200 20,200
Hackensack City NJ BAN 4.00% 12/17/1998 4,943 4,943
Linden City NJ BAN 3.75% 6/16/1999 3,000 3,001
Mercer County NJ BAN 4.00% 3/11/1999 18,005 18,028
Monmouth County NJ VRDO (Improvement Auth.
Pooled Govt. Loan Program) 2.65% 12/2/1998 LOC 50,000 50,000
Montgomery Township NJ BAN 4.00% 2/10/1999 4,905 4,909
Morris County NJ BAN 3.60% 9/29/1999 36,342 36,459
Morris County NJ BAN 4.25% 12/9/1998 13,887 13,889
Morris County NJ BAN 6.00% 7/15/1999 2,193 2,226
Mountain Lakes NJ BAN 4.00% 1/27/1999 1,156 1,157
New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.00% 2/12/1999 LOC 4,000 4,000
New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.00% 3/11/1999 LOC 7,800 7,800
New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.25% 12/7/1998 LOC 22,100 22,100
New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.25% 12/14/1998 LOC 3,000 3,000
New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.35% 12/14/1998 LOC 14,100 14,100
New Jersey Econ. Dev. Auth. CP (Exxon Project) 2.75% 12/2/1998 12,500 12,500
New Jersey Econ. Dev. Auth. CP (Lawrence School Project) 3.00% 2/8/1999 23,100 23,100
New Jersey Econ. Dev. Auth. CP (Logan Project) 2.95% 2/24/1999 LOC 5,000 5,000
New Jersey Econ. Dev. Auth. CP (Logan Project) 3.10% 3/12/1999 LOC 9,200 9,200
New Jersey Econ. Dev. Auth. CP (Logan Project) 3.25% 12/15/1998 LOC 20,000 20,000
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey Econ. Dev. Auth. CP (Logan Project) 3.35% 12/10/1998 LOC $ 8,500 $ 8,500
New Jersey Econ. Dev. Auth. Natural Gas Fac. Rev. VRDO
(NJ Natural Gas Project) 2.75% 12/2/1998 (2) 1,745 1,745
New Jersey Econ. Dev. Auth. Natural Gas Fac. Rev. VRDO
(NJ Natural Gas Project) 2.80% 12/2/1998 4,000 4,000
New Jersey Econ. Dev. Auth. Natural Gas Fac. Rev. VRDO
(NJ Natural Gas Project) 3.10% 12/2/1998 (2) 6,700 6,700
New Jersey Econ. Dev. Auth. Natural Gas Fac. Rev. VRDO
(NJ Natural Gas Project) 3.30% 12/2/1998 (2) 15,600 15,600
New Jersey Econ. Dev. Auth. PCR VRDO
(Public Service Electric & Gas Co.) 3.00% 12/2/1998 (1) 14,120 14,120
New Jersey Econ. Dev. Auth. VRDO (United States Golf Association) 3.15% 12/3/1998 2,400 2,400
New Jersey Econ. Dev. Auth. Water Fac. TOB VRDO
(NJ American Water Co. Project) 3.35% 12/3/1998 (3)+ 4,850 4,850
New Jersey Econ. Dev. Auth. Water Fac. VRDO
(Elizabethtown Water Co. Project) 3.00% 12/2/1998 33,100 33,100
New Jersey Econ. Dev. Auth. Water Fac. VRDO (United Water Co.) 3.00% 12/2/1998 (2) 4,600 4,600
New Jersey Econ. Dev. Auth. Water Fac. VRDO (United Water Co.) 3.10% 12/2/1998 (2) 25,500 25,500
New Jersey Econ. Dev. Auth. Water Fac. VRDO (United Water Co.) 3.30% 12/2/1998 (2) 13,000 13,000
New Jersey GO 4.50% 3/1/1999 6,365 6,381
New Jersey GO TOB VRDO 3.30% 12/3/1998 + 14,000 14,000
New Jersey Health Care Fac. Finance Auth. VRDO
(Hosp. Capital Asset Pooled Program) 2.95% 12/3/1998 LOC 53,100 53,100
New Jersey Highway Auth. Rev. (Garden State Parkway) 7.25% 1/1/1999 (Prere.) 6,705 6,860
New Jersey Sports & Exposition Auth. VRDO 3.15% 12/3/1998 (1) 46,970 46,970
New Jersey TRAN CP 3.00% 3/9/1999 2,000 2,000
New Jersey TRAN CP 3.125% 1/21/1999 10,000 10,000
New Jersey TRAN CP 3.35% 2/17/1999 10,000 10,000
New Jersey TRAN CP 5.00% 12/15/1998 5,900 5,903
New Jersey Transp. Trust Fund TOB VRDO 3.30% 12/3/1998 + 8,495 8,495
New Jersey Turnpike Auth. Rev. VRDO 2.90% 12/2/1998 (3) LOC 146,665 146,665
Ocean County NJ GO 4.50% 6/1/1999 2,000 2,008
Paramus Borough NJ BAN 3.61% 8/13/1999 9,943 9,944
Paterson NJ GO 4.55% 1/15/1999 (4) 2,029 2,031
Pequannock Township NJ BAN 4.25% 12/4/1998 4,285 4,285
Plainsboro Township NJ BAN 4.00% 5/18/1999 2,548 2,551
Port Auth. of New York & New Jersey CP 3.00% 3/11/1999 8,815 8,815
Port Auth. of New York & New Jersey CP 3.10% 2/16/1999 500 500
Port Auth. of New York & New Jersey CP 3.35% 2/16/1999 22,875 22,875
Port Auth. of New York & New Jersey CP 3.40% 12/17/1998 3,650 3,650
Port Auth. of New York & New Jersey CP 3.50% 12/15/1998 5,640 5,640
Port Auth. of New York & New Jersey CP 3.60% 8/1/1999 6,000 6,000
Princeton Township NJ BAN 3.75% 8/13/1999 7,000 7,009
Princeton Univ. NJ CP 2.70% 12/16/1998 6,200 6,200
Princeton Univ. NJ CP 2.75% 12/16/1998 1,500 1,500
Princeton Univ. NJ CP 2.85% 3/16/1999 3,700 3,700
Princeton Univ. NJ CP 2.90% 3/16/1999 7,500 7,500
Princeton Univ. NJ CP 3.00% 2/1/1999 10,400 10,400
Princeton Univ. NJ CP 3.30% 12/11/1998 10,700 10,700
Princeton Univ. NJ CP 3.30% 12/16/1998 6,700 6,700
Randolph Township NJ BAN 3.75% 9/3/1999 3,413 3,420
Readington Township NJ BAN 4.25% 4/30/1999 6,000 6,014
Ridgewood NJ BAN 4.125% 12/9/1998 4,800 4,800
Rockaway Township NJ BAN 3.90% 7/28/1999 5,030 5,041
Rutgers State Univ. NJ 6.90% 5/1/1999 (Prere.) 1,300 1,343
Salem County NJ PCR CP (PECO Project) 2.95% 3/9/1999 LOC 5,000 5,000
Salem County NJ PCR CP (PECO Project) 3.10% 3/12/1999 LOC 3,400 3,400
Salem County NJ PCR CP (PECO Project) 3.25% 12/15/1998 LOC 6,600 6,600
Salem County NJ PCR VRDO (Atlantic City Electric Co.) 2.90% 12/2/1998 (1) 9,900 9,900
Salem County NJ PCR VRDO (Atlantic City Electric Co.) 3.00% 12/2/1998 (1) 1,000 1,000
Salem County NJ PCR VRDO (Public Service Electric & Gas Co.) 2.85% 12/2/1998 (1) 6,500 6,500
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
NEW JERSEY TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scotch Plains Township NJ BAN 4.25% 6/10/1999 $ 4,400 $ 4,412
Somerset County NJ Industrial Pollution Control Fin. Auth. PCR VRDO
(American Cyanamid Co. Project) 2.65% 12/2/1998 13,000 13,000
South New Jersey Transp. Auth. BAN 2.95% 11/3/1999 25,000 25,000
Sussex County NJ Muni. Util. Auth. Rev. 7.875% 12/1/1998 (Prere.) 3,500 3,570
Union County NJ PCR VRDO (Exxon Project) 2.80% 12/2/1998 20,300 20,300
Union County NJ PCR VRDO (Exxon Project) 2.90% 12/2/1998 16,800 16,800
Watchung Borough NJ BAN 4.00% 5/14/1999 8,950 8,961
West Orange Township NJ BAN 3.75% 6/23/1999 4,397 4,400
OUTSIDE NEW JERSEY:
Puerto Rico Electric Power Auth. TOB VRDO 3.05% 12/3/1998 + 7,175 7,175
Puerto Rico Govt. Dev. Bank VRDO 2.90% 12/2/1998 (1) LOC 8,900 8,900
Puerto Rico Highway & Transp. Auth. TOB VRDO 3.05% 12/3/1998 + 13,045 13,045
Puerto Rico Industrial Medical & Environmental
Fac. Auth. PCR PUT (Abbott Laboratories Project) 3.55% 3/1/1999 + 8,750 8,750
Puerto Rico Infrastructure Fin. Auth. TOB VRDO 3.05% 12/3/1998 + 6,240 6,240
Puerto Rico TRAN 3.50% 7/30/1999 ++ 10,000 10,042
- --------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,161,179) 1,161,179
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 30,980
Liabilities (12,888)
-----------
18,092
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 1,179,285,929 outstanding $.001 par value shares of
beneficial interest
(unlimited authorization) $1,179,271
==========================================================================================================================
NET ASSET VALUE PER SHARE $1.00
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At November 30, 1998, the
aggregate value of these securities was $62,555,000 representing 5.3% of net
assets.
For key to abbreviations and other references, see page 23.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,179,301 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (30) --
Unrealized Appreciation -- --
==========================================================================================================================
NET ASSETS $1,179,271 $1.00
==========================================================================================================================
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (103.6%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (89.5%)
Atlantic City NJ Board of Educ. GO 6.00% 12/1/2012 (4) $ 4,600 $ 5,295
Atlantic City NJ Board of Educ. GO 6.10% 12/1/2015 (4) 2,000 2,318
Atlantic County NJ COP 6.00% 3/1/2014 (3) 3,685 4,211
Atlantic County NJ COP 6.00% 3/1/2015 (3) 1,480 1,691
Atlantic County NJ COP 7.40% 3/1/2010 (3) 1,755 2,217
Atlantic County NJ COP 7.40% 3/1/2011 (3) 4,025 5,120
Atlantic County NJ Util. Auth. Sewer Rev. 5.85% 1/15/2015 (2) 3,000 3,231
Bayshore NJ Regional Sewer Auth. Rev. 5.40% 5/1/2012 (1) 500 527
Bergen County NJ Util. Auth. Water PCR 5.50% 6/15/2002 (3)(Prere.) 15,750 16,672
Brick Township NJ Muni. Util. Auth. Rev. 5.00% 12/1/2016 (3) 11,150 11,281
Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/2004 (3) 8,345 6,555
Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/2005 (3) 18,545 13,896
Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/2006 (3) 18,545 13,264
Cape May County NJ Muni. Util. Auth. Rev. 5.75% 1/1/2016 (1) 14,975 15,869
Cape May County NJ PCR (Atlantic City Electric) 6.80% 3/1/2021 (1) 15,400 19,409
Delaware River Port Auth. Pennsylvania & New Jersey Rev. 5.40% 1/1/2013 (3) 9,000 9,522
Delaware River Port Auth. Pennsylvania & New Jersey Rev. 5.50% 1/1/2026 (3) 35,600 37,256
Delaware River Port Auth. Pennsylvania & New Jersey Rev. 6.50% 1/1/2009 (2) 3,500 3,510
Delaware River Port Auth. Pennsylvania & New Jersey Rev. 7.375% 1/1/2007 (2) 9,500 9,724
Elizabeth NJ GO Fiscal Year Adjustment Bonds 6.60% 8/1/2001 (1)(Prere.) 8,750 9,566
Essex County NJ Improvement Auth. Lease Rev. 5.50% 12/1/2008 (2) 2,560 2,748
Essex County NJ Improvement Auth. Lease Rev. 5.50% 12/1/2013 (2) 7,500 8,022
Essex County NJ Util. Auth. Solid Waste Rev. 5.60% 4/1/2016 (4) 2,200 2,357
Evesham NJ Muni. Util. Auth. Rev. 7.00% 7/1/2010 (1) 1,700 1,786
Evesham NJ Muni. Util. Auth. Rev. 7.00% 7/1/2015 (1) 450 472
Gloucester County NJ Util. Auth. Sewer Rev. 5.40% 1/1/2016 (1) 3,410 3,555
Gloucester Township NJ GO 5.75% 7/15/2010 (2) 2,880 3,242
Gloucester Township NJ Muni. Util. Auth. Rev. 5.65% 3/1/2018 (2) 2,755 3,047
Hamilton Township NJ Muni. Util. Auth. Rev. 6.00% 8/15/2002 (3)(Prere.) 1,000 1,096
Hoboken-Union City-Weehawken NJ Sewer Auth. Rev. 0.00% 8/1/2003 (1) 3,800 3,174
Hoboken-Union City-Weehawken NJ Sewer Auth. Rev. 0.00% 8/1/2004 (1) 3,750 2,997
Hoboken-Union City-Weehawken NJ Sewer Auth. Rev. 0.00% 8/1/2005 (1) 3,805 2,908
Hoboken-Union City-Weehawken NJ Sewer Auth. Rev. 0.00% 8/1/2006 (1) 2,000 1,463
Hoboken-Union City-Weehawken NJ Sewer Auth. Rev. 6.25% 8/1/2013 (1) - 9,590 11,275
Hudson County NJ Correctional Fac. COP 6.50% 12/1/2011 (1) 9,000 9,815
Hudson County NJ General Improvement GO 6.55% 7/1/2007 (3) 1,300 1,526
Hudson County NJ General Improvement GO 6.55% 7/1/2009 (3) 635 755
Hudson County NJ Improvement Auth. Lease Rev. 6.00% 12/1/2002 (3)(Prere.) 6,525 7,186
Irvington Township NJ GO 0.00% 8/1/2007 (1) 1,000 699
Irvington Township NJ GO 0.00% 8/1/2009 (1) 2,580 1,627
Irvington Township NJ GO 0.00% 8/1/2010 (1) 2,080 1,244
Lenape NJ Regional High School Dist. GO 5.00% 4/1/2011 (3) 2,625 2,721
Lenape NJ Regional High School Dist. GO 5.00% 4/1/2019 (3) 3,000 3,024
Lenape NJ Regional High School Dist. GO 5.00% 4/1/2021 (3) 3,500 3,528
Lenape NJ Regional High School Dist. GO 5.00% 4/1/2022 (3) 4,000 4,032
Lenape NJ Regional High School Dist. GO 5.00% 4/1/2023 (3) 4,000 4,031
Middlesex County NJ COP 5.125% 6/15/2016 (1)++ 3,805 3,903
Middlesex County NJ Util. Auth. Sewer Rev. 5.125% 12/1/2016 (3) 4,550 4,683
Middlesex County NJ Util. Auth. Sewer Rev. 5.25% 3/15/2010 (2) 2,740 2,908
Middlesex County NJ Util. Auth. Sewer Rev. 5.25% 9/15/2010 (2) 1,790 1,900
Middlesex County NJ Util. Auth. Sewer Rev. 5.25% 12/1/2010 (3) 3,145 3,370
Middlesex County NJ Util. Auth. Sewer Rev. 5.375% 9/15/2015 (2) 3,775 3,959
Middlesex County NJ Util. Auth. Sewer Rev. 6.50% 3/15/2001 (3)(Prere.) 6,300 6,813
Monmouth County NJ Improvement Auth. Rev. Governmental Loan 5.40% 12/1/2012 (1) 2,505 2,685
Monmouth County NJ Improvement Auth. Rev.
(Howell Township Board of Ed.) 5.80% 7/15/2017 (2) 1,180 1,287
Mount Laurel Township NJ Muni. Util. Auth. Util. System Rev. 6.00% 7/1/2015 (1) 4,250 4,538
New Brunswick NJ Housing & Urban Dev. Rev. 5.75% 7/1/2024 (1) 13,640 14,492
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Brunswick NJ Housing & Urban Dev. Rev. 6.00% 7/1/2012 (1) $ 6,000 $ 6,501
New Jersey Econ. Dev. Auth. Lease Rev.
(Bergen County Administration Complex) 5.50% 11/15/2012 (1)++ 4,375 4,678
New Jersey Econ. Dev. Auth. Lease Rev.
(Bergen County Administration Complex) 5.625% 11/15/2014 (1)++ 4,870 5,195
New Jersey Econ. Dev. Auth. Lease Rev.
(Bergen County Administration Complex) 5.75% 11/15/2016 (1)++ 5,440 5,812
New Jersey Econ. Dev. Auth. Lease Rev.
(Bergen County Administration Complex) 5.75% 11/15/2018 (1)++ 6,080 6,471
New Jersey Econ. Dev. Auth. Natural Gas Fac. Rev. VRDO
(NJ Natural Gas Project) 2.75% 12/2/1998 (2) 1,000 1,000
New Jersey Econ. Dev. Auth. Natural Gas Fac. Rev. VRDO
(NJ Natural Gas Project) 2.80% 12/2/1998 (2) 12,000 12,000
New Jersey Econ. Dev. Auth. Natural Gas Fac. Rev. VRDO
(NJ Natural Gas Project) 3.10% 12/2/1998 (2) 2,800 2,800
New Jersey Econ. Dev. Auth. Rev. (Hillcrest Health Service) 0.00% 1/1/2012 (2) 2,500 1,370
New Jersey Econ. Dev. Auth. Rev. (Hillcrest Health Service) 0.00% 1/1/2013 (2) 3,000 1,549
New Jersey Econ. Dev. Auth. Rev. (Market Transition) 5.80% 7/1/2007 (1) 1,000 1,101
New Jersey Econ. Dev. Auth. Rev. (Market Transition) 5.80% 7/1/2009 (1) 7,250 7,983
New Jersey Econ. Dev. Auth. Rev. (Market Transition) 5.875% 7/1/2011 (1) 23,175 25,542
New Jersey Econ. Dev. Auth. Rev. (St. Barnabas Project) 0.00% 7/1/2008 (1) 2,305 1,537
New Jersey Econ. Dev. Auth. Rev. (St. Barnabas Project) 0.00% 7/1/2011 (1) 4,650 2,640
New Jersey Econ. Dev. Auth. Rev. (St. Barnabas Project) 0.00% 7/1/2012 (1) 4,550 2,437
New Jersey Econ. Dev. Auth. Rev. (St. Barnabas Project) 0.00% 7/1/2013 (1) 4,500 2,269
New Jersey Econ. Dev. Auth. Rev. (St. Barnabas Project) 0.00% 7/1/2014 (1) 4,210 2,010
New Jersey Econ. Dev. Auth. Rev. PCR VRDO
(Public Service Electric & Gas Co.) 3.00% 12/2/1998 (1) 8,300 8,300
New Jersey Econ. Dev. Auth. Water Fac. Rev. VRDO
(United Water Co.) 3.30% 12/2/1998 (2) 11,000 11,000
New Jersey Educ. Fac. Auth. Rev. (Drew Univ.) 5.00% 7/1/2017 (1) 2,500 2,531
New Jersey Educ. Fac. Auth. Rev. (Drew Univ.) 5.25% 7/1/2013 (1) 2,500 2,633
New Jersey Educ. Fac. Auth. Rev. (Kean College) 6.60% 7/1/2001 (1)(Prere.) 3,700 4,037
New Jersey Educ. Fac. Auth. Rev. (NJ Institute of Technology) 6.00% 7/1/2024 (1) 1,500 1,654
New Jersey Educ. Fac. Auth. Rev. (Rider College) 6.20% 7/1/2017 (2) 4,000 4,368
New Jersey Educ. Fac. Auth. Rev. (Seton Hall Univ.) 5.25% 7/1/2010 (2)++ 2,500 2,664
New Jersey Educ. Fac. Auth. Rev. (Seton Hall Univ.) 5.25% 7/1/2012 (2)++ 1,275 1,346
New Jersey Educ. Fac. Auth. Rev. (Seton Hall Univ.) 5.60% 7/1/2016 (1) 1,765 1,881
New Jersey Educ. Fac. Auth. Rev. (Seton Hall Univ.) 5.625% 7/1/2019 (1) 3,625 3,846
New Jersey Educ. Fac. Auth. Rev. (Trenton State College) 6.00% 7/1/2012 (2) 3,005 3,256
New Jersey Health Care Fac. Auth. Rev. (Burdette Tomlin
Memorial Hosp.) 6.50% 7/1/2012 (3) 1,500 1,618
New Jersey Health Care Fac. Auth. Rev.
(Community Medical Center/Kimball Medical Center/
Kensington Manor Care Center) 5.00% 7/1/2010 (4) 4,695 4,891
New Jersey Health Care Fac. Auth. Rev.
(Community Medical Center/Kimball Medical Center/
Kensington Manor Care Center) 5.25% 7/1/2009 (4) 5,500 5,892
New Jersey Health Care Fac. Auth. Rev.
(Community Medical Center/Kimball Medical Center/
Kensington Manor Care Center) 5.25% 7/1/2012 (4) 1,500 1,572
New Jersey Health Care Fac. Auth. Rev.
(Community Medical Center/Kimball Medical Center/
Kensington Manor Care Center) 7.00% 7/1/2020 (1) 2,850 3,039
New Jersey Health Care Fac. Auth. Rev.
(Hackensack Univ. Medical Center) 5.00% 1/1/2028 (1) 21,860 21,945
New Jersey Health Care Fac. Auth. Rev.
(Hackensack Univ. Medical Center) 5.375% 1/1/2013 (1) 2,355 2,485
New Jersey Health Care Fac. Auth. Rev. (Holy Name Hosp.) 5.25% 7/1/2020 (2) 4,100 4,204
New Jersey Health Care Fac. Auth. Rev.
(Jersey Shore Medical Center) 6.20% 7/1/2013 (2) 3,130 3,475
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey Health Care Fac. Auth. Rev.
(Jersey Shore Medical Center) 6.20% 7/1/2014 (2) $ 3,075 $ 3,422
New Jersey Health Care Fac. Auth. Rev.
(Jersey Shore Medical Center) 6.25% 7/1/2016 (2) 2,000 2,223
New Jersey Health Care Fac. Auth. Rev. (Memorial Health Alliance) 6.25% 7/1/2000 (3)(Prere.) 8,000 8,344
New Jersey Health Care Fac. Auth. Rev. (Mercer Medical Center) 6.50% 7/1/2010 (1) 6,000 6,475
New Jersey Health Care Fac. Auth. Rev. (Mountainside Hosp.) 5.35% 7/1/2007 (1) 3,215 3,436
New Jersey Health Care Fac. Auth. Rev.
(Muhlenberg Medical Center) 8.00% 7/1/2018 (2) 750 768
New Jersey Health Care Fac. Auth. Rev.
(Newark Beth Israel Medical Center) 6.00% 7/1/2016 (4) 8,500 9,327
New Jersey Health Care Fac. Auth. Rev. (Riverview Medical Center) 6.25% 7/1/2010 (2) 2,935 3,412
New Jersey Health Care Fac. Auth. Rev. (Society of the Valley Hosp.) 6.625% 7/1/2010 (1) 2,750 2,854
New Jersey Health Care Fac. Auth. Rev.
(St. Clare's Riverside Medical Center) 5.75% 7/1/2014 (1) 8,500 9,262
New Jersey Health Care Fac. Auth. Rev. (Virtua Health) 5.25% 7/1/2014 (4)++ 20,000 20,761
New Jersey Health Care Fac. Auth. Rev.
(West Jersey Health System) 6.00% 7/1/2002 (1)(Prere.) 5,175 5,655
New Jersey Higher Educ. Assistance Auth. Student Loan Rev. 4.95% 6/1/2010 (2) 6,325 6,444
New Jersey Higher Educ. Assistance Auth. Student Loan Rev. 5.05% 6/1/2011 (2) 5,100 5,144
New Jersey Higher Educ. Assistance Auth. Student Loan Rev. 5.15% 6/1/2012 (2) 5,250 5,334
New Jersey Higher Educ. Assistance Auth. Student Loan Rev. 5.20% 6/1/2013 (2) 8,240 8,419
New Jersey Sports & Exposition Auth. VRDO 3.15% 12/3/1998 (1) 7,900 7,900
New Jersey Transp. Trust Fund Rev. 5.50% 6/15/2011 (1) 5,000 5,379
New Jersey Transp. Trust Fund Rev. 5.50% 6/15/2013 (1) 3,000 3,198
New Jersey Transp. Trust Fund Rev. 6.00% 6/15/2011 (1) 31,280 35,194
New Jersey Turnpike Auth. Rev. 6.50% 1/1/2013 (1) 20,000 23,815
New Jersey Water Supply Auth. Delaware &
Raritan Water System Rev. 5.375% 11/1/2010 (1) 2,230 2,405
New Jersey Water Supply Auth. Delaware &
Raritan Water System Rev. 5.375% 11/1/2011 (1) 2,345 2,514
New Jersey Water Supply Auth. Delaware &
Raritan Water System Rev. 5.375% 11/1/2013 (1) 2,600 2,751
Newark NJ General Improvement GO 5.50% 10/1/2008 (2) 1,660 1,816
North Bergen Township NJ GO 8.00% 8/15/2006 (4) 1,885 2,365
North Brunswick Township NJ Board of Educ. GO 5.50% 2/1/2008 (3) 1,915 2,098
North Brunswick Township NJ Board of Educ. GO 5.50% 2/1/2009 (3) 2,030 2,209
North Brunswick Township NJ GO 5.50% 5/15/2013 (3) 1,390 1,490
North Hudson NJ Sewer Auth. Rev. 5.125% 8/1/2008 (3) 2,000 2,132
North Hudson NJ Sewer Auth. Rev. 5.125% 8/1/2022 (3) 23,950 24,139
North Hudson NJ Sewer Auth. Rev. 5.25% 8/1/2016 (3) 14,360 14,877
North Jersey Water Dist. Rev. (Wanaque South Project) 6.00% 7/1/2012 (1) 10,125 11,090
Ocean County NJ Util. Auth. Waste Water Rev. 5.00% 1/1/2014 (3) 2,000 2,000
Ocean County NJ Util. Auth. Waste Water Rev. 6.60% 1/1/2018 (3) 4,000 4,251
Ocean County NJ Util. Auth. Waste Water Rev. 6.60% 1/1/2018 (3)(ETM) 2,500 2,998
Ocean Township NJ Muni. Util. Auth. Rev. 6.00% 8/1/2017 (1) 3,975 4,553
Old Bridge Township NJ Muni. Util. Auth. Rev. 6.25% 11/1/2016 (3) 1,400 1,540
Old Bridge Township NJ Muni. Util. Auth. Rev. 6.40% 11/1/2009 (3) 3,000 3,327
Passaic Valley NJ Sewer Comm. Rev. 5.75% 12/1/2008 (2) 4,450 4,829
Passaic Valley NJ Sewer Comm. Rev. 5.75% 12/1/2013 (2) 4,000 4,317
Plainfield NJ GO 6.25% 7/15/2007 (2) 6,930 7,596
Port Auth. of New York & New Jersey Rev. 5.125% 11/15/2012 (3)++ 2,500 2,601
Port Auth. of New York & New Jersey Rev. 5.125% 11/15/2013 (3)++ 5,735 5,919
Rutgers State Univ. NJ 5.00% 5/1/2023 (3) 3,260 3,283
Rutgers State Univ. NJ 5.125% 5/1/2020 (3) 3,835 3,898
South Brunswick Township NJ Board of Educ. GO 5.25% 8/1/2020 (3) 3,535 3,616
South Brunswick Township NJ Board of Educ. GO 5.25% 8/1/2022 (3) 4,630 4,736
South Brunswick Township NJ Board of Educ. GO 5.50% 8/1/2024 (3) 2,500 2,632
South Brunswick Township NJ Board of Educ. GO 6.40% 8/1/2005 (3)(Prere.) 4,520 5,155
South Jersey Transp. Auth. Transp. System Rev. 5.90% 11/1/2006 (1) 3,435 3,748
South Jersey Transp. Auth. Transp. System Rev. 5.90% 11/1/2007 (1) 2,545 2,777
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Jersey Transp. Auth. Transp. System Rev. 6.00% 11/1/2012 (1) $ 5,250 $ 5,717
Stafford NJ Muni. Util. Auth. Water & Sewer Rev. 5.50% 6/1/2011 (3) 3,100 3,413
Sussex County NJ Muni. Util. Auth. Solid Waste Rev. 5.75% 12/1/2009 (1) 19,820 21,430
Sussex County NJ Muni. Util. Auth. Waste Water Rev. 5.25% 12/1/2008 (1) 1,150 1,221
Union County NJ Improvement Auth. Rev. (Plainfield Board of Educ.) 5.80% 8/1/2020 (3) 4,000 4,326
Union County NJ Utilities Auth. Ogden Martin Rev. 5.375% 6/1/2011 (2) 8,375 8,951
Union County NJ Utilities Auth. Ogden Martin Rev. 5.375% 6/1/2012 (2) 8,995 9,557
Union County NJ Utilities Auth. Ogden Martin Rev. 5.375% 6/1/2013 (2) 9,445 9,975
OUTSIDE NEW JERSEY:
Guam Govt. Ltd. Obligation Infrastructure Improvement Rev. 5.125% 11/1/2011 (2) 3,400 3,600
Guam Govt. Ltd. Obligation Infrastructure Improvement Rev. 5.50% 11/1/2007 (2) 4,340 4,800
Puerto Rico Electric Power Auth. Rev. 6.50% 7/1/2006 (1) 6,820 7,906
Puerto Rico GO 5.00% 7/1/2018 (1) 11,500 11,702
Puerto Rico Govt. Dev. Bank VRDO 2.90% 12/2/1998 (1) 7,330 7,330
Puerto Rico Infrastructure Fin. Auth Special Tax Rev. 5.00% 7/1/2021 (2) 8,000 8,013
Puerto Rico Infrastructure Fin. Auth Special Tax Rev. 5.00% 7/1/2028 (2) 18,100 18,130
Puerto Rico Public Building Auth. Rev. 0.00% 7/1/2002 (3) 4,000 3,502
Puerto Rico Public Building Auth. Rev. 5.00% 7/1/2027 (2) 25,810 25,851
------------
995,386
------------
SECONDARY MARKET INSURED (8.1%)
Atlantic County NJ Util. Auth. Sewer Rev. 6.875% 1/1/2012 (2)(ETM) 3,000 3,513
New Jersey Building Auth. Rev. 5.00% 6/15/2012 (4) 10,000 10,365
New Jersey Highway Auth. Rev. (Garden State Parkway) 6.00% 1/1/2016 (2) 5,000 5,273
New Jersey Highway Auth. Rev. (Garden State Parkway) 6.20% 1/1/2010 (2) 20,000 23,055
New Jersey Sports & Exposition Auth. Rev. 6.50% 3/1/2013 (1) 10,000 11,981
New Jersey Turnpike Auth. Rev. 6.50% 1/1/2016 (1) 18,250 21,958
Port Auth. of New York & New Jersey Rev. 5.375% 7/15/2022 (3) 5,000 5,196
Port Auth. of New York & New Jersey Rev. 6.875% 1/1/2025 (2) 3,200 3,342
Univ. of Medicine & Dentistry NJ Rev. 6.50% 12/1/2012 (1) 4,000 4,820
------------
89,503
------------
NONINSURED (6.0%)
Burlington County NJ Bridge Comm. Rev. 5.30% 10/1/2013 9,500 9,984
Cherry Hill Township NJ GO 6.30% 6/1/2012 3,745 4,089
Mercer County NJ Improvement Auth. Library System Rev. 6.00% 12/1/2003 (Prere.) 1,000 1,114
Mercer County NJ Improvement Auth. Solid Waste Rev. 5.375% 9/15/2012 11,120 11,875
Mercer County NJ Improvement Auth. Special Services
School Dist. Rev. 5.75% 12/15/2008 1,165 1,303
Mercer County NJ Improvement Auth. Special Services
School Dist. Rev. 5.95% 12/15/2012 4,895 5,611
Monmouth County NJ Improvement Auth. GO (Correctional Fac.) 6.40% 8/1/2001 (Prere.) 1,850 2,013
New Jersey Environmental Infrastructure Trust Waste Water Rev. 5.00% 9/1/2009 1,955 2,066
New Jersey GO 5.00% 3/1/2011 7,875 8,200
New Jersey Transp. Trust Fund 4.40% 6/15/1999 (ETM) 5,000 5,036
Ocean County NJ Util. Auth. Waste Water Rev. 6.30% 1/1/2013 2,215 2,454
Ocean County NJ Util. Auth. Waste Water Rev. 6.35% 1/1/2014 2,360 2,621
Ocean County NJ Util. Auth. Waste Water Rev. 6.35% 1/1/2015 2,515 2,794
Rutgers State Univ. NJ Rev. 6.40% 5/1/2013 3,000 3,561
Union County NJ PCR Fin. Auth. VRDO 2.90% 12/2/1998 4,000 4,000
------------
66,721
------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,067,919) 1,151,610
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-3.6%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 22,096
Payables for Investment Securities Purchased (58,919)
Other Liabilities (2,921)
-----------
(39,744)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 92,773,793 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,111,866
==========================================================================================================================
NET ASSET VALUE PER SHARE $11.98
==========================================================================================================================
*See Note A in Notes to Financial Statements.
- -Securities with a value of $2,469,000 have been segregated as initial margin
for open futures contracts.
For key to abbreviations and other references, see below.
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,027,257 $11.07
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 1,819 .02
Unrealized Appreciation (Depreciation)--Notes E and F
Investment Securities 83,691 .90
Futures Contracts (901) (.01)
==========================================================================================================================
NET ASSETS $1,111,866 $11.98
==========================================================================================================================
</TABLE>
KEY TO ABBREVIATIONS
BAN--Bond Anticipation Note.
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
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
fund has not taken delivery as of November 30, 1998.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association).
(2) AMBAC (Ambac Assurance Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
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.
23
<PAGE> 26
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to the fund. 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
fund invested in futures contracts during the period, the results of these
investments are shown separately.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NEW JERSEY
NEW JERSEY INSURED
TAX-EXEMPT LONG-TERM
MONEY MARKET TAX-EXEMPT
FUND FUND
-------------------------------
YEAR ENDED NOVEMBER 30, 1998
-------------------------------
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest $36,541 $53,689
---------------------------
Total Income 36,541 53,689
---------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 139 129
Management and Administrative 1,712 1,661
Marketing and Distribution 350 231
Custodian Fees 19 14
Auditing Fees 8 8
Shareholders' Reports 19 20
Annual Meeting and Proxy Costs 2 2
Trustees' Fees and Expenses 2 2
---------------------------
Total Expenses 2,251 2,067
Expenses Paid Indirectly--Note C (19) (28)
---------------------------
Net Expenses 2,232 2,039
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 34,309 51,650
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold -- 5,335
Futures Contracts -- (1,331)
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN -- 4,004
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- 20,450
Futures Contracts -- (861)
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- 19,589
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $34,309 $75,243
=========================================================================================================================
</TABLE>
24
<PAGE> 27
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund 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 fund, 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>
- ------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY NEW JERSEY
TAX-EXEMPT INSURED LONG-TERM
MONEY MARKET FUND TAX-EXEMPT FUND
---------------------------------- ----------------------------
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 34,309 $ 31,796 $ 51,650 $ 46,319
Realized Net Gain (Loss) -- 22 4,004 (613)
Change in Unrealized Appreciation (Depreciation) -- -- 19,589 9,271
-----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 34,309 31,818 75,243 54,977
-----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (34,309) (31,796) (51,650) (46,319)
Realized Capital Gain -- -- (888) (2,334)
-----------------------------------------------------------------------
Total Distributions (34,309) (31,796) (52,538) (48,653)
CAPITAL SHARE TRANSACTIONS(1) -----------------------------------------------------------------------
Issued 1,071,133 888,898 267,869 209,139
Issued in Lieu of Cash Distributions 32,698 30,361 39,729 37,374
Redeemed (940,847) (820,876) (158,702) (161,566)
-----------------------------------------------------------------------
Net Increase from Capital Share Transactions 162,984 98,383 148,896 84,947
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase 162,984 98,405 171,601 91,271
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,016,287 917,882 940,265 848,994
-----------------------------------------------------------------------
End of Year $1,179,271 $1,016,287 $1,111,866 $940,265
==============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 1,071,133 888,898 22,569 18,101
Issued in Lieu of Cash Distributions 32,698 30,361 3,344 3,232
Redeemed (940,847) (820,876) (13,384) (13,996)
-----------------------------------------------------------------------
Net Increase in Shares Outstanding 162,984 98,383 12,529 7,337
==============================================================================================================================
</TABLE>
25
<PAGE> 28
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund'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 fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the fund;
and the extent to which the fund 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
fund for one year. Money market funds are not required to report a Portfolio
Turnover Rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NEW JERSEY TAX-EXEMPT MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<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 .031 .033 .032 .035 .025
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
------------------------------------------------------------
Total from Investment Operations .031 .033 .032 .035 .025
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.031) (.033) (.032) (.035) (.025)
Distributions from Realized Capital Gains -- -- -- -- --
------------------------------------------------------------
Total Distributions (.031) (.033) (.032) (.035) (.025)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 3.18% 3.32% 3.22% 3.60% 2.49%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,179 $1,016 $918 $859 $792
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.21% 0.21%
Ratio of Net Investment Income to Average Net Assets 3.12% 3.27% 3.17% 3.53% 2.46%
=========================================================================================================================
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.72 $11.64 $11.78 $10.40 $11.77
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .599 .608 .616 .623 .622
Net Realized and Unrealized Gain (Loss) on Investments .271 .112 (.082) 1.380 (1.307)
-----------------------------------------------------------
Total from Investment Operations .870 .720 .534 2.003 (.685)
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.599) (.608) (.616) (.623) (.622)
Distributions from Realized Capital Gains (.011) (.032) (.058) -- (.063)
-----------------------------------------------------------
Total Distributions (.610) (.640) (.674) (.623) (.685)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.98 $11.72 $11.64 $11.78 $10.40
========================================================================================================================
TOTAL RETURN 7.59% 6.40% 4.75% 19.66% -6.10%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,112 $940 $849 $796 $645
Ratio of Total Expenses to Average Net Assets 0.20% 0.18% 0.20% 0.21% 0.21%
Ratio of Net Investment Income to Average Net Assets 5.04% 5.26% 5.35% 5.50% 5.53%
Portfolio Turnover Rate 14% 13% 11% 7% 13%
========================================================================================================================
</TABLE>
27
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
Vanguard New Jersey Tax-Exempt Funds comprises the New Jersey Tax-Exempt Money
Market Fund and the New Jersey Insured Long-Term Tax-Exempt Fund, each of which
is registered under the Investment Company Act of 1940 as an open-end investment
company, or mutual fund. Each fund 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 funds consistently follow such
policies in preparing its financial statements.
1. SECURITY VALUATION: Tax-Exempt Money Market Fund: Investment securities
are valued at amortized cost, which approximates market value. Insured Long-Term
Tax-Exempt Fund: Bonds, and temporary cash investments acquired over 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 ratings), both as furnished by independent pricing services.
Other temporary cash investments are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued by methods deemed by the Board of Trustees to
represent fair value.
2. FEDERAL INCOME TAXES: Each 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 CONTRACTS: The Insured Long-Term Tax-Exempt Fund 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 fund may purchase or sell futures contracts instead of
bonds to take advantage of pricing differentials between the futures contracts
and the underlying bonds. The fund 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 fund 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: Dividends 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.
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 each fund under methods approved by the Board of
Trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At November 30, 1998, the funds had
contributed capital to Vanguard (included in Other Assets) of:
28
<PAGE> 31
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF
TO VANGUARD OF FUND VANGUARD'S
NEW JERSEY TAX-EXEMPT FUND (000) NET ASSETS CAPITALIZATION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $217 0.02% 0.3%
Insured Long-Term 203 0.02 0.3
- -----------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
C. The funds' investment adviser may direct new issue purchases, subject to
obtaining the best price and execution, to underwriters who have agreed to
rebate or credit to the funds part of the underwriting fees generated. Such
rebates or credits are used solely to reduce the funds' administrative expenses.
The funds' custodian bank has also agreed to reduce its fees when the funds
maintain cash on deposit in the non-interest-bearing custody account. For the
year ended November 30, 1998, directed brokerage and custodian fee offset
arrangements reduced expenses by:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
EXPENSE REDUCTION
(000) TOTAL EXPENSE
----------------------------------- REDUCTION AS A
DIRECTED CUSTODIAN PERCENTAGE OF
NEW JERSEY TAX-EXEMPT FUND BROKERAGE FEES AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market -- $19 --
Insured Long-Term $14 14 --
- --------------------------------------------------------------------------------------------------
</TABLE>
D. During the year ended November 30, 1998, the Insured Long-Term Tax-Exempt
Fund purchased $342,901,000 of investment securities and sold $141,225,000 of
investment securities, other than temporary cash investments.
E. 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. The Insured Long-Term Tax-Exempt Fund had
realized losses totaling $3,919,000 through November 30, 1998, which are
deferred for tax purposes and reduce the amount of unrealized appreciation on
investment securities for tax purposes (see Note F). For federal income tax
purposes, at November 30, 1998, the funds had the following capital gains
available for distribution, or capital losses available to offset future capital
gains:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CAPITAL LOSS
---------------------------------
CAPITAL GAINS EXPIRATION
AVAILABLE FOR FISCAL YEAR(S)
DISTRIBUTION AMOUNT ENDING
NEW JERSEY TAX-EXEMPT FUND (000) (000) NOVEMBER 30
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market -- $(30) 2002-2004
Insured Long-Term $4,837 -- --
- -----------------------------------------------------------------------------------------------
</TABLE>
F. At November 30, 1998, net unrealized appreciation of Insured Long-Term
Tax-Exempt Fund investment securities for federal income tax purposes was
$79,772,000, consisting of unrealized gains of $79,823,000 on securities that
had risen in value since their purchase and $51,000 on securities that had
fallen in value since their purchase.
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (continued)
At November 30, 1998, the aggregate settlement value of open futures
contracts expiring through March 1999 and the related unrealized appreciation
(depreciation) were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(000)
---------------------------------
AGGREGATE UNREALIZED
NEW JERSEY TAX-EXEMPT FUND/ NUMBER OF SETTLEMENT APPRECIATION
FUTURES CONTRACTS LONG (SHORT) CONTRACTS VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term/
Municipal Bond Index 110 $13,912 $ 257
U.S. Treasury Bond (503) 65,286 (1,236)
U.S. Treasury Note (60) 7,147 78
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Net unrealized depreciation on open futures contracts is required to be treated
as realized loss for tax purposes.
30
<PAGE> 33
REPORT OF INDEPENDENT
ACCOUNTANTS
[PHOTO]
To the Shareholders and Trustees of
Vanguard New Jersey Tax-Exempt Funds
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
Vanguard New Jersey Tax-Exempt Money Market Fund and Vanguard New Jersey Insured
Long-Term Tax-Exempt Fund (constituting Vanguard New Jersey Tax-Exempt Funds,
hereafter referred to as the "Funds") at November 30, 1998, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 1999
31
<PAGE> 34
SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD NEW JERSEY TAX-EXEMPT
FUNDS
This information for the fiscal year ended November 30, 1998, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term Tax-Exempt Fund distributed $888,000 as capital
gain dividends (from net long-term capital gains) to shareholders in December
1997. All of the capital gain dividends were designated as a 20% rate gain
distribution.
Each fund designates 100% of its income dividends as exempt-interest
dividends.
32
<PAGE> 35
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & Johnson-Merck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co., The Jeffrey Co., and Southern New England Telecommunications 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.,
NACCO Industries, and Newfield Exploration Co.
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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
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
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company
is the owner of trademarks and copyrights relating to the Russell Indexes.
"Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates.
<PAGE> 36
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[THE VANGUARD GROUP LOGO]
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
www.vanguard.com
[email protected]
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 you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
Q140-01/26/1999
(C) 1999 Vanguard Marketing Corporation, Distributor. All rights reserved.
[GRAPHIC]
