-----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, RtTSF74VGuULW7CZ8KBV6z96IlmmwmydVoprEKOhCLOp7PTK4ISfsiJnuEL2UMHC 2M1iIMSHiPIDHsyxPmD4ow== 0000893220-97-001326.txt : 19970801 0000893220-97-001326.hdr.sgml : 19970801 ACCESSION NUMBER: 0000893220-97-001326 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 PENNSYLVANIA TAX FREE FUND CENTRAL INDEX KEY: 0000788606 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04571 FILM NUMBER: 97649310 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BLVD CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106696289 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD PENNSYLVANIA INSURED TAX FREE FUND DATE OF NAME CHANGE: 19880407 N-30D 1 VANGUARD PENNSYLVAINIA TAX-FREE SEMI ANNUAL REPORT 1 VANGUARD PENNSYLVANIA TAX-FREE FUND Semiannual Report May 31, 1997 [PHOTO] [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] FELLOW SHAREHOLDER, During the first half of Vanguard Pennsylvania 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 return of our Insured Long-Term Portfolio matched that of its average competitor, while the return of our Money Market Portfolio exceeded slightly that of its competitive fund group. The table below presents each Portfolio's six-month return as well as those of the average competing mutual fund. The total return (capital change plus reinvested dividends) of the Insured Long-Term Portfolio is based on a change in net asset value from $11.26 per share on November 30, 1996, to $11.05 per share on May 31, 1997, adjusted for dividends totaling $0.30 per share from net investment income and a distribution of $0.064 from net realized capital gains.
- --------------------------------------------------------------- TOTAL RETURNS SIX MONTHS ENDED MAY 31, 1997 - --------------------------------------------------------------- INSURED LONG-TERM PORTFOLIO +1.4% Average Pennsylvania Municipal Fund +1.4 - --------------------------------------------------------------- MONEY MARKET PORTFOLIO +1.7% Average Pennsylvania Tax-Exempt Money Market Fund +1.6 - ---------------------------------------------------------------
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 3.67%, up from 3.43% 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) municipal notes rose on balance from 3.55% at the end of November 1996 to 3.70% on May 31, 1997. 1 4 The +1.7% return of our Money Market Portfolio was slightly above the +1.6% return of the average Pennsylvania tax-exempt money market mutual fund, an advantage largely explained by our lower expenses. The +1.4% total return of the Long-Term Portfolio during the half-year consisted of a +2.7% income return and a capital decline of -1.3%, reflecting bond price declines engendered by the modest increase in interest rates. This return matched that of the average Pennsylvania 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 0.19% in fiscal 1996, compared with 1.04% charged by the average Pennsylvania long-term state tax-free fund, and 0.57% for the average Pennsylvania money market state 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. Though our expense ratio advantage did not carry the day for the Insured Long-Term Portfolio during the brief semiannual period, it is certainly a factor in the Portfolio's longer-term advantage over its peers (+7.7% versus +7.5% over the past twelve months, and an annualized +8.6% return versus an annualized +8.0% for competing funds over the past ten years). 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. /s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN JOHN C. BOGLE JOHN J. BRENNAN Chairman of the Board President June 13, 1997 2 5 [PHOTO] 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.
- ------------------------------------------------------------------------------------- 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. 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. 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 [PHOTO] 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 Pennsylvania 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%, 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 Pennsylvania income taxes by investing in insured and high-quality uninsured securities issued by state, county, and municipal governments in Pennsylvania. 5 8 while one-year Treasury bill yields rose 42 basis points 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: APRIL 7, 1986-MAY 31, 1997 - ----------------------------------------------------------------- INSURED LONG-TERM PORTFOLIO LEHMAN* FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN - ----------------------------------------------------------------- 1986 3.0% 4.7% 7.7% 8.1% 1987 -9.9 6.6 -3.3 -0.2 1988 4.5 7.5 12.0 10.6 1989 4.7 7.5 12.2 11.0 1990 0.3 7.0 7.3 7.7 1991 2.8 6.9 9.7 10.3 1992 5.0 6.7 11.7 10.0 1993 5.8 6.1 11.9 11.1 1994 -10.7 5.3 -5.4 -5.2 1995 12.0 6.5 18.5 18.9 1996 0.2 5.6 5.8 5.9 1997** -1.3 2.7 1.4 1.7 - -----------------------------------------------------------------
*Lehman Municipal Bond Index. **Six months ended May 31, 1997. See Financial Highlights table on page 18 for dividend and capital gains information for the past five years.
MONEY MARKET PORTFOLIO TOTAL INVESTMENT RETURNS: JUNE 13, 1988-MAY 31, 1997 - ----------------------------------------------------------------- MONEY MARKET PORTFOLIO AVERAGE FUND* FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN - ----------------------------------------------------------------- 1988 0.0% 2.5% 2.5% 2.5% 1989 0.0 6.4 6.4 6.4 1990 0.0 5.9 5.9 5.4 1991 0.0 4.6 4.6 4.6 1992 0.0 3.0 3.0 2.9 1993 0.0 2.4 2.4 2.2 1994 0.0 2.6 2.6 2.4 1995 0.0 3.7 3.7 3.5 1996 0.0 3.4 3.4 3.1 1997** 0.0 1.7 1.7 1.6 - -----------------------------------------------------------------
*Average Pennsylvania Tax-Exempt Money Market Fund. **Six months ended May 31, 1997. See Financial Highlights table on page 19 for dividend information for the past five years. AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1997*
- ---------------------------------------------------------------------------------------------------------------------------------- 10 YEARS INCEPTION --------------------------------------- DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL - ---------------------------------------------------------------------------------------------------------------------------------- Insured Long-Term Portfolio 4/7/86 5.34% 7.42% 0.97% 6.49% 7.46% Money Market Portfolio 6/13/88 3.32 2.99 0.00** 4.02** 4.02** - ----------------------------------------------------------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information through the latest calendar quarter. **Since inception. 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 (98.4%) - ---------------------------------------------------------------------------------------------------------------------------------- ISSUER INSURED (90.0%) Allegheny County PA GO 0.00% 5/1/03 (2) $12,315 $ 9,220 Allegheny County PA GO 5.00% 10/1/08 (3) 5,955 5,904 Allegheny County PA GO 5.10% 10/1/09 (3) 1,760 1,744 Allegheny County PA GO 5.15% 10/1/10 (3) 6,570 6,475 Allegheny County PA GO 6.00% 5/1/10 (2) 3,030 3,157 Allegheny County PA GO 6.00% 5/1/12 (2) 3,000 3,101 Allegheny County PA Hosp. Dev. Auth. (Magee Women's Hosp.) 6.00% 10/1/10 (3) 4,235 4,545 Allegheny County PA Hosp. Dev. Auth. (Mercy Hosp.) 6.75% 4/1/21 (2) 4,500 4,918 Allegheny County PA Hosp. Dev. Auth. (Presbyterian Univ. Health) 6.00% 11/1/12 (1) 3,000 3,069 Allegheny County PA Hosp. Dev. Auth. (Presbyterian Univ. Health) 7.125% 7/1/99 (1)(Prere.) 6,835 7,338 Allegheny County PA Hosp. Dev. Auth. (Presbyterian Univ. Health) 7.60% 3/1/98 (1)(Prere.) 5,000 5,238 Allegheny County PA Hosp. Dev. Auth. (Univ. of Pittsburgh) 5.60% 4/1/17 (1) 2,000 1,994 Allegheny County PA Hosp. Dev. Auth. VRDO (Children's Hosp.-Pittsburgh) 3.80% 6/5/97 (1) 4,900 4,900 Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health) 3.90% 6/5/97 (1) 10,760 10,760 Allegheny County PA Port Auth. 4.50% 3/1/98 (2) 6,000 6,033 Allegheny County PA Sanitation Auth. 5.50% 12/1/13 (3) 19,000 19,019 Allegheny County PA Sanitation Auth. 5.50% 12/1/16 (3) 23,665 23,058 Allegheny County PA Sanitation Auth. 6.25% 12/1/14 (1) 9,660 10,294 Allegheny County PA Sanitation Auth. 6.50% 12/1/11 (3) 8,000 8,525 Altoona City PA Auth. 6.50% 11/1/19 (3) 20,000 21,599 Beaver County PA IDA (Ohio Edison) 7.00% 6/1/21 (3) 22,715 24,639 Beaver County PA IDA (Ohio Edison) 7.10% 6/1/18 (3) 5,000 5,381 Berks County PA GO 0.00% 11/15/13 (3) 7,250 2,889 Berks County PA GO 0.00% 11/15/14 (3) 8,615 3,235 Berks County PA GO 0.00% 11/15/15 (3) 6,250 2,207 Berks County PA GO 5.75% 11/15/12 (3) 7,750 7,844 Berks County PA Hosp. Rev. (Reading Hosp.) 5.70% 10/1/14 (1) 4,500 4,591
8 11
- ---------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ---------------------------------------------------------------------------------------------------------------------------------- Berks County PA Hosp. Rev. (Reading Hosp.) 6.10% 10/1/23 (1) $16,500 $16,911 Blair County PA Hosp. Auth. (Altoona Hosp.) 6.50% 7/1/22 (2) 8,500 9,115 Boyertown PA Area School Dist. 6.10% 3/1/15 (2) 6,000 6,149 Butler County PA GO 6.00% 7/15/12 (3) 5,185 5,320 Center City Philadelphia PA Business Improvement 5.50% 12/1/15 (2) 6,955 6,955 Center Township PA Sewer Auth. 5.50% 4/15/11 (1) 2,375 2,394 Central Dauphin PA School Dist. GO 0.00% 6/1/04 (2) 4,800 3,385 Central Greene PA School Dist. 6.50% 8/15/04 (1)(Prere.) 5,500 6,110 Chester County PA Health & Educ. (Chester County Hosp.) 5.875% 7/1/16 (1) 5,870 5,948 Coatesville PA School Dist. GO 5.75% 4/1/15 (4) 10,080 10,307 Cornwall Lebanon PA Suburban Joint School Dist. 5.875% 3/1/14 (3) 5,635 5,733 Cornwall Lebanon PA Suburban Joint School Dist. 5.90% 3/1/11 (3) 3,270 3,379 Corry PA Area School Dist. GO 5.50% 12/15/10 (1) 4,000 4,045 Dauphin County PA General Auth. (West Pennsylvania Hosp.) 5.50% 7/1/13 (1) 5,000 4,942 Dauphin County PA Hosp. Auth. (Harrisburg Hosp.) 8.125% 7/1/07 (1) 3,000 3,071 Delaware County PA Auth. College Rev. (Haverford College) 5.40% 11/15/13 (1) 1,750 1,727 Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 5.50% 8/15/13 (1) 12,000 11,961 Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 5.50% 8/15/19 (1) 5,000 4,820 Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 7.125% 8/15/99 (1)(Prere.) 5,160 5,555 Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 7.20% 8/15/99 (1)(Prere.) 8,000 8,625 Delaware River Joint Toll Bridge Comm. PA & NJ 6.00% 7/1/18 (3) 3,040 3,093 Delaware River Port Auth. PA & NJ 5.50% 1/1/26 (3) 21,450 20,995 Delaware River Port Auth. PA & NJ 6.50% 1/1/09 (2) 4,500 4,644 Delaware River Port Auth. PA & NJ 7.375% 1/1/07 (2) 13,500 14,332 Dover Township PA Sewer Auth. 5.50% 11/1/17 (1) 2,235 2,203 Dover Township PA Sewer Auth. 5.55% 11/1/22 (1) 4,000 3,930 Erie County PA Hosp. Auth. (St. Vincent Health Care) 6.125% 7/1/13 (1) 3,900 4,052 Fort LeBoeuf PA School Dist. GO 5.80% 1/1/13 (1) 5,500 5,584 Garnet Valley PA School Dist. GO 5.70% 4/1/11 (2) 3,000 3,048 Greensburg Salem PA School Dist. GO 6.45% 9/15/18 (1) 7,500 7,858 Haverford Township PA School Dist. 6.25% 6/1/04 (3)(Prere.) 11,500 12,489 Hazleton PA Area School Dist. 5.75% 3/1/13 (3) 11,875 12,074 Lancaster PA Higher Educ. Auth. (Franklin & Marshall College) 6.60% 4/15/10 (1) 4,940 5,295 Lancaster PA Higher Educ. Auth. (Franklin & Marshall College) 6.70% 4/15/12 (1) 4,000 4,296 Lancaster PA School Dist. GO 5.375% 2/15/17 (3) 5,590 5,428 Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 5.625% 7/1/25 (1) 10,000 9,758 Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 5.70% 7/1/10 (1) 3,905 3,989 Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 7.00% 7/1/16 (1) 4,415 5,191 Lehigh County PA GO 6.00% 10/15/99 (2)(Prere.) 1,000 1,038 Lewisburg PA Area School Dist. GO 6.20% 6/1/02 (1)(Prere.) 3,500 3,743 Lewisburg PA Area School Dist. GO 6.25% 6/1/02 (1)(Prere.) 3,685 3,949 Ligonier Valley PA School Dist. GO 6.00% 3/1/19 (1) 6,000 6,126 Lycoming County PA College Auth. (PA College of Technology) 5.40% 11/1/08 (2) 6,000 6,072 Manheim PA Central School Dist. GO 6.85% 3/1/08 (3) 2,705 2,897 Mars PA Area School Dist. GO 6.25% 9/1/04 (3)(Prere.) 4,000 4,354 Montgomery County PA Higher Educ. & Health Auth. (Abington Memorial Hosp.) 6.00% 6/1/22 (2) 10,160 10,321 Montgomery County PA Higher Educ. & Health Auth. (Abington Memorial Hosp.) 6.10% 6/1/12 (2) 5,000 5,193 Montgomery County PA IDA PCR (PECO) 6.70% 12/1/21 (1) 12,000 12,996 Mount Lebanon PA Hosp. Dev. Auth. (St. Clair Memorial Hosp.) 6.25% 7/1/06 (3) 9,250 10,121 Nazareth PA School Dist. 5.50% 11/15/15 (2) 1,500 1,500 Neshaminy PA School Dist. GO 6.30% 2/15/13 (3) 10,000 10,472 North Hills PA School Dist. GO 5.25% 11/15/17 (3) 7,440 7,151 North Penn PA Water Auth. 6.125% 11/1/10 (3) 5,140 5,369 North Wales PA Water Auth. 5.25% 11/1/19 (3) 12,350 11,711 North Wales PA Water Auth. 6.125% 11/1/12 (3) 3,000 3,100 North Wales PA Water Auth. 6.125% 11/1/22 (3) 8,300 8,497 North Wales PA Water Auth. 6.25% 11/1/14 (3) 2,300 2,431 Northampton County PA Higher Educ. Auth. (Lehigh Univ.) 7.10% 11/15/09 (1) 7,035 7,580 Northampton County PA Hosp. Auth. (Easton Hosp.) 6.25% 1/1/19 (1) 10,000 10,417
9 12
- ---------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000) - ---------------------------------------------------------------------------------------------------------------------------------- Northampton County PA Hosp. Auth. (Easton Hosp.) 7.875% 1/1/19 (5) $ 285 $ 304 Northampton County PA IDA PCR (Central Metro Edison) 6.10% 7/15/21 (1) 4,410 4,575 Northeastern PA Hosp. & Educ. Health (Wyoming Valley Health) 5.25% 1/1/16 (2) 6,560 6,260 Northeastern PA Hosp. & Educ. Health (Wyoming Valley Health) 5.25% 1/1/26 (2) 5,350 5,019 Northumberland County PA Commonwealth Lease 6.25% 10/15/01 (1)(Prere.) 13,600 14,501 Penn Hills PA GO 5.80% 12/1/02 (2)(Prere.) 11,735 12,395 Penn Trafford PA School Dist. GO 5.85% 5/1/14 (1) 2,435 2,475 Pennsylvania Convention Center Auth. 0.00% 9/1/04 (3)(ETM) 5,000 3,502 Pennsylvania Convention Center Auth. 6.00% 9/1/19 (3)(ETM) 12,600 13,221 Pennsylvania Convention Center Auth. 6.70% 9/1/16 (3)(ETM) 19,150 21,436 Pennsylvania GO 5.25% 5/15/98 (3) 8,200 8,310 Pennsylvania GO 5.375% 5/15/10 (3) 13,800 13,888 Pennsylvania GO 5.375% 5/15/12 (3) 16,570 16,527 Pennsylvania Higher Educ. Auth. (Allegheny Delaware Valley Obligated Group) 5.50% 11/15/08 (1) 2,000 2,044 Pennsylvania Higher Educ. Auth. (Allegheny Delaware Valley Obligated Group) 5.875% 11/15/16 (1) 20,000 20,358 Pennsylvania Higher Educ. Auth. (Allegheny Delaware Valley Obligated Group) 5.875% 11/15/21 (1) 9,545 9,652 Pennsylvania Higher Educ. Auth. (Bryn Mawr College) 5.625% 12/1/14 (1) 2,200 2,222 Pennsylvania Higher Educ. Auth. (College and Univ. Rev.) 7.20% 1/1/04 (2) 2,165 2,171 Pennsylvania Higher Educ. Auth. (State System) 5.375% 6/15/18 (2) 7,850 7,502 Pennsylvania Higher Educ. Auth. (Temple Univ.) 6.50% 4/1/21 (1) 6,000 6,429 Pennsylvania Intergovernmental Cooperative Auth. 5.00% 6/15/98 (3) 21,000 21,241 Pennsylvania Intergovernmental Cooperative Auth. 5.00% 6/15/22 (1) 9,500 8,549 Pennsylvania Intergovernmental Cooperative Auth. 5.40% 6/15/09 (3) 2,700 2,730 Pennsylvania Intergovernmental Cooperative Auth. 5.50% 6/15/10 (3) 3,700 3,739 Pennsylvania Intergovernmental Cooperative Auth. 5.625% 6/15/13 (3) 2,605 2,630 Pennsylvania Intergovernmental Cooperative Auth. 6.75% 6/15/05 (3)(Prere.) 23,050 25,953 Pennsylvania Intergovernmental Cooperative Auth. 7.00% 6/15/05 (3)(Prere.) 2,250 2,571 Pennsylvania Turnpike Comm. 5.50% 12/1/17 (3)- 16,000 15,597 Pennsylvania Turnpike Comm. 5.75% 12/1/12 (2) 10,000 10,189 Pennsylvania Turnpike Comm. 6.00% 6/1/15 (1) 28,800 29,454 Pennsylvania Turnpike Comm. 6.05% 6/1/98 (1) 1,000 1,022 Pennsylvania Turnpike Comm. 6.25% 6/1/11 (2) 14,390 15,093 Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 6.00% 12/1/19 (2) 7,450 7,656 Philadelphia PA Airport Rev. 9.875% 6/15/06 (1) 2,215 2,226 Philadelphia PA Gas Works 6.00% 5/15/12 (2) 14,250 14,580 Philadelphia PA Gas Works 6.75% 1/1/15 (2) 13,930 14,664 Philadelphia PA Gas Works 7.25% 1/1/10 (2) 10,085 10,691 Philadelphia PA GO 5.00% 5/15/20 (1) 12,650 11,615 Philadelphia PA GO 6.00% 11/15/10 (3) 2,810 2,944 Philadelphia PA GO 6.00% 11/15/11 (3) 3,025 3,156 Philadelphia PA GO 6.00% 11/15/12 (3) 3,355 3,487 Philadelphia PA GO 6.00% 11/15/13 (3) 1,885 1,952 Philadelphia PA Municipal Auth. Lease Rev. 5.55% 11/15/08 (3) 3,040 3,131 Philadelphia PA Municipal Auth. Lease Rev. 5.60% 11/15/09 (3) 2,100 2,153 Philadelphia PA Municipal Auth. Lease Rev. 5.60% 11/15/10 (3) 6,755 6,878 Philadelphia PA Municipal Auth. Lease Rev. 7.10% 11/15/05 (1) 3,000 3,337 Philadelphia PA Parking Auth. Rev. 5.40% 9/1/11 (2) 4,520 4,509 Philadelphia PA Parking Auth. Rev. 5.40% 9/1/12 (2) 5,990 5,945 Philadelphia PA Parking Auth. Rev. 5.40% 9/1/15 (2) 6,350 6,235 Philadelphia PA Parking Auth. Rev. 5.50% 9/1/18 (2) 3,750 3,681 Philadelphia PA Parking Auth. Rev. 7.375% 9/1/18 (2) 12,065 12,787 Philadelphia PA School Dist. GO 0.00% 7/1/01 (2) 11,750 9,699 Philadelphia PA School Dist. GO 5.50% 9/1/15 (2) 5,000 4,948 Philadelphia PA School Dist. GO 5.50% 9/1/18 (2) 4,000 3,916 Philadelphia PA School Dist. GO 5.85% 7/1/09 (1) 1,500 1,560 Philadelphia PA Water & Waste Water Rev. 5.00% 6/15/16 (4) 6,000 5,509 Philadelphia PA Water & Waste Water Rev. 5.50% 8/1/14 (1) 12,900 12,828 Philadelphia PA Water & Waste Water Rev. 5.60% 8/1/18 (1) 5,920 5,862
10 13
- ---------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ---------------------------------------------------------------------------------------------------------------------------------- Philadelphia PA Water & Waste Water Rev. 6.25% 8/1/11 (1) $3,750 $ 4,109 Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/10 (3) 33,865 39,305 Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/11 (3) 35,685 41,523 Pine Richland School Dist. PA 5.50% 9/1/19 (4) 3,430 3,382 Pittsburgh PA GO 5.20% 9/1/06 (2) 1,175 1,192 Pittsburgh PA GO 5.30% 9/1/07 (2) 1,000 1,020 Pittsburgh PA GO 5.50% 9/1/14 (2) 10,500 10,546 Pittsburgh PA GO 6.00% 3/1/06 (1) 19,485 20,851 Pittsburgh PA GO 6.00% 3/1/07 (1) 14,720 15,785 Pittsburgh PA GO 6.25% 9/1/16 (1) 11,030 11,539 Pittsburgh PA Public Parking Auth. 5.875% 12/1/12 (3) 8,200 8,400 Pittsburgh PA Water & Sewer System 5.00% 9/1/23 (3) 3,700 3,321 Pittsburgh PA Water & Sewer System 7.25% 9/1/14 (3)(ETM) 25,210 29,774 Pittsburgh PA Water & Sewer System 7.625% 9/1/04 (3)(ETM) 5,370 6,159 Pocono Mountain PA School Dist. GO 5.75% 10/1/09 (2) 6,000 6,152 Reading PA GO 5.875% 11/15/12 (2) 18,000 18,378 St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 7/1/09 (5) 1,000 1,062 St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 7/1/13 (5) 5,050 5,363 St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 6/15/15 (5) 1,770 1,878 Sayre PA Health Care Fac. Auth. (Guthrie Health Care System) 7.00% 3/1/11 (2) 2,000 2,160 Sayre PA Health Care Fac. Auth. VRDO (VHA of Pennsylvania Pooled Capital Asset Finance Program) 3.85% 6/4/97 (2) 25,545 25,545 Scranton-Lackawanna PA Health & Welfare Auth. (Mercy Health) 5.625% 1/1/16 (1) 5,490 5,492 Scranton-Lackawanna PA Health & Welfare Auth. (Mercy Health) 5.70% 1/1/23 (1) 9,205 9,119 Seneca PA Valley School Dist. GO 5.50% 7/1/14 (3) 9,965 9,932 Seneca PA Valley School Dist. GO 5.75% 7/1/10 (3) 4,000 4,088 Souderton PA Area School Dist. GO 7.00% 9/1/12 (2) 2,200 2,261 South Fork PA Hosp. Auth. (Conemaugh Valley Hosp.) 5.625% 7/1/10 (6)- 2,300 2,363 South Fork PA Hosp. Auth. (Conemaugh Valley Hosp.) 5.75% 7/1/18 (6) 7,000 7,077 Spring-Ford PA Area School Dist. GO 6.50% 2/1/18 (2) 8,260 8,980 Univ. of Pittsburgh PA 5.25% 6/1/17 (3) 6,995 6,727 Univ. of Pittsburgh PA 6.125% 6/1/21 (1) 38,570 39,707 Univ. of Pittsburgh PA 6.25% 6/1/12 (1) 4,250 4,499 Washington County PA Hosp. Auth. (Shadyside Hosp.) 5.875% 12/15/09 (2) 22,000 22,770 Washington County PA Hosp. Auth. (Washington Hosp.) 6.75% 7/1/12 (2) 10,000 10,663 West Allegheny PA School Dist. 6.25% 2/1/14 (2) 6,155 6,430 West Jefferson Hills PA School Dist. GO 5.90% 8/1/10 (3) 3,160 3,243 West Jefferson Hills PA School Dist. GO 5.95% 8/1/14 (3) 7,180 7,306 West Mifflin PA School Dist. GO 5.35% 2/15/09 (3) 1,555 1,568 West Mifflin PA School Dist. GO 5.625% 2/15/15 (3) 7,000 7,047 Westmoreland County PA Auth. 6.125% 7/1/17 (1)(ETM) 8,205 8,715 York County PA Southwestern School Dist. GO 6.40% 6/15/02 (3)(Prere.) 3,825 4,187 ----------- 1,508,552 ----------- PORTFOLIO INSURED (0.1%) Allegheny County PA Hosp. Dev. Auth. (St. Margaret's Hosp.) 9.80% 7/1/97 (Prere.) 1,500 1,507 ----------- NONINSURED (8.3%) Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.75% 6/5/97 LOC 5,900 5,900 Allegheny County PA Hosp. Dev. Auth. VRDO (Allegheny General Hosp.) 3.90% 6/4/97 LOC 5,600 5,600 Delaware County PA Hosp. Auth. VRDO (Crozier-Chester Medical Center) 4.04% 6/4/97 LOC 2,000 2,000 Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 4.05% 6/3/97 4,600 4,600 Delaware County PA IDA PCR VRDO (PECO) 3.95% 6/3/97 LOC 8,725 8,725 Emmaus PA General Auth. Local Rev. VRDO (Hatboro-Horsham School Dist.) 3.95% 6/4/97 LOC 100 100 Geisinger Health System Auth. of PA VRDO (Geisinger Health System) 4.05% 6/3/97 7,300 7,300 Pennsylvania GO 4.75% 6/15/97 1,750 1,751 Pennsylvania Higher Educ. Fac. Auth. (Univ. of Pennsylvania Health System Obligated Group) 5.75% 1/1/12 6,000 6,124 Pennsylvania Higher Educ. Fac. Auth. (Univ. of Pennsylvania Health System Obligated Group) 5.75% 1/1/22 12,415 12,444
11 14
- ---------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000) - ---------------------------------------------------------------------------------------------------------------------------------- Pennsylvania Higher Educ. Fac. Auth. (Univ. of Pennsylvania Health System Obligated Group) 5.875% 1/1/15 $ 1,800 $ 1,836 Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 4.05% 6/3/97 1,400 1,400 Pennsylvania Higher Educ. Fac. Auth. VRDO (Temple Univ.) 4.05% 6/3/97 LOC 500 500 Pennsylvania Higher Educ. Fac. Auth. VRDO (Univ. of Pennsylvania Health System Obligated Group) 3.80% 6/4/97 22,700 22,700 Pennsylvania Housing Single Family Mortgage Finance Agency 6.90% 4/1/17 6,210 6,526 Pennsylvania Housing Single Family Mortgage Finance Agency 7.55% 4/1/16 3,635 3,847 Pennsylvania TAN 4.50% 6/30/97 15,000 15,006 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO (Children's Hosp. of Philadelphia) 4.05% 6/3/97 20,850 20,850 Philadelphia PA TRAN 4.50% 6/30/97 5,000 5,001 Swarthmore Borough PA Auth. College Rev. 7.375% 9/15/18 2,200 2,312 Univ. of Pittsburgh PA Higher Educ. VRDO 3.75% 6/5/97 LOC 2,100 2,100 OUTSIDE PENNSYLVANIA: Puerto Rico Govt. Dev. Bank VRDO 3.55% 6/4/97 LOC 1,300 1,300 Puerto Rico Highway & Transp. Auth. VRDO 3.55% 6/4/97 LOC 1,100 1,100 ----------- 139,022 ----------- - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (COST $1,576,011) 1,649,081 - ---------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (1.6%) - ---------------------------------------------------------------------------------------------------------------------------------- Other Assets--Note B 30,875 Liabilities (4,695) ----------- 26,180 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) - ---------------------------------------------------------------------------------------------------------------------------------- Applicable to 151,646,331 outstanding shares of beneficial interest (unlimited authorization--no par value) $1,675,261 ================================================================================================================================== NET ASSET VALUE PER SHARE $11.05 ==================================================================================================================================
*See Note A in Notes to Financial Statements. - -Securities with an aggregate value of $3,956,000 have been segregated as initial margin for open futures contracts. For explanations of abbreviations and other references, see page 15.
- ---------------------------------------------------------------------------------------------------------------------------------- AT MAY 31, 1997, NET ASSETS CONSISTED OF: - ---------------------------------------------------------------------------------------------------------------------------------- AMOUNT PER (000) SHARE - ---------------------------------------------------------------------------------------------------------------------------------- Paid in Capital $1,603,685 $10.58 Undistributed Net Investment Income -- -- Overdistributed Net Realized Gains (1,295) (.01) Unrealized Appreciation (Depreciation)--Note E Investment Securities 73,070 .48 Futures Contracts (199) -- - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $1,675,261 $11.05 ==================================================================================================================================
12 15
- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* MONEY MARKET PORTFOLIO COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (98.9%) - ----------------------------------------------------------------------------------------------------------------------------------- Allegheny County PA GO VRDO 3.90% 6/5/97 $ 4,800 $ 4,800 Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.75% 6/5/97 LOC 24,920 24,920 Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.85% 6/5/97 LOC 5,810 5,810 Allegheny County PA Hosp. Dev. Auth. CP (Health Center Dev.) 3.75% 8/13/97 LOC 6,800 6,800 Allegheny County PA Hosp. Dev. Auth. VRDO 3.90% 6/4/97 650 650 Allegheny County PA Hosp. Dev. Auth. VRDO (Allegheny Hosp.) 3.90% 6/4/97 LOC 5,200 5,200 Allegheny County PA Hosp. Dev. Auth. VRDO (Allegheny General Hosp.) 3.90% 6/4/97 LOC 19,100 19,100 Allegheny County PA Hosp. Dev. Auth. VRDO (Children's Hosp.-Pittsburgh) 3.80% 6/5/97 2,000 2,000 Allegheny County PA Hosp. Dev. Auth. VRDO (Children's Hosp.-Pittsburgh) 3.80% 6/5/97 (1) 15,350 15,350 Allegheny County PA Hosp. Dev. Auth. VRDO (Health & Educ. Research) 3.90% 6/4/97 LOC 15,700 15,700 Allegheny County PA Hosp. Dev. Auth. VRDO (South Hills Health System) 3.85% 6/4/97 LOC 8,400 8,400 Allegheny County PA PCR PUT (Duquesne Light Co.) 3.70% 2/5/98 LOC 5,000 5,000 Allegheny County PA TRAN 4.00% 8/4/97 42,000 42,033 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.70% 7/21/97 LOC 8,400 8,400 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.70% 7/29/97 LOC 4,000 4,000 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.70% 8/13/97 LOC 13,000 13,000 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.85% 8/21/97 LOC 3,000 3,000 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.90% 7/18/97 LOC 17,950 17,950 Berks County PA Higher Educ. Auth. (PA Pooled Finance Program) 6.70% 9/1/97 (Prere.) 1,675 1,688 Berks County PA Higher Educ. Auth. (PA Pooled Finance Program) 7.00% 9/1/97 (Prere.) 5,000 5,042 Berks County PA IDA CP (Citizens Utility Co.) 3.70% 7/25/97 4,200 4,200 Cumberland County PA Municipal Auth. PUT (Dickinson College) 4.25% 11/3/97 LOC 13,310 13,390 Dauphin County PA General Auth. Hosp. Rev. VRDO (Reading Hosp. & Medical Center) 3.85% 6/4/97 12,800 12,800 Delaware County PA IDA Airport Fac. Rev. VRDO (United Parcel Service) 3.95% 6/3/97 65,900 65,900 Delaware County PA IDA PCR VRDO CP (PECO) 3.65% 7/23/97 (3) 2,200 2,200 Delaware County PA IDA PCR VRDO CP (PECO) 3.65% 7/30/97 (3) 5,000 5,000 Delaware County PA IDA PCR VRDO CP (PECO) 3.70% 7/23/97 (3) 4,100 4,100 Delaware County PA IDA PCR VRDO CP (PECO) 3.75% 7/22/97 (3) 4,900 4,900 Delaware County PA IDA PUT (Resource Recovery Project) 3.625% 12/1/97 LOC 23,000 23,000 Delaware County PA IDA Solid Waste Rev. VRDO (Kimberly-Clark Corp.) 3.90% 6/4/97 49,005 49,005 Emmaus PA General Auth. Local Govt. Rev. VRDO (Allentown City) 3.95% 6/4/97 LOC 8,000 8,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Altoona Area School Dist.) 3.95% 6/4/97 LOC 14,400 14,400 Emmaus PA General Auth. Local Govt. Rev. VRDO (East Penn School Dist.) 3.95% 6/4/97 LOC 10,000 10,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Great Valley School Dist.) 4.05% 6/4/97 LOC 15,000 15,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Hatboro-Horsham School Dist.) 3.95% 6/4/97 LOC 17,900 17,900 Emmaus PA General Auth. Local Govt. Rev. VRDO (Highlands School Dist.) 3.95% 6/4/97 LOC 10,000 10,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Lower Merion School Dist.) 3.95% 6/4/97 LOC 15,000 15,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Owen J. Roberts School Dist.) 3.95% 6/4/97 LOC 7,900 7,900 Emmaus PA General Auth. Local Govt. Rev. VRDO (Pooled Program) 3.95% 6/4/97 27,900 27,900 Emmaus PA General Auth. Local Govt. Rev. VRDO (Red Lion Area School Dist.) 4.05% 6/4/97 LOC 3,500 3,500 Emmaus PA General Auth. Local Govt. Rev. VRDO (Southern York School Dist.) 3.95% 6/4/97 LOC 6,500 6,500 Emmaus PA General Auth. Local Govt. Rev. VRDO (Southmoreland School Dist.) 3.95% 6/4/97 LOC 5,200 5,200 Emmaus PA General Auth. Local Govt. Rev. VRDO (Wissahickon School Dist.) 3.95% 6/4/97 LOC 10,000 10,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (West Shore School Dist.) 3.95% 6/4/97 LOC 10,000 10,000 Geisinger Health System Auth. of PA VRDO (Geisinger Health System) 4.05% 6/3/97 44,535 44,535 Greater Latrobe PA School Auth. Building Rev. 4.10% 4/1/98 1,295 1,295
13 16
- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* MONEY MARKET PORTFOLIO COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Lancaster PA Higher Educ. Auth. VRDO (Franklin & Marshall College) 4.00% 6/4/97 $ 1,975 $ 1,975 Lehigh County PA IDA PCR TOB VRDO (Pennsylvania Power & Light) 3.95% 6/5/97 (1) 3,200 3,200 Montgomery County PA Higher Educ. & Health Auth. (Bryn Mawr Hosp.) 9.375% 12/1/97 (Prere.) 5,000 5,236 Montgomery County PA Higher Educ. & Health Auth. (St. Christopher's Hosp.) 8.25% 11/1/97 (Prere.) 1,000 1,038 Montgomery County PA Higher Educ. & Health Auth. (St. Christopher's Hosp.) 8.50% 11/1/97 (Prere.) 1,940 2,017 Montgomery County PA IDA PCR CP (PECO) 3.50% 8/18/97 LOC 7,490 7,490 Montgomery County PA IDA PCR CP (PECO) 3.70% 7/22/97 LOC 24,980 24,980 Montgomery County PA IDA PCR CP (PECO) 3.75% 8/20/97 LOC 4,360 4,360 Montgomery County PA IDA PCR CP (PECO) 3.85% 7/18/97 LOC 4,350 4,350 Montgomery County PA VRDO 3.90% 6/4/97 1,800 1,800 Neshaminy PA School Dist. TRAN 4.50% 6/30/97 5,000 5,002 Northampton County PA IDA VRDO (Citizens Utility Co.) 3.85% 6/4/97 8,375 8,375 Northeastern PA Hosp. & Educ. Auth. VRDO (Allhealth Pooled Finance Program) 4.00% 6/4/97 LOC 10,000 10,000 Northeastern PA Hosp. & Educ. Auth. VRDO (Wyoming Valley Health Care Obligated Group) 3.85% 6/4/97 (2) 41,800 41,800 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.40% 7/23/97 (1) 4,500 4,500 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.70% 7/17/97 (1) 5,300 5,300 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.70% 8/12/97 (1) 9,800 9,800 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.80% 8/12/97 (1) 5,000 5,000 Pennsylvania GO 4.75% 6/15/97 8,260 8,263 Pennsylvania GO 5.00% 7/1/97 3,930 3,934 Pennsylvania GO 5.00% 11/15/97 (2) 9,075 9,125 Pennsylvania GO 6.00% 9/15/97 5,885 5,922 Pennsylvania GO CP 3.70% 7/28/97 6,300 6,300 Pennsylvania Higher Educ. Assistance Agency Student Loan Rev. VRDO 3.95% 6/4/97 LOC 103,100 103,100 Pennsylvania Higher Educ. Assistance Agency Student Loan Rev. VRDO 4.10% 6/5/97 20,000 20,000 Pennsylvania Higher Educ. Fac. Auth. (Bryn Mawr College) 5.00% 12/1/97 (1) 2,155 2,168 Pennsylvania Higher Educ. Fac. Auth. PUT (Bucknell Univ.) 4.75% 4/1/98 2,600 2,619 Pennsylvania Higher Educ. Fac. Auth. PUT (Duquesne Univ.) 4.75% 4/1/98 1,200 1,208 Pennsylvania Higher Educ. Fac. Auth. PUT (St. Joseph's Univ.) 4.75% 4/1/98 1,800 1,813 Pennsylvania Higher Educ. Fac. Auth. PUT (Thomas Jefferson Univ.) 3.90% 6/23/97 8,000 8,000 Pennsylvania Higher Educ. Fac. Auth. VRDO (Allegheny College) 3.90% 6/4/97 LOC 3,000 3,000 Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 4.05% 6/3/97 27,900 27,900 Pennsylvania Higher Educ. Fac. Auth. VRDO (Univ. of Pennsylvania Health System Obligated Group) 3.80% 6/4/97 84,700 84,700 Pennsylvania Higher Educ. Fac. Auth. VRDO RAN (Temple Univ.) 4.05% 6/3/97 LOC 40,900 40,900 Pennsylvania Intergovernmental Cooperative Auth. 5.00% 6/15/97 (3) 7,500 7,504 Pennsylvania Intergovernmental Cooperative Auth. 5.40% 6/15/97 4,000 4,002 Pennsylvania State Univ. Notes 4.25% 3/31/98 2,500 2,509 Pennsylvania TAN 4.50% 6/30/97 65,250 65,291 Pennsylvania Univ. Funding (Temple Univ.) 4.75% 5/18/98 11,500 11,590 Philadelphia PA Gas Works 7.875% 7/1/97 (Prere.) 8,300 8,495 Philadelphia PA Gas Works 7.875% 7/1/97 (Prere.) 6,500 6,651 Philadelphia PA GO 8.125% 8/1/97 (Prere.) 7,000 7,190 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. (Children's Hosp. of Philadelphia) 7.00% 7/1/97 (Prere.) 3,175 3,183 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. PUT (Pennsylvania Hosp.) 3.90% 7/1/97 (3) 25,000 25,000 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO (Children's Hosp. of Philadelphia) 4.05% 6/3/97 LOC 33,600 33,600 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO (Pennsylvania Hosp.) 4.00% 6/4/97 (3) 29,200 29,200 Philadelphia PA IDA VRDO (Fox Chase Institute for Cancer Research) 4.05% 6/3/97 LOC 4,300 4,300 Philadelphia PA Water & Waste Water Rev. 4.50% 6/15/97 (1) 5,000 5,001 Pittsburgh PA GO 4.00% 9/1/97 (2) 1,000 1,001 Pittsburgh PA Public Parking Auth. 4.80% 12/1/97 (3) 1,800 1,809 St. Mary's Hosp. Auth. Langhorne PA VRDO (Franciscan Health System) 3.95% 6/3/97 LOC 19,230 19,230 Sayre PA Health Care Fac. Auth. VRDO (VHA of Pennsylvania Pooled Capital Asset Financing Program) 3.85% 6/4/97 (2) 81,370 81,370
14 17
- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Scranton-Lackawanna PA Health & Welfare Auth. (Mercy Health) 3.85% 6/4/97 $ 6,700 $ 6,700 Univ. of Pittsburgh PA Higher Educ. VRDO 3.75% 6/5/97 LOC 34,900 34,900 York County PA IDA PCR VRDO (PECO) 3.95% 6/3/97 LOC 10,000 10,000 York County PA IDA PCR VRDO (Public Service Electric & Gas) 3.70% 6/4/97 (1) 5,200 5,200 OUTSIDE PENNSYLVANIA: Puerto Rico Govt. Dev. Bank VRDO 3.55% 6/4/97 LOC 1,400 1,400 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (COST $1,450,769) 1,450,769 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (1.1%) - ----------------------------------------------------------------------------------------------------------------------------------- Other Assets--Note B 23,016 Liabilities (6,677) ---------- 16,339 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) - ----------------------------------------------------------------------------------------------------------------------------------- Applicable to 1,467,139,559 outstanding shares of beneficial interest (unlimited authorization--no par value) $1,467,108 =================================================================================================================================== NET ASSET VALUE PER SHARE $1.00 ===================================================================================================================================
*See Note A in Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------------------------------- AT MAY 31, 1997, NET ASSETS CONSISTED OF: - --------------------------------------------------------------------------------------------------------------------------------- AMOUNT PER (000) SHARE - --------------------------------------------------------------------------------------------------------------------------------- Paid in Capital $1,467,139 $1.00 Undistributed Net Investment Income -- -- Accumulated Net Realized Losses (31) -- Unrealized Appreciation -- -- - --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $1,467,108 $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. 15 18 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 $46,224 $25,398 ------------------------------------ Total Income 46,224 25,398 ------------------------------------ EXPENSES The Vanguard Group--Note B Investment Advisory Services 120 103 Management and Administrative 1,183 1,040 Marketing and Distribution 188 242 Insurance Expense 9 -- Custodian Fees 14 14 Auditing Fees 4 4 Shareholders' Reports 11 8 Annual Meeting and Proxy Costs 1 1 Trustees' Fees and Expenses 2 2 ------------------------------------ Total Expenses 1,532 1,414 Expenses Paid Indirectly--Note C (14) (14) ------------------------------------ Net Expenses 1,518 1,400 - --------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 44,706 23,998 - --------------------------------------------------------------------------------------------------------------------- REALIZED NET GAIN (Loss) Investment Securities Sold 1,914 12 Futures Contracts (162) -- - --------------------------------------------------------------------------------------------------------------------- REALIZED NET GAIN 1,752 12 - --------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities (23,844) -- Futures Contracts (459) -- - --------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (24,303) -- - --------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $22,155 $24,010 =====================================================================================================================
16 19 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 $ 44,706 $ 86,734 $ 23,998 $ 42,630 Realized Net Gain (Loss) 1,752 7,701 12 5 Change in Unrealized Appreciation (Depreciation) (24,303) (3,588) -- -- ----------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations 22,155 90,847 24,010 42,635 ----------------------------------------------------------------- DISTRIBUTIONS Net Investment Income (44,706) (86,734) (23,998) (42,630) Realized Capital Gain (9,435) (5,205) -- -- ----------------------------------------------------------------- Total Distributions (54,141) (91,939) (23,998) (42,630) ----------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS(1) Issued 161,440 285,730 903,243 1,497,844 Issued in Lieu of Cash Distributions 38,357 64,214 21,773 39,116 Redeemed (143,787) (266,653) (829,302) (1,365,267) ----------------------------------------------------------------- Net Increase from Capital Share Transactions 56,010 83,291 95,714 171,693 - --------------------------------------------------------------------------------------------------------------------------------- Total Increase 24,024 82,199 95,726 171,698 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Period 1,651,237 1,569,038 1,371,382 1,199,684 ----------------------------------------------------------------- End of Period $1,675,261 $1,651,237 $1,467,108 $1,371,382 ================================================================================================================================ (1)Shares Issued (Redeemed) Issued 14,618 25,792 903,243 1,497,844 Issued in Lieu of Cash Distributions 3,472 5,785 21,773 39,116 Redeemed (13,029) (24,107) (829,302) (1,365,267) ----------------------------------------------------------------- Net Increase in Shares Outstanding 5,061 7,470 95,714 171,693 ================================================================================================================================
17 20 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 $11.26 $11.28 $10.07 $11.36 $10.96 $10.47 - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OPERATIONS Net Investment Income .300 .606 .612 .625 .631 .664 Net Realized and Unrealized Gain (Loss) on Investments (.146) .017 1.210 (1.211) .624 .520 ------------------------------------------------------------------------------ Total from Investment Operations .154 .623 1.822 (.586) 1.255 1.184 ------------------------------------------------------------------------------ DISTRIBUTIONS Dividends from Net Investment Income (.300) (.606) (.612) (.625) (.631) (.664) Distributions from Realized Capital Gains (.064) (.037) -- (.079) (.224) (.030) ------------------------------------------------------------------------------ Total Distributions (.364) (.643) (.612) (.704) (.855) (.694) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $11.05 $11.26 $11.28 $10.07 $11.36 $10.96 ==================================================================================================================================== TOTAL RETURN 1.42% 5.77% 18.48% -5.44% 11.90% 11.65% ==================================================================================================================================== RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $1,675 $1,651 $1,569 $1,299 $1,496 $1,130 Ratio of Total Expenses to Average Net Assets 0.19%* 0.19% 0.20% 0.20% 0.20% 0.24%** Ratio of Net Investment Income to Average Net Assets 5.45%* 5.47% 5.63% 5.76% 5.61% 6.17% Portfolio Turnover Rate 15%* 13% 12% 16% 14% 17% - ------------------------------------------------------------------------------------------------------------------------------------
*Annualized. **Insurance expense represents 0.01%. 18 21
- ----------------------------------------------------------------------------------------------------------------------------------- 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 .017 .033 .036 .025 .024 .029 Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- -- -- ------------------------------------------------------------------------------ Total from Investment Operations .017 .033 .036 .025 .024 .029 ------------------------------------------------------------------------------ DISTRIBUTIONS Dividends from Net Investment Income (.017) (.033) (.036) (.025) (.024) (.029) Distributions from Realized Capital Gains -- -- -- -- -- -- ------------------------------------------------------------------------------ Total Distributions (.017) (.033) (.036) (.025) (.024) (.029) - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 =================================================================================================================================== TOTAL RETURN 1.69% 3.36% 3.69% 2.57% 2.38% 2.96% =================================================================================================================================== RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $1,467 $1,371 $1,200 $1,105 $935 $782 Ratio of Total Expenses to Average Net Assets 0.20%* 0.19% 0.20% 0.20% 0.20% 0.24% Ratio of Net Investment Income to Average Net Assets 3.36%* 3.30% 3.62% 2.55% 2.35% 2.93% Portfolio Turnover Rate N/A N/A N/A N/A N/A N/A - -----------------------------------------------------------------------------------------------------------------------------------
*Annualized. NOTES TO FINANCIAL STATEMENTS Vanguard Pennsylvania 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 Commonwealth of Pennsylvania. A. The following significant accounting policies conform to generally accepted accounting principles for mutual funds. The Fund consistently follows such policies in preparing its financial statements. 1. SECURITY VALUATION: Money Market Portfolio: Investment securities are valued at amortized cost, which approximates market value. Insured Long-Term Portfolio: Bonds, and temporary cash investments acquired more than 60 days to maturity, are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and credit ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. 2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements. 19 22 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. 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 $249,000 to Vanguard (included in Other Assets), representing 1.2% of Vanguard's capitalization. The Fund's trustees and officers are also directors and officers of Vanguard. C. The Fund's custodian bank has agreed to reduce its fees when the Fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended May 31, 1997, custodian fee offset arrangements reduced expenses of each Portfolio by $14,000. D. During the six months ended May 31, 1997, the Insured Long-Term Portfolio purchased $159,193,000 of investment securities and sold $114,556,000 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 $73,070,000, consisting of unrealized gains of $74,112,000 on securities that had risen in value since their purchase and $1,042,000 in unrealized losses 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 450 $49,514 $199 - -----------------------------------------------------------------------------------------------
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) [PHOTO] Q772-5/97 -----END PRIVACY-ENHANCED MESSAGE-----