-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, De77sJYYM6j+QQqgiKEd/4wxSUGnOGXmqjUBBY9mOtJ/ISj8wUCk03daM5RRgHva Yh3AeqOcdIe2TZG0HvjHEA== 0000893220-99-000104.txt : 19990203 0000893220-99-000104.hdr.sgml : 19990203 ACCESSION NUMBER: 0000893220-99-000104 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD NEW JERSEY TAX FREE FUND CENTRAL INDEX KEY: 0000821404 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05340 FILM NUMBER: 99519482 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BLVD CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106696289 N-30D 1 VANGUARD N.J. TAX-EXEMPT FUNDS ANNUAL REPORT 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] 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. 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%.
- ----------------------------------------------------------------- COMPONENTS OF TOTAL RETURNS FISCAL YEAR ENDED NOVEMBER 30, 1998 --------------------------------------------- NEW JERSEY TAX-EXEMPT FUND INCOME CAPITAL TOTAL - ----------------------------------------------------------------- Money Market +3.2% 0.0% +3.2% (SEC 7-Day Annualized Yield: 2.92%) Insured Long-Term +5.3 +2.3 +7.6 - -----------------------------------------------------------------
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 1 4 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 2 5 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.
- ------------------------------------------------------------------------ ILLUSTRATION OF INCOME FROM A HYPOTHETICAL $100,000 INVESTMENT ---------------------------------- SHORT-TERM LONG-TERM - ------------------------------------------------------------------------ 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% - ------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------- Money Market +3.8% +3.5% $14,486 $14,169 $317 Insured Long-Term +8.2 +7.7 21,986 21,020 966 - -------------------------------------------------------------------------------------
*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 3 6 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 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:
-------------------------------------------------------------------- FOR AGAINST ABSTAIN -------------------------------------------------------------------- 618,147,395 17,548,973 13,933,265 --------------------------------------------------------------------
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:
- ------------------------------------------------------------------------------------------- NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - ------------------------------------------------------------------------------------------- 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% - ------------------------------------------------------------------------------------------
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:
- ------------------------------------------------------------------------------------------- NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - ------------------------------------------------------------------------------------------- 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% - -------------------------------------------------------------------------------------------
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 8 of the funds' Code of Ethics and other regulatory protections against conflicts of interest on the part of fund management. Approved as follows:
- ------------------------------------------------------------------------------------------ NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - ------------------------------------------------------------------------------------------ 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% - ------------------------------------------------------------------------------------------
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:
- ------------------------------------------------------------------------------------------ NEW JERSEY TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - ------------------------------------------------------------------------------------------ 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% - ------------------------------------------------------------------------------------------
6 9 [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.
- -------------------------------------------------------------------------------- AVERAGE ANNUALIZED RETURNS PERIODS ENDED NOVEMBER 30, 1998 ------------------------------------- 1 YEAR 3 YEARS 5 YEARS - -------------------------------------------------------------------------------- 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% - --------------------------------------------------------------------------------
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 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 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 9 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 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.
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 - ----------------------------------------------------------- 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 - -----------------------------------------------------------
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.
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998 - ----------------------------------------------------------- New Jersey Average Tax-Exempt New Jersey Money Market Tax-Exampt Money Fund Market Fund 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 - -----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 1998 -------------------------------- FINAL VALUE OF A 1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT - ----------------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998* - ------------------------------------------------------------------------------------------------------------------------- 10 YEARS INCEPTION ---------------------------------- DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL - ------------------------------------------------------------------------------------------------------------------------- New Jersey Tax-Exempt Money Market Fund 2/3/1988 3.25% 3.14% 0.00% 3.82% 3.82% - -------------------------------------------------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information through the latest calendar quarter. 11 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.
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 - ----------------------------------------------------------- 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 - -----------------------------------------------------------
*Lehman Municipal Bond Index. See Financial Highlights table on page 27 for dividend and capital gains information for the past five years.
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 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 - --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 1998 --------------------------------- FINAL VALUE OF A 1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT - ------------------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998* - ------------------------------------------------------------------------------------------------------------------------- 10 YEARS INCEPTION ---------------------------------- DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL - ------------------------------------------------------------------------------------------------------------------------- New Jersey Insured Long-Term Tax-Exempt Fund 2/3/1988 8.44% 5.89% 2.17% 6.14% 8.31% - -------------------------------------------------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information through the latest calendar quarter. 12 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.
FINANCIAL ATTRIBUTES - -------------------------------------- Yield 2.9% Average Maturity 64 days Average Quality MIG-1 Expense Ratio 0.20%
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) - ----------------------------------------------- MIG-1/SP-1+ 72.1% A-1/P-1 21.6 AAA/AA 5.5 A 0.8 - ---------------------------------------------- Total 100.0%
13 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 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.
FINANCIAL ATTRIBUTES - ---------------------------------------------------------- NEW JERSEY INSURED LEHMAN LONG-TERM INDEX* - ---------------------------------------------------------- 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% --
*Lehman Municipal Bond Index. INVESTMENT FOCUS [GRAPH]
VOLATILITY MEASURES - ----------------------------------------------------------------- NEW JERSEY INSURED LEHMAN LONG-TERM INDEX* - ----------------------------------------------------------------- R-Squared 0.98 1.00 Beta 1.06 1.00
*Lehman Municipal Bond Index.
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) - ------------------------------------------------------ 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%
DISTRIBUTION BY MATURITY (% OF PORTFOLIO) - ------------------------------------------------------ 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%
15 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.
- -------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* NEW JERSEY TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000) - -------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (98.5%) - -------------------------------------------------------------------------------------------------------------------------- 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
16 19
- -------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - -------------------------------------------------------------------------------------------------------------------------- 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
17 20
- -------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* NEW JERSEY TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000) - -------------------------------------------------------------------------------------------------------------------------- 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 ==========================================================================================================================
*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.
- -------------------------------------------------------------------------------------------------------------------------- AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF: - -------------------------------------------------------------------------------------------------------------------------- AMOUNT PER (000) SHARE - -------------------------------------------------------------------------------------------------------------------------- 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 ==========================================================================================================================
18 21
- ----------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (103.6%) - ----------------------------------------------------------------------------------------------------------------------------- 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
19 22
- ------------------------------------------------------------------------------------------------------------------------------ FACE MARKET MATURITY AMOUNT VALUE* NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------ 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
20 23
- ------------------------------------------------------------------------------------------------------------------------------ FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------ 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
21 24
- -------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000) - -------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------
22 25
- -------------------------------------------------------------------------------------------------------------------------- MARKET VALUE* (000) - -------------------------------------------------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------------------------------------------------- AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF: - -------------------------------------------------------------------------------------------------------------------------- AMOUNT PER (000) SHARE - -------------------------------------------------------------------------------------------------------------------------- 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 ==========================================================================================================================
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 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.
- ------------------------------------------------------------------------------------------------------------------------- NEW JERSEY NEW JERSEY INSURED TAX-EXEMPT LONG-TERM MONEY MARKET TAX-EXEMPT FUND FUND ------------------------------- YEAR ENDED NOVEMBER 30, 1998 ------------------------------- (000) (000) - ------------------------------------------------------------------------------------------------------------------------- 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 =========================================================================================================================
24 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.
- ------------------------------------------------------------------------------------------------------------------------------ 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) - ------------------------------------------------------------------------------------------------------------------------------ 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 ==============================================================================================================================
25 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.
- ------------------------------------------------------------------------------------------------------------------------- NEW JERSEY TAX-EXEMPT MONEY MARKET FUND YEAR ENDED NOVEMBER 30, ------------------------------------------------------------ FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- 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% =========================================================================================================================
26 29
- ------------------------------------------------------------------------------------------------------------------------ NEW JERSEY INSURED LONG-TERM TAX-EXEMPT FUND YEAR ENDED NOVEMBER 30, ----------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ 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% ========================================================================================================================
27 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 31
- ----------------------------------------------------------------------------------------------- CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF TO VANGUARD OF FUND VANGUARD'S NEW JERSEY TAX-EXEMPT FUND (000) NET ASSETS CAPITALIZATION - ----------------------------------------------------------------------------------------------- Money Market $217 0.02% 0.3% Insured Long-Term 203 0.02 0.3 - -----------------------------------------------------------------------------------------------
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:
- -------------------------------------------------------------------------------------------------- EXPENSE REDUCTION (000) TOTAL EXPENSE ----------------------------------- REDUCTION AS A DIRECTED CUSTODIAN PERCENTAGE OF NEW JERSEY TAX-EXEMPT FUND BROKERAGE FEES AVERAGE NET ASSETS - -------------------------------------------------------------------------------------------------- Money Market -- $19 -- Insured Long-Term $14 14 -- - --------------------------------------------------------------------------------------------------
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:
- ----------------------------------------------------------------------------------------------- CAPITAL LOSS --------------------------------- CAPITAL GAINS EXPIRATION AVAILABLE FOR FISCAL YEAR(S) DISTRIBUTION AMOUNT ENDING NEW JERSEY TAX-EXEMPT FUND (000) (000) NOVEMBER 30 - ----------------------------------------------------------------------------------------------- Money Market -- $(30) 2002-2004 Insured Long-Term $4,837 -- -- - -----------------------------------------------------------------------------------------------
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 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:
- -------------------------------------------------------------------------------------------------------------- (000) --------------------------------- AGGREGATE UNREALIZED NEW JERSEY TAX-EXEMPT FUND/ NUMBER OF SETTLEMENT APPRECIATION FUTURES CONTRACTS LONG (SHORT) CONTRACTS VALUE (DEPRECIATION) - -------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on open futures contracts is required to be treated as realized loss for tax purposes. 30 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 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 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. 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 online@vanguard.com All Vanguard funds are offered by prospectus only. Prospectuses contain more complete information on advisory fees, distribution charges, and other expenses and should be read carefully before 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] -----END PRIVACY-ENHANCED MESSAGE-----