-----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, F7NgNPMqF9B48eKjE2ORMOdef4hJl7SsrhCODIQWSzA7DuBVHMI54jr84eYr/vgT moCu4A1lMA7zK6+GfscSGA== 0000893220-97-001325.txt : 19970801 0000893220-97-001325.hdr.sgml : 19970801 ACCESSION NUMBER: 0000893220-97-001325 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970731 SROS: NONE 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: 1940 Act SEC FILE NUMBER: 811-05340 FILM NUMBER: 97649309 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BLVD CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106696289 N-30D 1 VANGUARD NEW JERSEY TAX-FREE SEMI ANNUAL REPORT 1 VANGUARD NEW JERSEY TAX-FREE FUND Semiannual Report May 31, 1997 [THE VANGUARD GROUP LOGO] 2 THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION At Vanguard, we treasure our rich nautical heritage--even as we steer our course toward the twenty-first century. Our Report cover reflects that blending of tradition and innovation, of past, present, and future. The montage includes a bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's flagship at The Battle of the Nile); a clock built circa 1816 in Scotland, featuring a portrait of Nelson; and several views of our recently completed campus, which is steeped in nautical imagery--from our buildings named after Nelson's warships (Victory, Majestic, and Goliath are three shown), to our artwork and ornamental compass rose. CONTENTS A Message To Our Shareholders 1 The Markets In Perspective 3 Report From The Adviser 5 Performance Summaries 7 Financial Statements 8 Trustees And Officers INSIDE BACK COVER All comparative mutual fund data are from Lipper Analytical Services, Inc. or Morningstar unless otherwise noted. 3 [PHOTO] DEAR SHAREHOLDER, During the first half of Vanguard New Jersey Tax-Free Fund's 1997 fiscal year, interest rates drifted unevenly upward as the surprising staying power of the U.S. economy continued to stoke fears of higher inflation. While the general rise in interest rates dampened municipal bond prices, interest income was sufficient to give bonds a marginally positive total return for the six months ended May 31, 1997. In this environment, the returns of our Insured Long-Term Portfolio and our Money Market Portfolio outpaced the results of their competitive fund groups. The adjacent table presents each Portfolio's six-month return as well as those of the average competing mutual funds. The total return (capital change plus reinvested dividends) of the Insured Long-Term Portfolio is based on a change in net asset value from $11.64 per share on November 30, 1996, to $11.48 per share on May 31, 1997, adjusted for dividends totaling $0.306 per share from net investment income and a distribution of $0.032 from net realized capital gains.
- ----------------------------------------------------- TOTAL RETURNS SIX MONTHS ENDED MAY 31, 1997 - ----------------------------------------------------- INSURED LONG-TERM PORTFOLIO +1.6% Average New Jersey Municipal Fund +1.4 - ----------------------------------------------------- MONEY MARKET PORTFOLIO +1.6% Average New Jersey Tax-Exempt Money Market Fund +1.5 - ----------------------------------------------------
The Money Market Portfolio's net asset value remained at $1 per share. This, of course, is what we expect, although a stable share price is by no means guaranteed by us or by competing money market funds. The Portfolio's annualized yield on May 31 stood at 3.49%, up from 3.23% six months earlier. THE PERIOD IN REVIEW The half-year was marked by swift reactions to each change in sentiment about the strength of the U.S. economy and the possibility that inflation would accelerate. In the taxable bond market, yields moved steadily higher during the first four months of the period, only to retrace a few steps during the final two months as concerns about inflation eased somewhat. On balance, yields on longer-term U.S. Treasury securities ended the period higher than they started. The yield on the benchmark 30-year U.S. Treasury bond rose by 56 basis points (0.56 percentage point), from 6.35% on November 30, 1996, to 6.91% on May 31, 1997. The yield on the 90-day U.S. Treasury bill dipped slightly on balance, ending the period at 4.94%, down from 5.13% six months earlier, as the issuance of new T-bills declined significantly. Municipal bonds withstood the interest rate increase better than their taxable counterparts, thanks in part to a reduced supply of new issues during the period. The yield on long-term municipal bonds edged up on balance from 5.45% to 5.55%. At the short end of the spectrum, yields on top-grade (MIG-1) 90-day municipal notes rose on balance from 3.55% at the end of November 1996 to 3.70% on May 31, 1997. The +1.6% return of our Money Market Portfolio was slightly above the +1.5% return of the average New Jersey tax-exempt money market mutual fund, an advantage largely explained by our lower expenses. 1 4 The +1.6% total return of the Insured Long-Term Portfolio during the half-year consisted of a +2.7% income return and a capital decline of -1.1%, reflecting bond price declines engendered by the modest increase in interest rates. This return outpaced that of the average New Jersey municipal bond fund, but fell behind the +1.7% return of the Lehman Municipal Bond Index. This national Index is a tough standard for all state tax-free funds, existing, as it does, outside the "real world" of operating expenses and transaction costs. Though recent history shows the harm that rising interest rates can inflict on long-term bonds, the extended view reminds us that falling interest rates periodically have the opposite effect. In the end, these changes amount over time to little more than "noise," leaving the rate of interest income as the main source of our long-term returns. Over these longer periods, our Portfolios are aided by our disciplined management approach, as well as by our low expenses--durable advantages for our shareholders that we expect to continue. The expense ratio (expenses as a percentage of average net assets) for each of our Portfolios was 0.20% in fiscal 1996, compared with 0.99% charged by the average New Jersey long-term state tax-free fund and 0.59% for the average New Jersey money market tax-exempt fund. In our Insured Long-Term Portfolio, this cost advantage allows us to offer a portfolio of bonds that carry private insurance guaranteeing the payment of principal and interest in the event of an issuer's default--insurance that obviously comes at a cost--while providing returns that are fully competitive with those of uninsured municipal bond portfolios. Our expense ratio advantage aided our performance during the brief semiannual period, just as it has done over longer periods (+7.5% for the Portfolio versus +7.3% for competing funds over the past twelve months, and an annualized +8.1% return versus an annualized +7.5% since the Portfolio's February 1988 inception). IN SUMMARY It's worth noting that the mediocre performance of the U.S. bond market over the past six months stands in stark contrast to that of the U.S. stock market, which continued to steam ahead, gaining +13.1% (as measured by the Standard & Poor's 500 Composite Stock Price Index). While it may be difficult for bond investors to watch the big gap between the recent returns of stocks and bonds, it is exactly this lack of correlation between the asset classes that makes the creation and maintenance of a balanced investment program of stock funds, bond funds, and money market funds a prudent move for mutual fund investors. As that gap narrows--or opens in favor of bonds over stocks, as it will from time to time--the true value of a balanced program will be evident. We look forward to reporting to you in further detail in our 1997 Annual Report six months hence. /s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN John C. Bogle John J. Brennan Chairman of the Board President June 23, 1997 2 5 THE MARKETS IN PERSPECTIVE SIX MONTHS ENDED MAY 31, 1997 U.S. EQUITY MARKETS With the economy continuing to exhibit strong growth and modest levels of inflation, investors in U.S. common stocks were rewarded with solid gains during the past six months. The best performers were primarily larger-capitalization issues, although the small-company indexes finally exhibited some strength in May. For example, during the last six months, the Standard & Poor's 500 Composite Stock Price Index gained 13.1%, fueled by a 6.1% boost in May. Reflecting the gains among smaller companies, the Russell 2000 Index posted an 8.4% increase for the six-month period, driven by an 11.1% jump in May. It was particularly noteworthy that May's small-cap gains were led by a 15.0% surge among small growth stocks, the worst segment of the U.S. market during the past 12 months. Stocks benefited from the continued strength of corporate earnings, which rose some 15% during the past year. The strength in earnings and the expectation that income will increase at an attractive pace helped stocks to continue to produce solid gains in the fiscal period, despite the 0.6% increase in the yield of the 10-year U.S. Treasury bond over the past six months. What's more, earnings have shown not only good strength but remarkable consistency in beating the consensus forecasts of Wall Street analysts. The strongest gains in the S&P 500 Index during the past six months came from the technology sector (up 17.5%) and the consumer-staples sector (up 20.4%). By contrast, the more economically sensitive and less predictable earnings of stocks in the materials & processing sector caused these issues to lag the broad market, although, on an absolute basis, their 8.2% return over six months is quite good.
- ----------------------------------------------------------------------------- TOTAL RETURNS PERIODS ENDED MAY 31, 1997 --------------------------------------- 6 MONTHS 1 YEAR 5 YEARS* - ----------------------------------------------------------------------------- EQUITY S&P 500 Index 13.1% 29.4% 18.4% Russell 2000 Index 8.4 7.0 15.8 MSCI-EAFE Index 4.2 7.9 10.9 - ----------------------------------------------------------------------------- FIXED-INCOME Lehman Aggregate Bond Index 0.9% 8.3% 7.2% Lehman 10-Year Municipal Bond Index 1.7 8.2 7.5 Salomon 90-Day U.S. Treasury Bills 2.6 5.3 4.5 - ----------------------------------------------------------------------------- OTHER Consumer Price Index 0.9% 2.2% 2.8% - -----------------------------------------------------------------------------
*Average annual. U.S. FIXED-INCOME MARKETS The general rise in interest rates during the past six months reflects the economy's underlying momentum. The 10-year U.S. Treasury's yield increased from 6.04% at the end of November to 6.97% by the middle of April. Economic reports released in the last several weeks of the period indicated a possible slowing in economic growth, which reduced fears that inflation might accelerate and helped interest rates fall to 6.66% by the end of May. 3 6 Fueled by robust consumer spending, the U.S. economy expanded at a strong 3.8% annual rate in the fourth quarter of 1996 and a remarkable 5.8% rate in the first three months of 1997. The nation's unemployment rate, at 4.8% in May, was the lowest in a generation. Strong economic growth and tight labor markets often lead bond investors to expect an acceleration in inflation because of increased demand for goods and services. Reflecting this expectation, the Federal Reserve raised its federal funds interest rate target by 0.25% on March 25 in a "preemptive" strike against mounting inflationary pressures. Observed price increases have been subdued in recent months, however. Wholesale prices have fallen in each of the first four months of 1997, and so far this year consumer prices have risen at a slower pace than last year. Higher interest rates dampened returns for bond investors. The Lehman Brothers Aggregate Bond Index gained 0.94% over the past six months, reflecting an income return of 3.43% that was partially offset by a capital decline of - -2.49%. During this period, investors who favored shorter-maturity and lower-quality issues achieved somewhat better returns. Mortgage-backed securities continued to perform well because refinancing activity has been reduced to historically low levels as interest rates have risen. Municipal issues also tended to perform better than their taxable counterparts. INTERNATIONAL EQUITY MARKETS International investors fared reasonably well over the past six months. As measured by the broad Morgan Stanley Capital International-Europe, Australasia, Far East Index, foreign markets gained 4.2%. The period saw two major developments. First, the Japanese stock market moved sharply higher in the spring, gaining 11% in May alone. Better tone in the economy, plus strong earnings reported by export-oriented companies benefiting from the weak yen, gave Japan a long-awaited boost. For the six months, however, the Japanese market remained in negative territory (-5.5%). The competitive benefits of a weak currency relative to the dollar extended to Germany, where the export-driven capital goods and chemical manufacturers gained; overall, the German market rose 12.4% during the six-month period. Arguably the biggest news came from the French elections at the end of May. The new government is considered to be less friendly toward the austerity measures needed to meet the eligibility requirements for the European Monetary Union (EMU) in 1999. The French elections also had a broad impact across the continent. Although most investors appear to agree that the elections won't jeopardize the continent's move toward the EMU, the timing and intensity of the fiscal measures are now less certain. Market reaction to the new French government was mixed. France lost -2.1% in May (in francs), while Germany gained 2.7% (in deutsche marks). For the six months, Europe gained 20.1% in local currencies, which a strong dollar trimmed to 11.1% for U.S. investors. 4 7 REPORT FROM THE ADVISER Yields on tax-exempt securities rose slightly during the six months ended May 31, 1997, the first half of the fiscal year for Vanguard New Jersey Tax-Free Fund. THE INSURED LONG-TERM PORTFOLIO Stronger than expected economic growth and concerns over inflation led to a rise in interest rates during the half-year. In March, the Federal Reserve Board responded by increasing the federal funds rate a quarter-point to 5.50%. Yields on the benchmark 30-year U.S. Treasury bond rose 0.56 percentage point to 6.91% during the six months, while yields on long-term, high-quality municipal bonds increased a mere 0.10 percentage point to 5.55%. The magnitude of the rise in rates was partially mitigated by strong investor demand and reduced supply in the municipal market. Consequently, yields of long-term, high-grade tax-exempt bonds rose less in relation to yields on U.S. Treasury bonds, from a ratio of 86% last November 30 to 80% on May 31. While the lack of supply helped the performance of municipal bonds relative to Treasuries, it also resulted in a compression of the yield differentials between higher- and lower-quality municipal securities. Over the short term, such an environment is often advantageous to the price performance of mutual funds holding lower-quality bonds. In contrast, Vanguard's state tax-free Portfolios are insured and adhere to significantly higher quality standards than the typical mutual fund. Nonetheless, the Portfolios provided returns competitive with those of lower-quality competitors. During the first fiscal half, we pursued two strategies to maximize tax-exempt income and minimize risk. First, we lowered the effective maturities of the Portfolios, which reduced their exposure to rising interest rates and preserved principal. This was accomplished by offsetting our market exposure through hedges in (i.e., sales of) Treasury futures contracts, while maintaining our holdings of municipal bonds. Second, we overweighted our holdings of intermediate-term bonds with maturities of 10-20 years. Intermediate bonds currently offer the best relative value because they generate 95% of the yield of long-term municipal bonds while providing less price volatility. In combination, these strategies enabled us to reduce our exposure to interest rate changes, maintain a high tax-exempt dividend stream, and capitalize on the relative outperformance of municipal bonds. Vanguard's investment objective is to provide consistent above-average performance relative to our competitors. We accomplish this by combining a disciplined management approach with a low expense ratio. Over the long term, we believe this philosophy will continue to produce superior performance and a durable tax-exempt dividend for our shareholders. THE MONEY MARKET PORTFOLIO In response to the Federal Reserve's tightening of monetary policy, yields on municipal notes and U.S. Treasury bills moved higher during the first half of the fiscal year. Yields on one-year municipal notes ended the period 32 basis points (0.32 percentage point) higher, at 3.90%, while one-year Treasury bill yields rose 42 basis points INVESTMENT PHILOSOPHY The Fund reflects a belief that it can achieve a high level of current income, consistent with each Portfolio's stated maturity and stringent quality targets, that is exempt from federal and New Jersey income taxes by investing in insured and high-quality uninsured securities issued by state, county, and municipal governments in New Jersey. 5 8 to 5.77%. Due to the continued strength in the U.S. economy and the Fed's response, our Money Market Portfolio adopted a more defensive posture by shortening its average maturity. Shortening the Portfolio's maturity acts to lessen its interest rate risk. In addition to the Federal Reserve's activity, two other issues had a significant impact on the short-term securities market. The first was the proposal by the Securities and Exchange Commission (SEC) of a series of technical amendments to Rule 2a-7 under the Investment Company Act of 1940. This regulation governs certain risk characteristics of money market funds. The SEC's proposed changes were designed to tighten the regulations pertaining to money market funds and improve the likelihood that the funds would maintain a stable net asset value. In light of these technical amendments and the SEC's desire to incorporate comments from market participants, compliance with the revised rule, adopted by the SEC in March 1996, has been suspended until at least the summer or fall of 1997. Some competing funds that operate with lower quality standards than ours may need to alter their management policies. However, the Vanguard tax-exempt money market portfolios have always been managed in a conservative, quality-oriented manner. Therefore we anticipate minimal impact when the regulations finally take effect. The second issue was the unusual volume of redemptions industrywide during tax season. The seasonal outflow of portfolio assets is the result of shareholders' paying personal income taxes from money market accounts. According to IBC Donoghue's Money Fund Report, during the just-completed tax season, tax-exempt money market funds lost 7.5% of assets to redemptions, compared with only a 4% decline for the same period in 1996. As further evidence of the magnitude of tax payments this year, the U.S. Treasury garnered a record $211 billion through April, a 13% increase over the same period last year. As market participants sold securities to fund shareholder redemptions, the result was a temporary overabundance of supply in the short-term market. This excess in turn caused a spike up in yields during late April and much of May. We used this rise in yields as an opportunity to selectively purchase securities--choosing those with maturity dates other than early July, when a seasonal lack of supply is expected to push yields down. Additionally, we further diversified and enhanced overall portfolio quality. The second half of the fiscal year will require investors to remain vigilant. Market participants will be asked to comply with new, more stringent regulations and will face the prospect of further hikes in the federal funds rate by the Federal Reserve Board. Ian A. MacKinnon, Senior Vice President Pamela Wisehaupt Tynan, Principal Reid O. Smith, Principal John M. Carbone, Principal Danine A. Mueller, Principal Christopher M. Ryon, Principal Vanguard Fixed Income Group June 11, 1997 6 9 PERFORMANCE SUMMARIES All of the data on this page represent past performance, which cannot be used to predict future returns that may be achieved by the Portfolios. 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.
INSURED LONG-TERM PORTFOLIO TOTAL INVESTMENT RETURNS: FEBRUARY 3, 1988-MAY 31, 1997 - --------------------------------------------------------------- INSURED LONG-TERM PORTFOLIO 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** -1.1 2.7 1.6 1.7 - ---------------------------------------------------------------
*Lehman Municipal Bond Index. **Six months ended May 31, 1997. See Financial Highlights table on page 17 for dividend and capital gains information for the past five years.
MONEY MARKET PORTFOLIO TOTAL INVESTMENT RETURNS: FEBRUARY 3, 1988-MAY 31, 1997 - --------------------------------------------------------------- MONEY MARKET PORTFOLIO AVERAGE 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 1.6 1.6 1.5 - ---------------------------------------------------------------
*Average New Jersey Tax-Exempt Money Market Fund. **Six months ended May 31, 1997. See Financial Highlights table on page 18 for dividend information for the past five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1997* - ----------------------------------------------------------------------------------------------- SINCE INCEPTION INCEPTION --------------------------------- DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL - ----------------------------------------------------------------------------------------------- Insured Long-Term Portfolio 2/3/88 4.86% 7.32% 1.68% 6.32% 8.00% Money Market Portfolio 2/3/88 3.19 2.92 0.00 3.99 3.99 - -----------------------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information through the latest calendar quarter. 7 10 [PHOTO] FINANCIAL STATEMENTS MAY 31, 1997 (unaudited) STATEMENT OF NET ASSETS This Statement provides a detailed list of each Portfolio's municipal bond holdings, including each security's market value on the last day of the reporting period and information on credit enhancements (insurance or letters of credit). Securities are grouped and subtotaled according to their insured or noninsured status. Other assets are added to, and liabilities are subtracted from, the value of Total Municipal Bonds to calculate the Portfolio's Net Assets. Finally, Net Assets are divided by the outstanding shares of the Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share. At the end of the Statement of Net Assets, you will find a table displaying the composition of the Portfolio's net assets on both a dollar and per-share basis. Undistributed Net Investment Income is usually zero because the Portfolio distributes its net income to shareholders as a dividend each day. Any realized gains must be distributed annually, so the bulk of net assets consists of Paid in Capital (money invested by shareholders). The balance shown for Accumulated Net Realized Gains usually approximates the amount available to distribute to shareholders as taxable capital gains as of the statement date, but may differ because certain investments or transactions may be treated differently for financial statement and tax purposes. Any Accumulated Net Realized Losses, and any cumulative excess of distributions over net realized gains, will appear as negative balances. Unrealized Appreciation (Depreciation) is the difference between the value of the Portfolio's investments and their cost, and reflects the gains (losses) that would be realized if the Portfolio were to sell all of its investments at their statement-date values.
- ----------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (99.0%) - ----------------------------------------------------------------------------------------------------------------- ISSUER INSURED (81.9%) Atlantic County NJ COP 6.00% 3/1/14 (3) $ 3,685 $ 3,926 Atlantic County NJ COP 6.00% 3/1/15 (3) 1,480 1,580 Atlantic County NJ COP 7.30% 3/1/05 (3) 2,000 2,312 Atlantic County NJ COP 7.30% 3/1/06 (3) 1,800 2,103 Atlantic County NJ COP 7.40% 3/1/10 (3) 1,755 2,095 Atlantic County NJ COP 7.40% 3/1/11 (3) 4,025 4,821 Atlantic County NJ Util. Auth. Sewer Rev. 5.85% 1/15/15 (2) 3,000 3,072 Bayshore NJ Regional Sewer Auth. 5.40% 5/1/12 (1) 500 501 Bergen County NJ Util. Auth. Water PCR 5.50% 12/15/15 (3) 15,750 15,763 Bergen County NJ Util. Auth. Water PCR 5.75% 12/15/05 (3) 2,000 2,120 Brick Township NJ Muni. Util. Auth. 5.00% 12/1/16 (3) 5,700 5,368 Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/04 (3) 8,345 5,690 Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/05 (3) 18,545 11,918 Camden County NJ Muni. Util. Auth. Sewer Rev. 0.00% 9/1/06 (3) 18,545 11,236 Camden County NJ Muni. Util. Auth. Sewer Rev. 8.25% 12/1/97 (3)(Prere.) 515 537 Camden County NJ Muni. Util. Auth. Sewer Rev. 8.25% 12/1/17 (3) 335 349 Cape May County NJ IDA (Atlantic City Electric) 6.80% 3/1/21 (1) 15,400 18,058 Cape May County NJ Muni. Util. Auth. 5.75% 1/1/16 (1) 14,975 15,111 Delaware River Port Auth. PA & NJ 5.40% 1/1/13 (3) 9,000 8,988 Delaware River Port Auth. PA & NJ 5.50% 1/1/26 (3) 26,600 26,036 Delaware River Port Auth. PA & NJ 6.50% 1/1/09 (2) 3,500 3,612 Delaware River Port Auth. PA & NJ 7.375% 1/1/07 (2) 9,500 10,086 Elizabeth City NJ Fiscal Year Adjustment Bonds 6.60% 8/1/06 (1) 8,750 9,506 Elizabeth City NJ GO 6.10% 8/15/07 (2) 5,000 5,447 Elizabeth City NJ GO 6.25% 8/15/08 (2) 2,100 2,291 Essex County NJ GO 4.875% 11/15/97 (2) 2,815 2,829 Essex County NJ Improvement Auth. Lease Rev. GO 5.25% 12/1/16 (2) 10,135 9,811 Essex County NJ Improvement Auth. Lease Rev. GO 5.35% 12/1/24 (2) 5,000 4,846
8 11
- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Essex County NJ Improvement Auth. Lease Rev. GO 5.50% 12/1/08 (2) $ 2,560 $ 2,642 Essex County NJ Improvement Auth. Lease Rev. GO 5.50% 12/1/13 (2) 7,500 7,551 Essex County NJ Improvement Auth. Lease Rev. GO 7.00% 12/1/04 (2)(Prere.) 9,525 10,979 Essex County NJ Util. Auth. 5.60% 4/1/16 (4) 2,200 2,190 Evesham NJ Muni. Util. Auth. 7.00% 7/1/10 (1) 1,700 1,808 Evesham NJ Muni. Util. Auth. 7.00% 7/1/15 (1) 450 479 Gloucester County NJ Util. Auth. Sewer Rev. 5.40% 1/1/16 (1) 3,410 3,355 Gloucester Township NJ GO 5.75% 7/15/10 (2) 2,880 3,024 Gloucester Township NJ Muni. Util. Auth. 5.65% 3/1/18 (2) 2,755 2,823 Hamilton Township NJ Muni. Util. Auth. 6.00% 8/15/17 (3) 1,000 1,031 Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/03 (1) 3,800 2,827 Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/04 (1) 3,750 2,641 Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/05 (1) 3,805 2,536 Hoboken-Union City-Weehawken NJ Sewer Auth. 0.00% 8/1/06 (1) 2,000 1,261 Hoboken-Union City-Weehawken NJ Sewer Auth. 6.25% 8/1/13 (1)- 9,590 10,494 Hudson County NJ Correctional Fac. COP 6.30% 6/1/04 (1) 1,720 1,843 Hudson County NJ Correctional Fac. COP 6.30% 12/1/04 (1) 1,770 1,896 Hudson County NJ Correctional Fac. COP 6.50% 12/1/11 (1) 9,000 9,713 Hudson County NJ General Improvement GO 6.55% 7/1/04 (3) 1,300 1,437 Hudson County NJ General Improvement GO 6.55% 7/1/05 (3) 1,290 1,437 Hudson County NJ General Improvement GO 6.55% 7/1/06 (3) 700 785 Hudson County NJ General Improvement GO 6.55% 7/1/07 (3) 1,300 1,465 Hudson County NJ General Improvement GO 6.55% 7/1/09 (3) 635 717 Hudson County NJ Improvement Auth. Lease 6.00% 12/1/12 (3) 6,525 6,780 Irvington Township NJ GO 0.00% 8/1/07 (1) 1,000 600 Irvington Township NJ GO 0.00% 8/1/09 (1) 2,580 1,367 Irvington Township NJ GO 0.00% 8/1/10 (1) 2,080 1,035 Jersey City NJ Water Auth. GO 7.60% 10/1/12 (2) 700 723 Jersey City NJ Water Auth. GO 7.60% 10/1/13 (2) 700 723 Middlesex County NJ Util. Auth. Sewer Rev. 5.25% 3/15/10 (2) 2,740 2,735 Middlesex County NJ Util. Auth. Sewer Rev. 5.25% 9/15/10 (2) 1,790 1,787 Middlesex County NJ Util. Auth. Sewer Rev. 5.375% 9/15/15 (2) 3,775 3,755 Middlesex County NJ Util. Auth. Sewer Rev. 6.50% 3/15/01 (3)(Prere.) 6,300 6,838 Monmouth County NJ Improvement Auth. 5.40% 12/1/12 (1) 2,505 2,517 Mount Laurel Township NJ Muni. Util. Auth. 6.00% 7/1/15 (1) 4,250 4,386 New Brunswick NJ Housing & Urban Dev. 5.75% 7/1/24 (1) 13,640 13,702 New Brunswick NJ Housing & Urban Dev. 6.00% 7/1/12 (1) 6,000 6,238 New Jersey Econ. Dev. Auth. (Market Transition) 5.80% 7/1/07 (1) 1,000 1,059 New Jersey Econ. Dev. Auth. (Market Transition) 5.80% 7/1/09 (1) 5,500 5,702 New Jersey Econ. Dev. Auth. (Market Transition) 5.875% 7/1/11 (1) 23,175 24,032 New Jersey Econ. Dev. Auth. (Market Transition) 7.00% 7/1/04 (1) 1,745 1,958 New Jersey Econ. Dev. Auth. Water Fac. Rev. VRDO (United Water Co.) 3.80% 6/3/97 (2) 10,700 10,700 New Jersey Educ. Fac. Auth. (Higher Educ. Trust Fund) 5.125% 9/1/97 (2) 10,525 10,561 New Jersey Educ. Fac. Auth. (Higher Educ. Trust Fund) 5.125% 9/1/08 (2) 14,795 14,870 New Jersey Educ. Fac. Auth. (Kean College) 6.60% 7/1/21 (1) 3,700 3,992 New Jersey Educ. Fac. Auth. (NJ Institute of Technology) 6.00% 7/1/24 (1) 1,500 1,550 New Jersey Educ. Fac. Auth. (Rider College) 6.20% 7/1/17 (2) 4,000 4,198 New Jersey Educ. Fac. Auth. (Seton Hall Univ.) 5.60% 7/1/16 (1) 1,765 1,774 New Jersey Educ. Fac. Auth. (Trenton State College) 6.00% 7/1/12 (2) 3,005 3,124 New Jersey Health Care Fac. Auth. (Burdette Tomlin Memorial Hosp.) 6.50% 7/1/12 (3) 1,500 1,607 New Jersey Health Care Fac. Auth. (Community Medical Center) 7.00% 7/1/20 (1) 2,850 3,059 New Jersey Health Care Fac. Auth. (Helene Fuld Medical Center) 6.60% 7/1/21 (2) 4,080 4,376 New Jersey Health Care Fac. Auth. (Holy Name Hosp.) 5.25% 7/1/20 (2) 4,100 3,900 New Jersey Health Care Fac. Auth. (Memorial Health Alliance) 6.25% 7/1/10 (3) 8,000 8,227 New Jersey Health Care Fac. Auth. (Mercer Medical Center) 6.50% 7/1/10 (1) 6,000 6,424 New Jersey Health Care Fac. Auth. (Mountainside Hosp.) 5.35% 7/1/07 (1) 3,215 3,293 New Jersey Health Care Fac. Auth. (Muhlenberg Medical Center) 8.00% 7/1/18 (2) 750 793 New Jersey Health Care Fac. Auth. (Newark Beth Israel Medical Center) 6.00% 7/1/16 (4) 8,500 8,684 New Jersey Health Care Fac. Auth. (Riverview Medical Center) 6.25% 7/1/10 (2) 2,935 3,204 New Jersey Health Care Fac. Auth. (Shore Medical Center) 6.20% 7/1/13 (2) 3,130 3,300 New Jersey Health Care Fac. Auth. (Shore Medical Center) 6.20% 7/1/14 (2) 3,075 3,233
9 12
- ----------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------- New Jersey Health Care Fac. Auth. (Shore Medical Center) 6.25% 7/1/16 (2) $ 2,000 $ 2,107 New Jersey Health Care Fac. Auth. (Society of the Valley Hosp.) 6.625% 7/1/10 (1) 2,750 2,907 New Jersey Health Care Fac. Auth. (St. Clare's Riverside Medical Center) 5.75% 7/1/14 (1) 7,500 7,606 New Jersey Health Care Fac. Auth. (West Jersey Health System) 6.00% 7/1/09 (1) 5,175 5,408 New Jersey Housing & Mortgage Finance Auth. 7.875% 10/1/17 (1) 450 465 New Jersey Sports & Exposition Auth. VRDO 3.65% 6/5/97 (1) 6,709 6,709 New Jersey Transp. Trust Fund 5.50% 6/15/11 (1) 5,000 5,061 New Jersey Transp. Trust Fund 5.50% 6/15/13 (1) 3,000 3,011 New Jersey Transp. Trust Fund 5.50% 6/15/15 (1) 4,420 4,430 New Jersey Transp. Trust Fund 6.00% 6/15/11 (1) 31,280 33,181 New Jersey Turnpike Auth. VRDO 3.70% 6/4/97 (3) LOC 18,000 18,000 New Jersey Turnpike Auth. 6.50% 1/1/13 (1) 20,000 22,387 Newark NJ General Improvement 5.30% 10/1/06 (2) 1,710 1,746 Newark NJ General Improvement 5.40% 10/1/07 (2) 1,685 1,742 Newark NJ General Improvement 5.50% 10/1/08 (2) 1,660 1,718 Newark NJ Water Util. 5.30% 10/1/06 (2) 2,625 2,681 North Bergen Township NJ GO 8.00% 8/15/06 (4) 1,885 2,309 North Hudson NJ Sewer Auth. 4.60% 8/1/01 (3) 2,050 2,049 North Hudson NJ Sewer Auth. 5.125% 8/1/08 (3) 2,000 2,007 North Hudson NJ Sewer Auth. 5.125% 8/1/22 (3) 7,000 6,608 North Hudson NJ Sewer Auth. 5.25% 8/1/16 (3) 14,360 13,904 North Jersey Water Dist. (Wanaque South Project) 6.00% 7/1/12 (1) 10,125 10,572 Ocean County NJ Util. Auth. Waste Water Rev. 5.00% 1/1/14 (3) 2,000 1,898 Ocean County NJ Util. Auth. Waste Water Rev. 6.60% 1/1/18 (3) 4,000 4,255 Ocean County NJ Util. Auth. Waste Water Rev. 6.60% 1/1/18 (3)(ETM) 2,500 2,800 Ocean County NJ Util. Auth. Waste Water Rev. 6.75% 1/1/13 (3) 14,810 15,143 Ocean Township NJ Muni. Util. Auth. 6.00% 8/1/17 (1) 3,975 4,276 Old Bridge Township NJ Muni. Util. Auth. 6.25% 11/1/16 (3) 1,400 1,482 Old Bridge Township NJ Muni. Util. Auth. 6.40% 11/1/09 (3) 3,000 3,261 Passaic Valley NJ Sewer Comm. 5.75% 12/1/08 (2) 4,450 4,620 Passaic Valley NJ Sewer Comm. 5.75% 12/1/13 (2) 4,000 4,058 Plainfield NJ GO 6.25% 7/15/07 (2) 6,930 7,474 South Brunswick Township NJ Board of Educ. 6.40% 8/1/22 (3) 2,205 2,341 South Brunswick Township NJ Board of Educ. 6.40% 8/1/23 (3) 2,315 2,458 South Jersey Transp. Auth. 5.90% 11/1/06 (1) 3,435 3,653 South Jersey Transp. Auth. 5.90% 11/1/07 (1) 2,545 2,698 South Jersey Transp. Auth. 6.00% 11/1/12 (1) 5,250 5,466 Stafford NJ Muni. Util. Auth. 5.50% 6/1/11 (3) 3,100 3,123 Sussex County NJ Muni. Util. Auth. Solid Waste Rev. 5.75% 12/1/09 (1) 19,820 20,478 Sussex County NJ Muni. Util. Auth. Waste Water 5.25% 12/1/08 (1) 1,150 1,163 Union County NJ (Plainfield Board of Educ.) 6.25% 8/1/05 (3) 695 758 Union County NJ (Plainfield Board of Educ.) 6.25% 8/1/06 (3) 740 811 Union County NJ (Plainfield Board of Educ.) 6.25% 8/1/07 (3) 785 864 OUTSIDE NEW JERSEY: Puerto Rico Electric Power Auth. 6.50% 7/1/06 (1) 11,820 13,248 Puerto Rico Public Building Auth. 0.00% 7/1/02 (3) 4,000 3,174 --------- 717,862 --------- SECONDARY MARKET INSURED (8.4%) Atlantic County NJ Util. Auth. Sewer Rev. 6.875% 1/1/12 (2)(ETM) 3,000 3,311 New Jersey Highway Auth. (Garden State Parkway) 6.00% 1/1/16 (2) 5,000 5,106 New Jersey Highway Auth. (Garden State Parkway) 6.20% 1/1/10 (2) 20,000 21,810 New Jersey Sports & Exposition Auth. 6.50% 3/1/13 (1) 10,000 11,201 New Jersey Transp. Trust Fund 4.10% 6/15/97 (4)(ETM) 3,775 3,776 New Jersey Turnpike Auth. 6.50% 1/1/16 (1) 18,250 20,471 Port Auth. of New York & New Jersey 6.875% 1/1/25 (2) 3,200 3,391 Univ. of Medicine & Dentistry NJ 6.50% 12/1/12 (1) 4,000 4,499 --------- 73,565 --------- NONINSURED (8.7%) Burlington County NJ BAN 4.00% 3/12/98 1,956 1,959 Burlington County NJ Bridge Comm. 5.30% 10/1/13 9,500 9,479
10 13
- ------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------- Burlington County NJ GO 4.875% 11/15/97 $ 1,200 $ 1,206 Cherry Hill Township NJ GO 6.30% 6/1/12 3,745 3,982 Mercer County NJ Improvement Auth. 5.75% 12/15/07 1,110 1,183 Mercer County NJ Improvement Auth. 5.75% 12/15/08 1,165 1,237 Mercer County NJ Improvement Auth. 5.95% 12/15/12 4,895 5,212 Mercer County NJ Improvement Auth. 6.00% 12/1/14 1,000 1,039 Mercer County NJ Improvement Auth. 5.375% 9/15/12 11,120 11,033 Monmouth County NJ Improvement Auth. GO (Correctional Fac.) 6.40% 8/1/11 1,850 1,974 Morris County NJ GO 6.00% 7/15/97 1,726 1,731 Morris County NJ GO (County College) 6.00% 7/15/97 199 200 New Jersey Econ. Dev. Auth. PCR VRDO (Exxon Project) 3.65% 6/3/97 300 300 New Jersey GO 5.00% 7/15/97 8,330 8,343 New Jersey Health Care Fac. Finance Auth. VRDO (Hosp. Capital Assets Pooled Program) 3.65% 6/5/97 LOC 200 200 Ocean County NJ Util. Auth. Waste Water Rev. 6.00% 1/1/06 5,735 6,177 Ocean County NJ Util. Auth. Waste Water Rev. 6.30% 1/1/13 2,215 2,352 Ocean County NJ Util. Auth. Waste Water Rev. 6.35% 1/1/14 2,360 2,509 Ocean County NJ Util. Auth. Waste Water Rev. 6.35% 1/1/15 2,515 2,674 Port Auth. of New York & New Jersey VRDO 4.00% 6/3/97 2,000 2,000 Port Auth. of New York & New Jersey VRDO 4.10% 6/3/97 400 400 Rutgers State Univ. NJ 6.40% 5/1/13 3,000 3,328 Rutgers State Univ. NJ 7.90% 5/1/98 (Prere.) 1,140 1,204 Rutgers State Univ. NJ 8.00% 5/1/98 (Prere.) 1,250 1,321 OUTSIDE NEW JERSEY: Puerto Rico Govt. Dev. Bank VRDO 3.55% 6/4/97 LOC 5,100 5,100 ---------- 76,143 ---------- - ------------------------------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (COST $823,376) 867,570 - ------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (1.0%) - ------------------------------------------------------------------------------------------------------------------------------- Other Assets--Note B 19,255 Liabilities (10,397) ---------- 8,858 - ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) - ------------------------------------------------------------------------------------------------------------------------------- Applicable to 76,316,764 outstanding shares of beneficial interest (unlimited authorization--no par value) $876,428 =============================================================================================================================== NET ASSET VALUE PER SHARE $11.48 ===============================================================================================================================
*See Note A in Notes to Financial Statements. - -Securities with a value of $2,298,000 have been segregated as initial margin for open futures contracts. For explanations of abbreviations and other references, see page 14.
- ------------------------------------------------------------------------------------------------------------------------------ AT MAY 31, 1997, NET ASSETS CONSISTED OF: - ------------------------------------------------------------------------------------------------------------------------------ AMOUNT PER (000) SHARE - ------------------------------------------------------------------------------------------------------------------------------ Paid in Capital $832,478 $10.90 Undistributed Net Investment Income -- -- Overdistributed Net Realized Gains (225) -- Unrealized Appreciation (Depreciation)--Note E Investment Securities 44,194 .58 Futures Contracts (19) -- - ------------------------------------------------------------------------------------------------------------------------------ NET ASSETS $876,428 $11.48 ==============================================================================================================================
11 14
- ------------------------------------------------------------------------------------------------------------------------------ FACE MARKET MATURITY AMOUNT VALUE* MONEY MARKET PORTFOLIO COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (95.5%) - ------------------------------------------------------------------------------------------------------------------------------ Bedminster Township NJ BAN 4.00% 1/20/98 $ 900 $ 901 Bergen County NJ Util. Auth. 7.75% 3/1/5/98 (Prere.) 1,750 1,805 Burlington County NJ BAN 4.25% 6/13/97 20,500 20,503 Chatham Township NJ BAN 4.25% 4/17/98 7,539 7,558 Chatham Township NJ Special Emergency Notes 4.25% 4/17/98 48 49 Cherry Hill Township NJ BAN 4.25% 10/15/97 21,263 21,304 Clifton NJ BAN 4.00% 3/12/98 2,500 2,505 Clifton NJ TAN 4.25% 2/13/98 4,900 4,913 Cranbury Township NJ BAN 4.00% 3/11/98 2,800 2,805 East Brunswick Township NJ BAN 4.50% 11/3/97 2,950 2,959 Englewood NJ BAN 4.50% 7/17/97 5,177 5,180 Englewood NJ Notes 4.50% 7/17/97 3,100 3,102 Essex County NJ Improvement Auth. Pooled Govt. Loan VRDO 3.60% 6/4/97 LOC 28,750 28,750 Evesham Township NJ BAN 4.30% 9/25/97 9,896 9,905 Franklin Township NJ BAN 4.00% 6/2/97 1,900 1,900 Franklin Township NJ BAN 4.25% 5/29/98 1,266 1,270 Franklin Township NJ BAN 4.50% 8/21/97 3,496 3,501 Franklin Township NJ GO 5.20% 8/1/97 540 541 Gloucester County NJ PCR VRDO (Mobil Oil Refining Corp. Project) 3.55% 6/4/97 20,200 20,200 Hackensack City NJ BAN 4.00% 6/6/97 7,989 7,989 Hamilton Township NJ BAN 4.30% 9/25/97 2,000 2,002 Hillsborough Township NJ School District 5.30% 10/1/97 (4) 860 865 Lawrence Township NJ BAN 4.125% 11/6/97 3,945 3,950 Linden City NJ BAN 4.50% 6/19/97 3,000 3,001 Livingston Township NJ Auth. 3.78% 2/4/98 2,840 2,841 Mercer County NJ GO 5.00% 9/1/97 1,935 1,941 Mercer County NJ Improvement Auth. BAN (County Courthouse Project) 3.90% 11/1/97 6,250 6,258 Middlesex County NJ BAN 4.00% 1/27/98 25,000 25,073 Middlesex County NJ TAN 4.00% 2/18/98 11,400 11,436 Middletown Township NJ GO 5.70% 8/1/97 1,575 1,580 Monmouth County NJ BAN 4.375% 8/28/97 3,000 3,004 Monmouth County NJ GO 5.00% 10/1/97 1,350 1,356 Monmouth County NJ VRDO (Improvement Auth. Pooled Govt. Loan Program) 3.75% 6/4/97 LOC 40,000 40,000 Montgomery Township NJ BAN 4.00% 12/12/97 2,320 2,325 Montgomery Township NJ BAN 4.00% 2/12/98 10,235 10,240 Montgomery Township NJ BAN 4.625% 7/15/97 2,095 2,097 Montvale Borough NJ BAN 4.25% 5/15/98 3,232 3,239 Montville Township NJ BAN 4.40% 8/29/97 9,500 9,512 Morris County NJ BAN 3.98% 8/7/97 13,000 13,006 New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.45% 8/18/97 4,400 4,400 New Jersey Econ. Dev. Auth. CP (Chambers Cogeneration Project) 3.95% 6/2/97 24,700 24,700 New Jersey Econ. Dev. Auth. CP (Logan Project) 3.40% 7/22/97 2,000 2,000 New Jersey Econ. Dev. Auth. CP (Logan Project) 3.60% 8/13/97 5,300 5,300 New Jersey Econ. Dev. Auth. CP (Logan Project) 3.65% 6/2/97 9,200 9,200 New Jersey Econ. Dev. Auth. CP (Logan Project) 3.65% 8/19/97 10,000 10,000 New Jersey Econ. Dev. Auth. PCR VRDO (Exxon Project) 3.65% 6/3/97 12,200 12,200 New Jersey Econ. Dev. Auth. PCR VRDO (Public Service Electric & Gas Co.) 3.55% 6/4/97 (1) 29,220 29,220 New Jersey Econ. Dev. Auth. VRDO (Lawrence School Project) 3.70% 6/5/97 17,000 17,000 New Jersey Econ. Dev. Auth. VRDO (NJ Natural Gas Project) 3.80% 6/3/97 (2) 11,000 11,000 New Jersey Econ. Dev. Auth. VRDO (NJ Natural Gas Project) 4.05% 6/3/97 15,600 15,600 New Jersey Econ. Dev. Auth. VRDO (Toys R Us) 3.75% 6/3/97 LOC 2,000 2,000 New Jersey Econ. Dev. Auth. Water Fac. TOB VRDO (NJ American Water Co. Project) 4.00% 6/5/97 (3) 4,850 4,850 New Jersey Econ. Dev. Auth. Water Fac. VRDO (United Water Co.) 3.75% 6/3/97 2,400 2,400 New Jersey Econ. Dev. Auth. Water Fac. VRDO (United Water Co.) 3.80% 6/3/97 43,800 43,800 New Jersey GO 4.50% 7/15/97 31,520 31,545 New Jersey GO TOB VRDO 3.85% 6/5/97 9,370 9,370
12 15
- ------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------- New Jersey Governmental GO 5.80% 8/1/97 $ 2,000 $ 2,006 New Jersey Health Care Fac. Finance Auth. VRDO (Hosp. Capital Asset Pooled Program) 3.65% 6/5/97 LOC 49,900 49,900 New Jersey Sports & Exposition Auth. VRDO 3.65% 6/5/97 (1) 40,441 40,441 New Jersey TRAN CP 3.90% 6/12/97 5,000 5,000 New Jersey Transp. Trust Fund 4.10% 6/15/97 3,700 3,701 New Jersey Turnpike Auth. VRDO 3.70% 6/4/97 (3) LOC 64,900 64,900 Ocean County NJ BAN 4.25% 6/20/97 10,000 10,002 Ocean County NJ General Improvement GO 5.65% 7/1/97 1,125 1,127 Passaic Valley NJ Sewer Comm. 7.10% 12/1/97 (Prere.) 2,595 2,692 Port Auth. of New York & New Jersey CP 3.50% 8/19/97 5,355 5,355 Port Auth. of New York & New Jersey CP 3.55% 8/20/97 6,110 6,110 Port Auth. of New York & New Jersey CP 3.60% 7/22/97 3,945 3,945 Port Auth. of New York & New Jersey CP 3.60% 7/25/97 4,745 4,745 Port Auth. of New York & New Jersey CP 3.65% 8/14/97 19,185 19,185 Port Auth. of New York & New Jersey CP 3.70% 8/13/97 4,200 4,200 Port Auth. of New York & New Jersey CP 3.75% 8/15/97 4,375 4,375 Port Auth. of New York & New Jersey CP 3.85% 7/18/97 8,025 8,025 Salem County NJ PCR CP (PECO Project) 3.65% 6/2/97 3,400 3,400 Salem County NJ PCR CP (PECO Project) 3.80% 7/18/97 5,000 5,000 Salem County NJ PCR VRDO (Public Service Electric & Gas Co.) 3.70% 6/4/97 6,500 6,500 Sayreville NJ BAN 4.00% 1/16/98 5,000 5,004 South Brunswick Township NJ BAN 4.50% 10/8/97 3,515 3,523 South Orange Village Township NJ BAN 4.25% 10/31/97 3,892 3,900 Southeast Morris County Muni. Util. Auth. RAN 4.25% 1/13/98 4,000 4,012 Union County NJ PCR VRDO (Exxon Project) 3.55% 6/3/97 7,300 7,300 Union County NJ PCR VRDO (Exxon Project) 3.95% 6/3/97 23,300 23,300 Upper Saddle River NJ BAN 4.00% 10/10/97 3,446 3,452 Washington Township NJ BAN 4.00% 12/12/97 4,280 4,288 Watchung NJ BAN 4.25% 5/15/98 6,745 6,764 West Orange Township NJ BAN 4.50% 6/25/97 1,469 1,469 West Windsor Township NJ BAN 4.50% 10/10/97 2,650 2,656 Wyckoff Township NJ BAN 3.95% 11/24/97 645 646 OUTSIDE NEW JERSEY: Puerto Rico Govt. Dev. Bank VRDO 3.55% 6/4/97 LOC 59,150 59,150 Puerto Rico Highway & Transp. Auth. VRDO 3.55% 6/4/97 LOC 15,400 15,400 Puerto Rico Industrial Medical & Environmental Fac. Auth. PCR PUT (Abbott Laboratories Project) 3.75% 3/1/98 6,250 6,250 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (COST $923,674) 923,674 - ------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (4.5%) - ------------------------------------------------------------------------------------------------------------------------------- Receivables for Investment Securities Sold 33,717 Other Assets--Note B 14,015 Liabilities (4,032) ---------- 43,700 - ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) - ------------------------------------------------------------------------------------------------------------------------------- Applicable to 967,392,757 outstanding shares of beneficial interest (unlimited authorization--no par value) $967,374 =============================================================================================================================== NET ASSET VALUE PER SHARE $1.00 ===============================================================================================================================
*See Note A in Notes to Financial Statements. For explanations of abbreviations and other references, see page 14. 13 16
- ------------------------------------------------------------------------------------------------------------------------------ AMOUNT PER MONEY MARKET PORTFOLIO (000) SHARE - ------------------------------------------------------------------------------------------------------------------------------ AT MAY 31, 1997, NET ASSETS CONSISTED OF: - ------------------------------------------------------------------------------------------------------------------------------ Paid in Capital $967,409 $1.00 Undistributed Net Investment Income -- -- Accumulated Net Realized Losses (35) -- Unrealized Appreciation -- -- - ------------------------------------------------------------------------------------------------------------------------------ NET ASSETS $967,374 $1.00 ==============================================================================================================================
KEY TO ABBREVIATIONS BAN--Bond Anticipation Note. COP--Certificate of Participation. CP--Commercial Paper. GO--General Obligation Bond. IDA--Industrial Development Authority Bond. IDR--Industrial Development Revenue Bond. PCR--Pollution Control Revenue Bond. PUT--Put Option Obligation. RAN--Revenue Anticipation Note. TAN--Tax Anticipation Note. TOB--Tender Option Bond. TRAN--Tax Revenue Anticipation Note. VRDO--Variable Rate Demand Obligation. (ETM)--Escrowed to Maturity. (Prere.)--Prerefunded. Scheduled principal and interest payments are guaranteed by: (1) MBIA (Municipal Bond Insurance Association). (2) AMBAC (AMBAC Indemnity Corporation). (3) FGIC (Financial Guaranty Insurance Company). (4) FSA (Financial Security Assurance). (5) BIGI (Bond Investors Guaranty Insurance). (6) Connie Lee Inc. (7) FHA (Federal Housing Authority). The insurance does not guarantee the market value of the municipal bonds. LOC--Scheduled principal and interest payments are guaranteed by bank letter of credit. 14 17 STATEMENT OF OPERATIONS This Statement shows interest earned by each Portfolio during the reporting period, and details the operating expenses charged to the Portfolio. These expenses directly reduce the amount of investment income available to pay to shareholders as tax-exempt income dividends. This Statement also shows any Net Gain (Loss) realized on the sale of investments, and the increase or decrease in the Unrealized Appreciation (Depreciation) on investments during the period. If a Portfolio invested in futures contracts during the period, the results of these investments are shown separately.
- ----------------------------------------------------------------------------------------- INSURED MONEY LONG-TERM MARKET PORTFOLIO PORTFOLIO -------------------------------- SIX MONTHS ENDED MAY 31, 1997 -------------------------------- (000) (000) - ----------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Interest $23,554 $16,302 -------------------------------- Total Income 23,554 16,302 -------------------------------- EXPENSES The Vanguard Group--Note B Investment Advisory Services 62 69 Management and Administrative 636 714 Marketing and Distribution 102 162 Custodian Fees 8 11 Auditing Fees 4 4 Shareholders' Reports 4 3 Annual Meeting and Proxy Costs 1 1 Trustees' Fees and Expenses 1 1 -------------------------------- Total Expenses 818 965 Expenses Paid Indirectly--Note C (8) (11) -------------------------------- Net Expenses 810 954 - ----------------------------------------------------------------------------------------- NET INVESTMENT INCOME 22,744 15,348 - ----------------------------------------------------------------------------------------- REALIZED NET GAIN Investment Securities Sold 459 17 Futures Contracts -- -- - ----------------------------------------------------------------------------------------- REALIZED NET GAIN 459 17 - ----------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities (9,736) -- Futures Contracts (19) -- - ----------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (9,755) -- - ----------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,448 $15,365 =========================================================================================
15 18 STATEMENT OF CHANGES IN NET ASSETS This Statement shows how each Portfolio's total net assets changed during the two most recent reporting periods. The Operations section summarizes information that is detailed in the Statement of Operations. Because the Portfolio distributes its income to shareholders each day, the amounts of Distributions--Net Investment Income generally equal the net income earned as shown under the Operations section. The amounts of Distributions--Realized Capital Gain may not match the capital gains shown in the Operations section, because distributions are determined on a tax basis and may be made in a period different from the one in which the gains were realized on the financial statements. The Capital Share Transactions section shows the amount shareholders invested in the Portfolio, either by purchasing shares or by reinvesting distributions, and the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed are shown at the end of the Statement.
- ---------------------------------------------------------------------------------------------------------------------------------- INSURED LONG-TERM PORTFOLIO MONEY MARKET PORTFOLIO ------------------------------- ------------------------------------ SIX MONTHS YEAR SIX MONTHS YEAR ENDED ENDED ENDED ENDED MAY 31, 1997 NOV. 30, 1996 MAY 31, 1997 NOV. 30, 1996 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net Investment Income $ 22,744 $ 43,196 $ 15,348 $ 28,089 Realized Net Gain 459 2,070 17 -- Change in Unrealized Appreciation (Depreciation) (9,755) (6,387) -- -- --------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations 13,448 38,879 15,365 28,089 --------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income (22,744) (43,196) (15,348) (28,089) Realized Capital Gain (2,334) (3,940) -- -- --------------------------------------------------------------------------------- Total Distributions (25,078) (47,136) (15,348) (28,089) --------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS(1) Issued 106,152 174,160 467,403 780,375 Issued in Lieu of Cash Distributions 19,436 36,637 14,655 26,843 Redeemed (86,524) (149,600) (432,583) (748,471) --------------------------------------------------------------------------------- Net Increase from Capital Share Transactions 39,064 61,197 49,475 58,747 - ---------------------------------------------------------------------------------------------------------------------------------- Total Increase 27,434 52,940 49,492 58,747 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Period 848,994 796,054 917,882 859,135 --------------------------------------------------------------------------------- End of Period $876,428 $848,994 $967,374 $917,882 ================================================================================================================================== (1)Shares Issued (Redeemed) Issued 9,273 15,151 467,403 780,375 Issued in Lieu of Cash Distributions 1,697 3,178 14,655 26,843 Redeemed (7,560) (13,024) (432,583) (748,471) --------------------------------------------------------------------------------- Net Increase in Shares Outstanding 3,410 5,305 49,475 58,747 ==================================================================================================================================
16 19 FINANCIAL HIGHLIGHTS This table summarizes each Portfolio's investment results and distributions to shareholders on a per-share basis. It also presents the Portfolio's Total Return and shows net investment income and expenses as percentages of average net assets. These data will help you assess: the variability of the Portfolio's net income and total returns from year to year; the relative contributions of net income and capital gains to the Portfolio's total return; how much it costs to operate the Portfolio; and the extent to which the Portfolio tends to distribute capital gains. The table also shows the Portfolio Turnover Rate, a measure of trading activity. A turnover rate of 100 means that the average security is held in the Portfolio for one year. Money market portfolios do not show a Portfolio Turnover Rate because securities purchased with less than one year to maturity are excluded from the calculation of turnover rates.
- ---------------------------------------------------------------------------------------------------------------------------------- INSURED LONG-TERM PORTFOLIO YEAR ENDED NOVEMBER 30, FOR A SHARE OUTSTANDING SIX MONTHS ENDED ---------------------------------------------------------------- THROUGHOUT EACH PERIOD MAY 31, 1997 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $11.64 $11.78 $10.40 $11.77 $11.18 $10.75 - ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .306 .616 .623 .622 .637 .659 Net Realized and Unrealized Gain (Loss) on Investments (.128) (.082) 1.380 (1.307) .725 .438 -------------------------------------------------------------------------------- Total from Investment Operations .178 .534 2.003 (.685) 1.362 1.097 -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.306) (.616) (.623) (.622) (.637) (.659) Distributions from Realized Capital Gains (.032) (.058) -- (.063) (.135) (.008) ------------------------------------------------------------------------------- Total Distributions (.338) (.674) (.623) (.685) (.772) (.667) - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $11.48 $11.64 $11.78 $10.40 $11.77 $11.18 ================================================================================================================================== TOTAL RETURN 1.57% 4.75% 19.66% -6.10% 12.53% 10.48% ================================================================================================================================== RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $876 $849 $796 $645 $748 $572 Ratio of Total Expenses to Average Net Assets 0.19%* 0.20% 0.21% 0.21% 0.20% 0.25% Ratio of Net Investment Income to Average Net Assets 5.35%* 5.35% 5.50% 5.53% 5.47% 5.99% Portfolio Turnover Rate 11%* 11% 7% 13% 12% 34% - ----------------------------------------------------------------------------------------------------------------------------------
*Annualized. 17 20 FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO YEAR ENDED NOVEMBER 30, FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------------------------------------------------- THROUGHOUT EACH PERIOD MAY 31, 1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .016 .032 .035 .025 .023 .030 Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- -- -- --------------------------------------------------------------------------------- Total from Investment Operations .016 .032 .035 .025 .023 .030 --------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.016) (.032) (.035) (.025) (.023) (.030) Distributions from Realized Capital Gains -- -- -- -- -- -- --------------------------------------------------------------------------------- Total Distributions (.016) (.032) (.035) (.025) (.023) (.030) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ================================================================================================================================= TOTAL RETURN 1.62% 3.22% 3.60% 2.49% 2.31% 3.04% ================================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $967 $918 $859 $792 $724 $627 Ratio of Total Expenses to Average Net Assets 0.20%* 0.20% 0.21% 0.21% 0.20% 0.24% Ratio of Net Investment Income to Average Net Assets 3.23%* 3.17% 3.53% 2.46% 2.29% 2.98% Portfolio Turnover Rate N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------
*Annualized. 18 21 NOTES TO FINANCIAL STATEMENTS Vanguard New Jersey Tax-Free Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund, and comprises the Insured Long-Term and Money Market Portfolios. Each Portfolio invests in debt instruments of municipal issuers whose ability to meet their obligations may be affected by economic and political developments in the state of New Jersey. A. The following significant accounting policies conform to generally accepted accounting principles for mutual funds. The Fund consistently follows such policies in preparing its financial statements. 1. SECURITY VALUATION: Money Market Portfolio: Investment securities are valued at amortized cost, which approximates market value. Insured Long-Term Portfolio: Bonds, and temporary cash investments acquired 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 credit ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. 2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements. 3. FUTURES CONTRACTS: The Insured Long-Term Portfolio may use Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of enhancing returns, managing interest rate risk, maintaining liquidity, diversifying credit risk, and minimizing transaction costs. The Portfolio may purchase or sell futures contracts instead of bonds to take advantage of pricing differentials between the futures contracts and the underlying bonds. The Portfolio may also seek to take advantage of price differences among bond market sectors by simultaneously buying futures (or bonds) of one market sector and selling futures (or bonds) of another sector. Futures contracts may also be used to simulate a fully invested position in the underlying bonds while maintaining a cash balance for liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the Portfolio and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses). 4. DISTRIBUTIONS: Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date. Capital gains distributions are determined on a tax basis and may differ from realized capital gains for financial reporting purposes due to differences in the timing of realization of gains. 5. OTHER: Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Premiums and original issue discounts are amortized and accreted, respectively, to interest income over the lives of the respective securities. B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the Fund under methods approved by the board of trustees. At May 31, 1997, the Fund had contributed capital aggregating $147,000 to Vanguard (included in Other Assets), representing 0.7% of Vanguard's capitalization. The Fund's trustees and officers are also directors and officers of Vanguard. 19 22 C. The Fund's custodian bank has agreed to reduce its fees when the Fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended May 31, 1997, custodian fee offset arrangements reduced expenses of the Insured Long-Term and Money Market Portfolios by $8,000 and $11,000, respectively. D. During the six months ended May 31, 1997, the Insured Long-Term Portfolio purchased $72,200,000 of investment securities and sold $43,311,000 of investment securities, other than temporary cash investments. E. At May 31, 1997, net unrealized appreciation of Insured Long-Term Portfolio investment securities for financial reporting and federal income tax purposes was $44,194,000, consisting of unrealized gains of $44,455,000 on securities that had risen in value since their purchase and $261,000 on securities that had fallen in value since their purchase. At May 31, 1997, the aggregate settlement value of open futures contracts expiring in June 1997 and the related unrealized depreciation were:
- ------------------------------------------------------------------------------ (000) ------------------------------- AGGREGATE NUMBER OF SETTLEMENT UNREALIZED PORTFOLIO/FUTURES CONTRACTS SHORT CONTRACTS VALUE DEPRECIATION - ------------------------------------------------------------------------------ Insured Long-Term/ U.S. Treasury Bond 190 $20,906 $(19) - ------------------------------------------------------------------------------
20 23 TRUSTEES AND OFFICERS JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc. and of each of the investment companies in The Vanguard Group. JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The Vanguard Group, Inc. and of each of the investment companies in The Vanguard Group. ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Managing Director of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun Company, Inc. and Westinghouse Electric Corp. Barbara Barnes Hauptfuhrer, Director of The Great Atlantic and Pacific Tea Co., Ikon Business Solutions, Inc., Raytheon Co., Knight-Ridder, Inc., and Massachusetts Mutual Life Insurance Co.; Trustee Emerita of Wellesley College. BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton University; Director of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The Jeffrey Co., and Southern New England Communications Co. ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co. JOHN C. SAWHILL, President and Chief Executive Officer of The Nature Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and President of New York University; Director of Pacific Gas and Electric Co., Procter & Gamble Co., and NACCO Industries. JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and Kmart Corp. J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins Engine Co.; Trustee of Vanderbilt University. OTHER FUND OFFICERS RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The Vanguard Group, Inc.; Secretary of each of the investment companies in The Vanguard Group. RICHARD F. HYLAND, Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies in The Vanguard Group. KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of each of the investment companies in The Vanguard Group. OTHER VANGUARD OFFICERS ROBERT A. DISTEFANO, Senior Vice President, Information Technology. JAMES H. GATELY, Senior Vice President, Individual Investor Group. IAN A. MACKINNON, Senior Vice President, Fixed Income Group. F. WILLIAM MCNABB III, Senior Vice President, Institutional Investor Group. RALPH K. PACKARD, Senior Vice President and Chief Financial Officer [THE VANGUARD GROUP LOGO] Please send your comments to us at: Post Office Box 2600, Valley Forge, Pennsylvania 19482 Fund Information: 1-800-662-7447 Individual Account Services: 1-800-662-2739 Institutional Investor Services: 1-800-523-1036 http://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 investing or sending money. Prospectuses may be obtained directly from The Vanguard Group. (C) 1997 Vanguard Marketing Corporation, Distributor 24 THE VANGUARD FAMILY OF FUNDS EQUITY AND BALANCED FUNDS GROWTH AND INCOME FUNDS Vanguard/Windsor Fund Vanguard/Windsor II Vanguard Equity Income Fund Vanguard Growth and Income Portfolio Vanguard Selected Value Portfolio Vanguard/Trustees' Equity-U.S. Portfolio Vanguard Convertible Securities Fund BALANCED FUNDS Vanguard/Wellington Fund Vanguard/Wellesley Income Fund Vanguard STAR Portfolio Vanguard Asset Allocation Fund Vanguard LifeStrategy Portfolios GROWTH FUNDS Vanguard/Morgan Growth Fund Vanguard/PRIMECAP Fund Vanguard U.S. Growth Portfolio AGGRESSIVE GROWTH FUNDS Vanguard Explorer Fund Vanguard Specialized Portfolios Vanguard Horizon Fund INTERNATIONAL FUNDS Vanguard International Growth Portfolio Vanguard International Value Portfolio INDEX FUNDS Vanguard Index Trust Vanguard Tax-Managed Fund Vanguard Balanced Index Fund Vanguard Bond Index Fund Vanguard International Equity Index Fund Vanguard Total International Portfolio FIXED-INCOME FUNDS MONEY MARKET FUNDS Vanguard Money Market Reserves Vanguard Treasury Money Market Portfolio Vanguard Admiral Funds INCOME FUNDS Vanguard Fixed Income Securities Fund Vanguard Admiral Funds Vanguard Preferred Stock Fund TAX-EXEMPT MONEY MARKET FUNDS Vanguard Municipal Bond Fund Vanguard State Tax-Free Funds (CA, NJ, OH, PA) TAX-EXEMPT INCOME FUNDS Vanguard Municipal Bond Fund Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA) Q142-5/97 -----END PRIVACY-ENHANCED MESSAGE-----