-----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, GK4Vh5rUka2KLeKW2+82AFEMJ9uNwOy5y0chFkkK9j7cdhUipwVIeBJ8Rq6Qy38v KPdbxPRWKBGiF6YAyyYYiQ== 0000893220-99-000102.txt : 19990203 0000893220-99-000102.hdr.sgml : 19990203 ACCESSION NUMBER: 0000893220-99-000102 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD PENNSYLVANIA TAX FREE FUND CENTRAL INDEX KEY: 0000788606 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04571 FILM NUMBER: 99519479 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BOULEVARD CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106691000 MAIL ADDRESS: STREET 1: 100 VANGUARD BOULEVARD CITY: MALVERN STATE: PA ZIP: 19355 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD PENNSYLVANIA INSURED TAX FREE FUND DATE OF NAME CHANGE: 19880407 N-30D 1 VANGUARD PENNSYLVANIA TAX EXEMPT ANNUAL REPORT 1 VANGUARD PENNSYLVANIA TAX-EXEMPT FUNDS VANGUARD PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND VANGUARD PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND [PHOTO] Annual Report November 30, 1998 [THE VANGUARD GROUP LOGO] 2 AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS Our 8,000 crew members embrace the traditional values on which our success is built, including integrity, hard work, thrift, teamwork, and fair dealing on behalf of our clients. This year, our report cover pays homage to three anniversaries, each of great significance to The Vanguard Group: - - The 200th anniversary of the Battle of the Nile, which commenced on August 1, 1798. HMS Vanguard, the victorious British flagship at the Nile, is our namesake. And its motto-- "Leading the way"--serves as a guiding principle for our company. - - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was friend and mentor to Vanguard founder John C. Bogle, and helped to shape the standards and business principles that Mr. Bogle laid down for Vanguard at its beginning nearly 25 years ago: a stress on balanced, diversified investments; insistence on fair dealing and candor with clients; and a focus on long-term investing. To our great regret, Mr. Morgan died on September 2. - - The 70th anniversary, on December 28, of the incorporation of Vanguard Wellington Fund. It was the nation's first balanced mutual fund, and is one of only a handful of funds created in the 1920s that are still in operation. Although Vanguard constantly tackles new challenges, adopts new technology, and develops new services, we treasure the traditions and values that set us apart in a crowded, competitive industry. And we salute our shareholders, whose support and trust we strive to earn each and every day. [PHOTO] CONTENTS A MESSAGE TO OUR SHAREHOLDERS 1 THE MARKETS IN PERSPECTIVE 7 REPORT FROM THE ADVISER 9 PERFORMANCE SUMMARIES 11 FUND PROFILES 13 FINANCIAL STATEMENTS 16 REPORT OF INDEPENDENT ACCOUNTANTS 32 All comparative mutual fund data are from Lipper or Morningstar, unless otherwise noted. 3 FELLOW SHAREHOLDER, [PHOTO] [PHOTO] John J. Brennan John C. Bogle Chairman & CEO Senior Chairman Interest rates declined on balance during the twelve months ended November 30, 1998--the fiscal year for the Vanguard Pennsylvania Tax-Exempt Funds--providing a significant boost to prices of tax-exempt municipal bonds. In this bond-friendly environment of lower rates and tame inflation, our Pennsylvania Insured Long-Term Tax-Exempt Fund provided an excellent total return of +7.6% that surpassed the return of its average peer by a full percentage point. Our Pennsylvania Tax-Exempt Money Market Fund's return of +3.3% also outdistanced that of its competitors.
- ----------------------------------------------------------------- COMPONENTS OF TOTAL RETURNS FISCAL YEAR ENDED NOVEMBER 30, 1998 --------------------------- PENNSYLVANIA TAX-EXEMPT FUND INCOME CAPITAL TOTAL - ----------------------------------------------------------------- Money Market +3.3% 0.0% +3.3% (SEC 7-Day Annualized Yield: 3.04%) Insured Long-Term +5.5 +2.1 +7.6 - -----------------------------------------------------------------
The table at right presents each fund's twelve-month return along with its income and capital components. The total return (capital change plus reinvested dividends) of the Insured Long-Term Tax-Exempt Fund is based on a change in net asset value from $11.27 per share on November 30, 1997, to $11.51 per share on November 30, 1998, adjusted for dividends totaling $0.597 per share paid from net investment income. The Money Market Fund's net asset value remained at $1 per share, as was expected but not guaranteed. At the end of the fiscal year, the Insured Long-Term Fund's yield stood at 4.31%, the Money Market Fund's yield at 3.04%. FINANCIAL MARKETS IN REVIEW During the twelve months ended November 30, investors fretted over a variety of developments both here and abroad, from the debt problems of foreign governments to a huge hedge-fund bailout to growing concern about corporate profits. Overall, the uncertainty made for a tumultuous, but ultimately rewarding, period in the equity markets and a fine fiscal year for bonds. The yield of the benchmark 30-year U.S. Treasury bond fell about 100 basis points on balance, ending the period at 5.06% after bottoming out at 4.72% in early October. During the autumn, the Federal Reserve Board trimmed short-term rates three times in seven weeks by a total of 0.75 percentage point, citing the strain of international woes on the U.S. economy. The economy continued to exhibit steady growth (about 3% during the period) and inflation remained low. Consumer prices were up just 1.5% for the fiscal year. Of course, as interest rates drop, bond prices rise. That meant outstanding returns for bonds during the fiscal year, particularly for longer-maturity issues, which benefit most from interest-rate declines. The Lehman Brothers Long U.S. Treasury Bond Index earned a total return of +15.7%, with its +7.2% income return augmented by an +8.5% capital return. Yields on high-grade long-term municipal bonds did not fall as far as those for Treasury securities. Top-rated long-term municipal bonds ended the fiscal year with a yield of 4.89%, down from 5.25% at the end of November 1997. Yields on top-grade (MIG-1) 3-month notes, which are more sensitive than longer-term issues to changes in short-term interest rates, declined on balance to 2.95% from 3.80% a year earlier. For the twelve 1 4 months, the Lehman 10 Year Municipal Bond Index, a good measure of the long-term municipal market, returned +8.1%--an outstanding return considering the tax advantages of municipal bonds and the extremely low inflation rate. The U.S. stock market, meanwhile, weathered a severe summer storm that drove the broad market down nearly -20% and clipped more than 40% from the value of many smaller stocks. A swift recovery ensued during the final three months of the fiscal year, and for the twelve months, the Standard & Poor's 500 Composite Stock Price Index was up +23.7%. The 1998 fiscal year will likely be remembered as a period of extraordinary relative value in the municipal bond market. On November 30, yields on long-term U.S. Treasuries and long-term municipal bonds were nearly identical--a truly remarkable occurrence, given that income from state-specific municipal bond funds is exempt from federal, state, and local taxes for state residents. The yield convergence has been the result of several factors. Treasury bonds benefited from both an easing of inflation fears and a "flight to quality" by foreign investors--particularly from Asia--who bought Treasury securities to protect themselves from declines in their currencies versus the U.S. dollar. Meanwhile, new Treasury issuance dropped--thanks to the federal budget surplus--and issuance of new municipal bonds soared, dampening prices a bit and keeping yields high in relation to Treasuries. Throughout the summer and into the fall, yields of long-term municipal bonds were equal to about 98% of the yield on comparable Treasuries, and on several occasions muni yields matched or even slightly exceeded Treasury yields. To be sure, this phenomenon is temporary, but it made municipal bonds as valuable in relation to Treasuries as they've ever been. Historically, municipal bonds have offered a yield equal to about 84% of the yield on Treasury bonds. It's always important to view the performance of bonds in the proper perspective, especially after a year when declining interest rates pushed returns higher. As you may recall, during the past two fiscal years bond prices received only a small capital boost. Just four years ago, in 1994, interest rates rose sharply and bond prices plunged, providing a painful lesson about the volatility of bond-fund returns. It is also important for investors to understand that the ever-present fluctuations in the bond market tend to offset each other over longer periods, leaving the rate of interest income as the dominant long-term source of bond returns. FISCAL 1998 PERFORMANCE OVERVIEW The +7.6% return of the Vanguard Pennsylvania Insured Long-Term Tax-Exempt Fund topped the +6.5% return of the average Pennsylvania municipal bond fund and fell a bit short of the +7.8% return of the unmanaged Lehman Municipal Bond Index. This index, which includes municipal bonds from across the country, is a notoriously tough competitor because it does not incur the "real world" operating expenses and transaction costs that all mutual funds must bear. Though the majority of our total return came from interest income, the fund earned a capital return of +2.1% that reflected the interest-rate decline. The Tax-Exempt Money Market Fund provided a total return of +3.3%, outpacing the +3.0% return of its average peer. THE MUNICIPAL BOND TAX ADVANTAGE For Pennsylvania residents, the income earned by our funds is exempt from state, local, and federal income taxes. At current yields, that means that investors in long-term tax- 2 5 exempt bonds who are taxed at the highest marginal tax rate can earn an astounding 65% more after-tax income than they could in a comparable long-term U.S. Treasury bond fund. Our Money Market Fund also offers Pennsylvania residents a distinct advantage over U.S. Treasury securities with similar maturities. On November 30, the yield of MIG-1 notes was 11% higher than the after-tax yield of 90-day U.S. Treasury bills. To look at this another way, a yield of 5.1% on a tax-exempt long-term bond would be the equivalent of an 8.4% taxable yield for Pennsylvania taxpayers subject to the highest tax rates. For a tax-exempt short-term yield of 3.0%, the taxable equivalent would be 5.0%.
- ------------------------------------------------------------------- ILLUSTRATION OF INCOME ON A HYPOTHETICAL $100,000 INVESTMENT ---------------------------------- SHORT-TERM LONG-TERM - ------------------------------------------------------------------- Taxable gross income $ 4,500 $ 5,100 Less taxes (39.6%) (1,800) (2,000) Net after-tax income 2,700 3,100 - ------------------------------------------------------------------- Tax-exempt income $ 3,000 $ 5,100 - ------------------------------------------------------------------- Tax-exempt income advantage $ 300 $ 2,000 - ------------------------------------------------------------------- Percentage advantage 11% 65% - -------------------------------------------------------------------
This illustration assumes current yields (as of November 30, 1998) of 5.1% for long-term U.S. Treasury bonds, 4.5% for U.S. Treasury bills, 5.1% for long-term municipals, and 3.0% for short-term municipals. The tax adjustment assumes a typical itemized tax return based on a federal tax rate of 39.6%. Income from U.S. Treasury securities is not subject to state taxes; local taxes are not considered. The illustration is not intended to represent future results. These remarkable advantages are illustrated in the table at right, which compares the annual net income earned on U.S. Treasury and tax-exempt securities as of November 30, 1998, assuming a $100,000 investment. Of course, in terms of credit quality, state-specific municipal bond funds, by definition, don't match up to U.S. Treasury bond funds, whose securities are backed by the full faith and credit of the U.S. government. Also, single-state municipal bond funds lack geographic diversification. Private insurance on the bonds in our Long-Term Tax-Exempt Fund, however, substantially mitigates these additional credit risks. Though the insurance does not provide protection against fluctuations in the fund's value, it guarantees full payment of interest and principal for our bond holdings. Portfolio insurance generally is not available for short-term securities, so our investment adviser, Vanguard Fixed Income Group, is responsible for preserving the principal of the Tax-Exempt Money Market Fund--a responsibility the group fulfilled admirably. We remind you that money market investments are not guaranteed by the Federal Deposit Insurance Corporation, which insures bank accounts and certificates of deposit. LONG-TERM PERFORMANCE OVERVIEW The adjacent table compares the longer-term performance of our funds with those of their average peer mutual funds. It also illustrates our performance edge over our competitors, based on hypothetical investments of $10,000.
- ---------------------------------------------------------------------------- TOTAL RETURNS TEN YEARS ENDED NOVEMBER 30, 1998 ------------------------------------------------------ FINAL VALUE OF AVERAGE A $10,000 ANNUAL RATE INITIAL INVESTMENT* -------------------- -------------------------------- AVERAGE AVERAGE PENNSYLVANIA VANGUARD COMPETING VANGUARD COMPETING VANGUARD TAX-EXEMPT FUND FUND FUND FUND FUND ADVANTAGE - ---------------------------------------------------------------------------- Money Market +3.9% +3.7% $14,599 $14,384 $ 215 Insured Long-Term +8.4 +7.8 22,327 21,096 1,231 - ----------------------------------------------------------------------------
*Assuming reinvestment of all income dividends and capital gains distributions. Our advantage is explained, in part, by our much lower expenses, a factor that 3 6 helps us toward our goal of providing returns that exceed those of competitive norms. Our funds had expense ratios (annual expenses as a percentage of average net assets) of 0.20% in fiscal 1998, far below both the 1.03% charged by the average long-term state tax-exempt fund and the 0.53% charged by the average state tax-exempt money market fund. We believe this powerful advantage is sustainable. Another reason for our success is the skillful management of Vanguard Fixed Income Group, which has helped guide our funds to their superior record while maintaining the highest investment quality in the industry. We emphasize that the longer-term returns shown above are higher than investors should expect with interest rates at current levels. Our Insured Long-Term Fund's returns have been boosted by capital appreciation due to generally declining interest rates since 1990. But interest rates cannot decline forever. Investors looking for a realistic forecast of future returns on long-term bonds should not regard past returns as a guide. The best indicator of the average future return on long-term bonds--and it is not a perfect predictor--is the current yield on those bonds. IN SUMMARY The excellent returns earned by bonds over the past twelve months--as well as over the past decade--should not lull investors into a false sense of security about the safety of bonds or the reliability of returns. Bond returns will inevitably revert to their historical (lower) averages, possibly with little or no warning. We believe that the specific risks of bonds, and the general risks of investing, can be managed by a balanced investment program that includes stock funds, bond funds, and money market funds suited to an individual's objectives, time horizon, tolerance for risk, and financial situation. Once you have such a program, you should be prepared to stick with it through good times and bad. /s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN John C. Bogle John J. Brennan Senior Chairman Chairman and Chief Executive Officer December 18, 1998 NOTE: You'll observe that we have made minor changes in the names of the Vanguard Pennsylvania Tax-Exempt Funds. We replaced the word "Tax-Free" with "Tax-Exempt" and replaced "Portfolio" with "Fund" as part of a broader effort to clarify the names in our fund lineup. 4 7 NOTICE TO SHAREHOLDERS At a special meeting on July 24, 1998, shareholders of Vanguard Pennsylvania Tax-Exempt Funds overwhelmingly approved six proposals. The proposals and voting results were: 1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. Based on the funds' assets at the time of the vote, this change will reduce the amount of state taxes paid each year by some Vanguard funds. The Vanguard Pennsylvania Tax-Exempt Funds will not realize any tax savings as a result of the change, but the funds will benefit from the efficiency of being organized the same way as all other Vanguard Funds. Approved by 96.21% of the shares voted, as follows:
---------------------------------------------------------------------- FOR AGAINST ABSTAIN ---------------------------------------------------------------------- 999,470,751 19,660,867 19,761,530 ----------------------------------------------------------------------
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This change permits the Pennsylvania Tax-Exempt Funds to participate in Vanguard's interfund lending program, which allows funds to loan money to each other if--and only if--it makes good financial sense to do so on both sides of the transaction. The interfund lending programs won't be an integral part of the funds' investment programs; it is a contingency arrangement for managing unusual cash flows. Approved as follows:
- -------------------------------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - -------------------------------------------------------------------------------- Money Market 853,185,250 64,721,884 24,521,152 90.53% - -------------------------------------------------------------------------------- Insured Long-Term 89,298,945 3,711,299 3,454,618 92.57% - --------------------------------------------------------------------------------
2b. INVESTMENT LIMITATION CHANGES--BORROWING MONEY AND PLEDGING ASSETS. This change sets standard limits of 15% of net assets on the amount of money Vanguard funds can borrow from all sources and on the amount of assets that can be pledged to secure any loans. Approved as follows:
- -------------------------------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - -------------------------------------------------------------------------------- Money Market 826,079,633 90,285,112 26,063,541 87.65% - -------------------------------------------------------------------------------- Insured Long-Term 87,886,934 5,138,573 3,439,354 91.11% - --------------------------------------------------------------------------------
5 8 2c. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN SECURITIES OWNED BY AFFILIATES. This change eliminates the funds' policy of avoiding investments in securities that are owned in certain amounts by Trustees, officers, and key advisory personnel. This policy was well-intentioned but wrongly focused and unnecessary in light of the funds' Code of Ethics and other regulatory protections against conflicts of interest on the part of fund management. Approved as follows:
- -------------------------------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - -------------------------------------------------------------------------------- Money Market 845,284,967 72,938,143 24,205,176 89.69% - -------------------------------------------------------------------------------- Insured Long-Term 88,795,555 4,471,553 3,197,754 92.05% - --------------------------------------------------------------------------------
2d. INVESTMENT LIMITATION CHANGES--BONDS SECURED BY INTERESTS IN OIL, GAS, OR MINERAL PROGRAMS. This change amends a policy prohibiting investments in interests in oil, gas, or other mineral exploration or development programs. While the funds still cannot invest directly in oil, gas, or mineral programs, the change clarifies that the funds can invest in bonds and money market instruments secured by interests in these programs. Approved as follows:
- -------------------------------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - -------------------------------------------------------------------------------- Money Market 841,931,877 74,530,774 25,965,636 89.34% - -------------------------------------------------------------------------------- Insured Long-Term 88,450,209 4,712,445 3,302,209 91.69% - --------------------------------------------------------------------------------
2g. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN INDUSTRIAL REVENUE BONDS. This change eliminates a policy imposing special restrictions on investments in industrial revenue and development bonds. The change allows the funds to invest in industrial revenue and development bonds without limit, subject to their usual stringent quality and maturity guidelines. Approved as follows:
- -------------------------------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY - -------------------------------------------------------------------------------- Money Market 858,288,281 56,424,879 27,715,126 91.07% - -------------------------------------------------------------------------------- Insured Long-Term 89,171,517 4,148,872 3,144,473 92.44% - --------------------------------------------------------------------------------
6 9 [PHOTO] THE MARKETS IN PERSPECTIVE YEAR ENDED NOVEMBER 30, 1998 U.S. financial markets produced solid overall gains during the fiscal year ended November 30. The S&P 500 Index gained 23.7% for the 12-month period, overcoming a sharp summer setback. Bond prices rose as interest rates declined. Returns from overseas stock markets varied widely, with big gains in Europe and losses in most other markets. U.S. STOCK MARKETS The stock market's gains during the fiscal year were concentrated in large-capitalization growth stocks. Within the S&P 500 Index, the growth stocks rose 33.7%, while the value stocks were up 13.2%. The market's overall bias toward large-caps showed starkly in the contrast between the S&P 500 and other indexes. While the S&P 500 was rising 23.7%, the rest of the market returned a paltry 2.6%, as measured by the Wilshire 4500 Equity Index. Small-cap stocks, as represented by the Russell 2000 Index, did even worse--a negative return of 6.6%. The market's ascent was not without incident, even for large-cap stocks. After rising strongly to a record high on July 17, the S&P 500 fell by 19.2% during the following six weeks, just shy of the 20% mark generally considered the boundary distinguishing a bear market from a mere "correction." Declines were certifiably bearish for smaller stocks, however.
- -------------------------------------------------------------------------------- AVERAGE ANNUALIZED RETURNS PERIODS ENDED NOVEMBER 30, 1998 ------------------------------------ 1 YEAR 3 YEARS 5 YEARS - -------------------------------------------------------------------------------- STOCKS S&P 500 Index 23.7% 26.7% 23.0% Russell 2000 Index -6.6 10.3 11.3 MSCI EAFE Index 16.8 9.3 10.2 - -------------------------------------------------------------------------------- BONDS Lehman Aggregate Bond Index 9.5% 7.7% 7.3% Lehman 10 Year Municipal Bond Index 8.1 6.9 6.8 Salomon Smith Barney 3-Month U.S. Treasury Bill Index 5.1 5.2 5.1 - -------------------------------------------------------------------------------- OTHER Consumer Price Index 1.5% 2.2% 2.4% - --------------------------------------------------------------------------------
The July-August tumble in stock prices reflected a number of factors that collectively raised the anxiety level for many investors. Among these were deteriorating corporate earnings reports and forecasts, Russia's default on its debts, and a continuance of economic weakness in Asia. The persistence of Asia's economic troubles--which first surfaced in mid-1997--began to slow the economic expansions in the United States and Europe. The rebound in stocks late in the fiscal year occurred even though several sources of uncertainty remained, including doubts about global economic growth and reductions in securities analysts' forecasts of future corporate earnings. Stock prices got considerable help from the decline in interest rates. (Low inflation and low interest rates help stock prices by raising the estimated value of future dividends and earnings.) Three forces clearly shaped the performance of industry sectors. They could be summarized as faith (the buoyant confidence of consumers), fear (related to the effects of economic troubles abroad), and fortresses (companies somewhat protected from competition). 7 10 In contrast to the cautious stance of investors during fiscal 1998, U.S. consumers threw caution to the wind. Feeling flush because of plentiful jobs (the nation's unemployment rate was 4.4% at fiscal year-end) and rising wages, consumers spent a record proportion of their income. Not surprisingly, then, two big gainers among sectors of the S&P 500 Index were consumer discretionary firms, such as retailers (+26%) and consumer staples (+22%). Fear was a factor in the lagging returns in industry groups considered to be vulnerable to slowing global growth, falling commodity prices, and tougher price competition from foreign suppliers. Among these--all traditional value sectors--were firms in the "other energy" category (-37%); chemical and other materials & processing firms (essentially a zero return); and makers of producer durables such as airplanes and machinery (+2%). Conversely, utilities did well (+35%) in part because they are seen as relatively insulated from foreign competition or economic woes. Fortresses are companies perceived as relatively safe from competitors because of patented products or brands. Such companies led the year's best-performing sectors: technology (+49%) and health care (+43%). U.S. BOND MARKETS Interest rates declined during the fiscal year, especially for U.S. Treasury securities, which benefited from heightened aversion to risk among investors and from a slight decrease in supply, thanks to a $70 billion federal budget surplus. The Federal Reserve Board had the flexibility to cut short-term rates in three quarter-point steps in the autumn because inflation was remarkably tame--consumer prices rose just 1.5% for our fiscal year. In this bond-friendly environment, yields on long-term Treasury issues fell by roughly 100 basis points (1 percentage point), with the 30-year Treasury bond ending the fiscal year at 5.06%. Lower rates mean higher prices for bonds, and the Lehman Brothers Long U.S. Treasury Bond Index earned a total return of 15.7%, an astounding margin of some 14 percentage points over the inflation rate. Reflecting investors' flight to quality and worries about slowing economic growth, prices fell for high-yield "junk" bonds. Even high-quality corporate bonds and mortgage-backed securities did not rise in price as far as Treasury securities. Mortgage bonds tend to lag Treasuries during periods when falling rates lead to greater refinancing activity by homeowners, resulting in unwanted prepayments of principal. The Lehman Aggregate Bond Index, which comprises high-quality corporate and mortgage-backed bonds as well as Treasuries, and has an intermediate-term average maturity, earned 9.5%. Yields on long-term municipal bonds declined only modestly during the fiscal year, and by November 30 were only slightly lower than yields on comparable Treasury securities. This was striking because the interest on municipals is exempt from federal income tax. INTERNATIONAL STOCK MARKETS Europe's stock markets outdistanced even the S&P 500 Index, but Asian and Latin American markets were generally down during the fiscal year. As a group, European stocks earned 27.8% in U.S.-dollar terms. Europe's bull market was fueled by continuing economic growth, lower interest rates, increased corporate merger activity, and optimism about the effects of the euro, a common currency due to be adopted in 1999 by 11 nations. Japan's stock market continued to suffer from the effects of a severe recession and a shaky banking system. Stocks in Tokyo fell 4.5% in U.S.-dollar terms. Elsewhere in Asia, returns were mixed, ranging from a rebound of 21% in South Korea, through Australia's 11% gain, to big losses in Indonesia (-52%), Malaysia (-42%), New Zealand (-25%), and Singapore (-18%). Losses were steep throughout Latin America, including Mexico (-32%), Venezuela (-59%), Brazil (-20%), and Chile (-22%). 8 11 [PHOTO] REPORT FROM THE ADVISER During the fiscal year ended November 30, nervous global investors flocked to the safety of U.S. Treasury securities. The "flight to quality" began with the collapse of Asian markets early in the year, then spread throughout the emerging economies of the world. With each round of negative world events, U.S. Treasury yields fell as investors bid up bond prices. In contrast to the volatility in world financial markets, sailing was smooth for the U.S. economy, which produced stable growth and low inflation. The Federal Reserve Board initially was reluctant to lower short-term interest rates in the face of the fundamental strength of the domestic economy; however, signs of international economic calamity loomed ever larger, threatening future U.S. growth. By the second half of our fiscal year, it was clear that domestic export-sensitive sectors were slowing, and stock market volatility increased. The Fed then cut short-term interest rates by a total of three-quarters of a percentage point. To date, the Fed's action has helped calm the fears of a worldwide credit crunch and stemmed investors' flight from risk. We will have to wait and see whether the worst is over for global markets. As one would expect, municipal bond yields fell in sympathy with the decline in Treasury yields. However, a large supply of new tax-exempt bonds muted the price increases. Consequently, municipal bonds underperformed their Treasury bond counterparts. During the fiscal year, the benchmark 30-year U.S. Treasury bond yield declined nearly a full percentage point (from 6.05% to 5.06%). In contrast, the yield on an AAA-rated tax-exempt bond of similar maturity declined only three-tenths of 1 percent (from roughly 5.2% to 4.9%), and produced commensurately less price appreciation. As noted, the supply of new tax-exempt bonds grew dramatically during our fiscal year. Two factors led to this increase in municipal debt. First, as interest rates declined, municipalities rushed to issue new bonds that would refinance their older, higher-coupon debt. Second, the financial strength of many states and localities improved as robust economic performance boosted tax revenues. This increased financial sustenance allowed many issuers to fund new capital projects with tax-exempt debt. In all, tax-exempt issuance for the year was up 27% to $278 billion in new bonds. This abundance of new bonds offers unique value to investors in longer-term municipal issues. As of our fiscal year-end, the yield on a high-quality, long-maturity municipal bond was equal to an unusually high 96.8% of the yield on a comparable U.S. Treasury security. At certain points during the fiscal period, AAA-rated insured municipal bonds actually offered yields higher than Treasury bonds, a situation not seen since 1986. For investors in the maximum federal tax bracket (39.6%), high-grade municipal bonds offer about 3 percentage points in additional taxable-equivalent yield over comparable U.S. Treasuries. Our state tax-exempt funds further boost after-tax returns by providing income exempt from state tax. In the past, municipal bond yields have not stayed 9 12 high relative to Treasury bonds for long. However, because of the persistence of global uncertainty and its beneficial effect on prices of Treasury bonds, it's hard to predict when municipal yields will return to more-normal levels. In the meantime, longer-term municipal bonds are a steal. The high credit quality of the Vanguard Pennsylvania Tax-Exempt Funds played an important role in our strong performance relative to peers. Early in our fiscal year, demand was quite strong for the higher yields of uninsured bonds and those of speculative-grade credit quality. Market participants disregarded the added credit risk they were assuming. Demand for lower-quality securities was so high that investors accepted ever-smaller yield premiums for assuming the extra credit risk, and yield spreads between bonds of different quality tightened. But the bankruptcy of a major Pennsylvania hospital group in summer 1998 caused many bondholders to reconsider the relationship between yield and credit quality. Investors in Vanguard's insured single-state tax-exempt funds receive additional credit protection. Although this municipal bond insurance does not protect against changes in market value, it does guarantee the timely payment of principal and interest. Our single-state tax-exempt funds are able to offer the dual benefits of high credit quality and attractive yields year after year because of our low expenses. Our emphasis on high credit quality should allow our shareholders to sleep comfortably. Over time, the simple combination of a disciplined risk approach with low expenses has proven to be a powerful force for maximizing total return for shareholders. Our continued focus on these basics produced the desired results in fiscal 1998. Yields on 1-year tax-exempt money market instruments fell 76 basis points (0.76 percentage point) during the second half of our fiscal year, even though summer is traditionally a season for heavy municipal borrowing. Over the full 12 months, the decline was 82 basis points, leaving the yield on the benchmark 1-year MIG-1 note at 2.99% on November 30. By comparison, the yield on 1-year U.S. Treasury bills fell 92 basis points during the second half and 99 basis points for the full year, closing with a yield of 4.50%. The plunge in short-term yields was fueled by the global "flight to quality" and by the Fed's 75-basis-point cut in the federal funds rate. At fiscal year-end, the yield on 1-year MIG-1 notes therefore was equal to 66.4% of the yield on comparable Treasury bills. Though this ratio is less favorable than that for yields of long-term municipal bonds in relation to those of Treasury bonds, municipal money markets still offer value for investors in the highest tax brackets. As the new year begins, the Pennsylvania Tax-Exempt Money Market Fund is positioned to take advantage of its dual strengths of conservative, quality-oriented management and low expenses. We believe these attributes will, over time, generate superior risk-adjusted returns. Ian A. MacKinnon, Managing Director Pamela Wisehaupt Tynan, Principal Reid O. Smith, Principal John M. Carbone, Principal Danine A. Mueller, Principal Christopher M. Ryon, Principal Kathryn Allen, Principal Vanguard Fixed Income Group December 10, 1998 INVESTMENT PHILOSOPHY The adviser believes that each fund, while operating with stated maturity and stringent quality targets, can achieve a high level of current income that is exempt from federal and Pennsylvania income taxes by investing in insured and high-quality uninsured securities issued by Pennsylvania state, county, and municipal governments. 10 13 PERFORMANCE SUMMARY PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND All of the data on this page represent past performance, which cannot be used to predict future returns that may be achieved by the fund. Note, too, that returns can fluctuate widely. An investment in a money market fund is neither insured nor guaranteed by the U.S. government, and there is no assurance that the fund will be able to maintain a stable net asset value of $1 per share.
TOTAL INVESTMENT RETURNS: JUNE 13, 1988-NOVEMBER 30, 1998 - --------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT AVERAGE MONEY MARKET FUND 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 5.9 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 3.5 3.5 3.2 1998 0.0 3.3 3.3 3.0 - ---------------------------------------------------------
*Average Pennsylvania Tax-Exempt Money Market Fund. SEC 7-Day Annualized Yield (11/30/1998): 3.04% See Financial Highlights table on page 28 for dividend information for the past five years.
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998 - ---------------------------------------------------------------- Pennsylvania Tax-Exempt Average Pennsylvania Tax-Exempt Money Market Fund Money Market Fund 1988-11 10000 10000 1989-02 10149 10152 1989-05 10320 10309 1989-08 10481 10468 1989-11 10639 10636 1990-02 10792 10776 1990-05 10951 10937 1990-08 11104 11093 1990-11 11262 11261 1991-02 11408 11396 1991-05 11539 11528 1991-08 11659 11645 1991-11 11780 11778 1992-02 11880 11860 1992-05 11974 11958 1992-08 12050 12031 1992-11 12129 12119 1993-02 12203 12170 1993-05 12276 12240 1993-08 12346 12301 1993-11 12419 12382 1994-02 12486 12428 1994-05 12560 12500 1994-08 12640 12576 1994-11 12738 12679 1995-02 12850 12767 1995-05 12975 12888 1995-08 13090 12998 1995-11 13208 13119 1996-02 13321 13206 1996-05 13433 13310 1996-08 13540 13413 1996-11 13652 13527 1997-02 13763 13611 1997-05 13883 13720 1997-08 14004 13835 1997-11 14128 13960 1998-02 14244 14048 1998-05 14368 14158 1998-08 14485 14270 1998-11 14599 14384
- --------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 1998 ------------------------------- FINAL VALUE OF A 1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT - --------------------------------------------------------------------------------------------------------- Pennsylvania Tax-Exempt Money Market Fund 3.33% 3.29% 3.86% $14,599 Average Pennsylvania Tax-Exempt Money Market Fund 3.04 3.04 3.70 14,384 - ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998* - ------------------------------------------------------------------------------------------------------------------------- 10 YEARS INCEPTION -------------------------------- DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL - ------------------------------------------------------------------------------------------------------------------------- Pennsylvania Tax-Exempt Money Market Fund 6/13/1988 3.42% 3.26% 0.00% 3.90% 3.90% - -------------------------------------------------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information through the latest calendar quarter. 11 14 PERFORMANCE SUMMARY PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND All of the data on this page represent past performance, which cannot be used to predict future returns that may be achieved by the fund. Note, too, that both share price and return can fluctuate widely, so an investment in the fund could lose money.
TOTAL INVESTMENT RETURNS: APRIL 7, 1986-NOVEMBER 30, 1998 - --------------------------------------------------------- PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND 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 0.7 5.5 6.2 7.2 1998 2.1 5.5 7.6 7.8 - ---------------------------------------------------------
*Lehman Municipal Bond Index. See Financial Highlights table on page 29 for dividend and capital gains information for the past five years.
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998 - --------------------------------------------------------------------------------- Pennsylvania Insured Long-Term Average Pennsylvania Lehman Municipal Tax-Exempt Fund Tax-Exempt Fund Bond Index 1988-11 10000 10000 10000 1989-02 10249 10228 10194 1989-05 10768 10634 10627 1989-08 10888 10799 10811 1989-11 11216 11096 11101 1990-02 11295 11170 11239 1990-05 11499 11283 11404 1990-08 11426 11326 11505 1990-11 12032 11805 11956 1991-02 12284 12045 12275 1991-05 12616 12320 12554 1991-08 12911 12636 12861 1991-11 13193 12981 13182 1992-02 13556 13303 13500 1992-05 13874 13543 13786 1992-08 14480 14101 14296 1992-11 14731 14314 14504 1993-02 15661 15188 15358 1993-05 15783 15207 15435 1993-08 16391 15869 16041 1993-11 16485 15996 16111 1994-02 16557 16053 16208 1994-05 16301 15492 15817 1994-08 16525 15712 16069 1994-11 15588 14847 15270 1995-02 17059 16159 16519 1995-05 17650 16781 17263 1995-08 17766 16879 17495 1995-11 18468 17667 18157 1996-02 18681 17791 18345 1996-05 18401 17431 18052 1996-08 18761 17723 18412 1996-11 19533 18559 19224 1997-02 19646 18624 19355 1997-05 19810 18743 19547 1997-08 20312 19251 20115 1997-11 20747 19808 20603 1998-02 21298 20269 21125 1998-05 21546 20413 21380 1998-08 22023 20755 21855 1998-11 22327 21096 22202
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 1998 -------------------------------- FINAL VALUE OF A 1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT - --------------------------------------------------------------------------------------------------------------- Pennsylvania Insured Long-Term Tax-Exempt Fund 7.60% 6.25% 8.36% $22,327 Average Pennsylvania Tax-Exempt Fund 6.50 5.69 7.75 21,096 Lehman Municipal Bond Index 7.76 6.62 8.30 22,202 - ---------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998* - ------------------------------------------------------------------------------------------------------------------------- 10 YEARS INCEPTION -------------------------------- DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL - ------------------------------------------------------------------------------------------------------------------------- Pennsylvania Insured Long-Term Tax-Exempt Fund 4/7/1986 8.57% 6.08% 2.19% 6.27% 8.46% - -------------------------------------------------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information through the latest calendar quarter. 12 15 FUND PROFILE PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND This Profile provides a snapshot of the fund's characteristics as of November 30, 1998. Key elements of this Profile are defined on page 14.
FINANCIAL ATTRIBUTES - ---------------------------------------------------------- Yield 3.0% Average Maturity 34 days Average Quality MIG-1 Expense Ratio 0.20%
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) - ---------------------------------------------------------- MIG-1/SP-1+ 68.1% A-1/P-1 31.1 AAA/AA 0.6 A 0.2 - ---------------------------------------------------------- Total 100.0%
13 16 AVERAGE COUPON. The average interest rate paid on the securities held by a fund. It is expressed as a percentage of face value. AVERAGE DURATION. An estimate of how much a bond fund's share price will fluctuate in response to a change in interest rates. To see how the price could shift, multiply the fund's duration by the change in rates. If interest rates rise by 1 percentage point, the share price of a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the fund's share price would rise by 5%. AVERAGE MATURITY. The average length of time until bonds held by a fund reach maturity (or are called) and are repaid. In general, the longer the average maturity, the more a fund's share price will fluctuate in response to changes in market interest rates. AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the ratings assigned to a fund's securities holdings by credit-rating agencies. The agencies make their judgment after appraising an issuer's ability to meet its obligations. Quality is graded on a scale, with Aaa or AAA indicating the most creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy issuers of money market securities. BETA. A measure of the magnitude of a fund's past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a fund with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. CASH RESERVES. The percentage of a fund's net assets invested in "cash equivalents"--highly liquid, short-term, interest-bearing securities. This figure does not include cash invested in futures contracts to simulate bond investment. DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit rating can help in gauging the risk that returns could be affected by defaults or other credit problems. DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the higher the concentration of longer-maturity issues, the more a fund's share price will fluctuate in response to changes in interest rates. EXPENSE RATIO. The percentage of a fund's average net assets used to pay its annual administrative and advisory expenses. These expenses directly reduce returns to investors. INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two attributes: average maturity (short, medium, or long) and average credit quality (high, medium, or low). NUMBER OF ISSUES. An indicator of diversification. The more separate issues a fund holds, the less susceptible it is to a price decline stemming from the problems of a particular issue. R-SQUARED. A measure of how much of a fund's past returns can be explained by the returns from the overall market (or its benchmark index). If a fund's total return were precisely synchronized with the overall market's return, its R-squared would be 1.00. If a fund's returns bore no relationship to the market's returns, its R-squared would be 0. YIELD. A snapshot of a fund's interest income. The yield, expressed as a percentage of the fund's net asset value, is based on income earned over the past 30 days (7 days for money market funds) and is annualized, or projected forward for the coming year. YIELD TO MATURITY. The rate of return an investor would receive if the securities held by a fund were held to their maturity dates. 14 17 FUND PROFILE PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND This Profile provides a snapshot of the fund's characteristics as of November 30, 1998, compared where appropriate to an unmanaged index. Key elements of this Profile are defined on page 14.
FINANCIAL ATTRIBUTES - ---------------------------------------------------------- PENNSYLVANIA INSURED LEHMAN LONG-TERM INDEX* - ---------------------------------------------------------- Number of Issues 255 47,383 Yield 4.3% 4.4% Yield to Maturity 4.4% -- Average Coupon 5.5% 5.5% Average Maturity 9.1 years 13.5 years Average Quality AAA AA+ Average Duration 6.4 years 7.2 years Expense Ratio 0.20% -- Cash Reserves 0.8% --
*Lehman Municipal Bond Index. INVESTMENT FOCUS - ------------------------ [GRAPH]
VOLATILITY MEASURES - ---------------------------------------------------------- PENNSYLVANIA INSURED LEHMAN LONG-TERM INDEX* - ---------------------------------------------------------- R-Squared 0.98 1.00 Beta 0.99 1.00
*Lehman Municipal Bond Index.
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) - ------------------------------------------------------- AAA 98.5% AA 1.5 A 0.0 BBB 0.0 BB 0.0 B 0.0 Not Rated 0.0 - ------------------------------------------------------- Total 100.0%
DISTRIBUTION BY MATURITY (% OF PORTFOLIO) - ------------------------------------------------------- Under 1 Year 6.3% 1-5 Years 26.5 5-10 Years 31.3 10-20 Years 23.6 20-30 Years 10.5 Over 30 Years 1.8 - ------------------------------------------------------- Total 100.0%
15 18 [PHOTO] FINANCIAL STATEMENTS NOVEMBER 30, 1998 STATEMENT OF NET ASSETS This Statement provides a detailed list of each fund's municipal bond holdings, including each security's market value on the last day of the reporting period and information on credit enhancements (insurance or letters of credit). Securities are grouped and subtotaled according to their insured or noninsured status. Other assets are added to, and liabilities are subtracted from, the value of Total Municipal Bonds to calculate the fund's Net Assets. Finally, Net Assets are divided by the outstanding shares of the fund to arrive at its share price, or Net Asset Value (NAV) Per Share. At the end of the Statement of Net Assets, you will find a table displaying the composition of the fund's net assets on both a dollar and per-share basis. Undistributed Net Investment Income is usually zero because the fund distributes its net income to shareholders as a dividend each day. Any realized gains must be distributed annually, so the bulk of net assets consists of Paid in Capital (money invested by shareholders). The balance shown for Accumulated Net Realized Gains usually approximates the amount available to distribute to shareholders as taxable capital gains as of the statement date, but may differ because certain investments or transactions may be treated differently for financial statement and tax purposes. Any Accumulated Net Realized Losses, and any cumulative excess of distributions over net realized gains, will appear as negative balances. Unrealized Appreciation (Depreciation) is the difference between the value of the fund's investments and their cost, and reflects the gains (losses) that would be realized if the fund were to sell all of its investments at their statement-date values.
- ------------------------------------------------------------------------------------------------------------------------------------ FACE MARKET MATURITY AMOUNT VALUE* PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (101.3%) - ------------------------------------------------------------------------------------------------------------------------------------ Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.00% 12/3/1998 LOC $ 30,120 $ 30,120 Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.30% 12/3/1998 LOC 5,510 5,510 Allegheny County PA Hosp. Dev. Auth. VRDO (Children's Hosp.-Pittsburgh) 3.00% 12/3/1998 (1) 26,950 26,950 Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health System) 3.30% 12/3/1998 (1) 25,750 25,750 Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health System) 3.30% 12/3/1998 LOC 9,205 9,205 Allegheny County PA Hosp. Dev. Auth. VRDO (Saint Francis Health System) 3.10% 12/3/1998 LOC 11,000 11,000 Allegheny County PA Hosp. Dev. Auth. VRDO (South Hills Health System) 3.10% 12/2/1998 LOC 8,400 8,400 Allegheny County PA PCR CP PUT (Duquesne Light Co.) 3.60% 1/27/1999 LOC 11,500 11,500 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.00% 1/28/1999 LOC 2,500 2,500 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.05% 1/29/1999 LOC 6,000 6,000 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.10% 1/22/1999 LOC 3,900 3,900 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.10% 1/29/1999 LOC 17,950 17,950 Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.50% 12/7/1998 LOC 14,500 14,500 Beaver County PA IDA PCR VRDO (Duquesne Light Co.) 3.10% 12/2/1998 LOC 10,600 10,600 Chester County PA IDA VRDO (Archdiocese of Philadelphia) 3.30% 12/2/1998 LOC 24,800 24,800 Cumberland County PA Muni. Auth. PUT (Dickinson College) 2.95% 11/1/1999 LOC 11,385 11,385 Dallastown Area School Dist. GO VRDO 3.29% 12/3/1998 (3) 20,450 20,450 Dauphin County PA General Auth. Hosp. Rev. VRDO (Reading Hosp. & Medical Center) 3.10% 12/2/1998 12,320 12,320 Delaware County PA IDA Airport Fac. Rev. VRDO (United Parcel Service) 3.15% 12/2/1998 60,975 60,975 Delaware County PA IDA PCR CP (PECO) 3.00% 3/1/1999 (3) 11,300 11,300 Delaware County PA IDA PCR CP (PECO) 3.00% 3/12/1999 (3) 21,400 21,400 Delaware County PA IDA PCR CP (PECO) 3.05% 3/9/1999 (3) 9,500 9,500
16 19
- ------------------------------------------------------------------------------------------------------------------------------------ FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------------ Delaware County PA IDA PCR CP (PECO) 3.35% 2/18/1999 (3) $ 13,700 $ 13,700 Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 3.30% 12/2/1998 8,000 8,000 Delaware County PA IDA PCR VRDO (PECO) 3.30% 12/2/1998 LOC 3,525 3,525 Delaware County PA IDA Rev. VRDO (General Electric Capital Corp.) 3.15% 12/2/1998 30,100 30,100 Delaware County PA IDA Solid Waste Rev. VRDO (Scott Paper Co. Project) 3.15% 12/2/1998 76,305 76,305 Downington PA School Dist. TRAN 4.04% 6/30/1999 1,000 1,001 Emmaus PA General Auth. Local Govt. Rev. VRDO 3.25% 12/2/1998 95,000 95,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Altoona Area School Dist.) 3.15% 12/9/1998 LOC 15,000 15,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Avon Grove School Dist.) 3.15% 12/2/1998 LOC 19,800 19,800 Emmaus PA General Auth. Local Govt. Rev. VRDO (Big Spring School Dist.) 3.15% 12/2/1998 LOC 15,000 15,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Colonial School Dist.) 3.15% 12/2/1998 LOC 8,200 8,200 Emmaus PA General Auth. Local Govt. Rev. VRDO (Council Rock School Dist.) 3.15% 12/2/1998 LOC 10,000 10,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (East Penn School Dist.) 3.15% 12/2/1998 LOC 8,700 8,700 Emmaus PA General Auth. Local Govt. Rev. VRDO (East Pennsboro Area School Dist.) 3.15% 12/2/1998 LOC 5,600 5,600 Emmaus PA General Auth. Local Govt. Rev. VRDO (East Stroudsburg Area School Dist.) 3.15% 12/2/1998 LOC 10,000 10,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Kennett Consolidated School Dist.) 3.15% 12/2/1998 LOC 20,000 20,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Lower Merion School Dist.) 3.15% 12/2/1998 LOC 15,000 15,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Methacton School Dist.) 3.15% 12/2/1998 LOC 13,000 13,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (Nazareth PA Area School Dist.) 3.15% 12/2/1998 LOC 18,700 18,700 Emmaus PA General Auth. Local Govt. Rev. VRDO (Northern York County School Dist.) 3.15% 12/2/1998 LOC 7,200 7,200 Emmaus PA General Auth. Local Govt. Rev. VRDO (Oxford Area School Dist.) 3.15% 12/2/1998 LOC 7,900 7,900 Emmaus PA General Auth. Local Govt. Rev. VRDO (Pennridge School Dist.) 3.15% 12/2/1998 LOC 9,600 9,600 Emmaus PA General Auth. Local Govt. Rev. VRDO (Pottsgrove School Dist.) 3.15% 12/2/1998 LOC 5,400 5,400 Emmaus PA General Auth. Local Govt. Rev. VRDO (South York School Dist.) 3.15% 12/2/1998 LOC 9,800 9,800 Emmaus PA General Auth. Local Govt. Rev. VRDO (Upper Dublin School Dist.) 3.25% 12/2/1998 LOC 9,300 9,300 Emmaus PA General Auth. Local Govt. Rev. VRDO (Upper Merion School Dist.) 3.15% 12/2/1998 LOC 10,000 10,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (West Allegheny) 3.15% 12/2/1998 LOC 15,000 15,000 Emmaus PA General Auth. Local Govt. Rev. VRDO (West Chester Area School Dist.) 3.15% 12/2/1998 LOC 10,000 10,000 Geisinger Health System Auth. of Pennsylvania VRDO (Penn State Geisinger Health) 3.25% 12/2/1998 5,650 5,650 Lehigh County PA Auth. Rev. VRDO (Lehigh Valley Hosp.) 3.15% 12/2/1998 (2) 11,000 11,000 Lehigh County PA IDA PCR TOB VRDO (Pennsylvania Power & Light) 3.25% 12/3/1998 (1) 6,350 6,350 Lower Merion PA School Dist. GO TOB BAN 3.25% 12/3/1998 6,070 6,070 Mercerburg Borough PA Auth. VRDO (Mercerburg College) 3.20% 12/2/1998 LOC 7,500 7,500 Montgomery County PA Higher Educ. & Health Auth. 7.50% 11/1/1999 (Prere.) 3,465 3,603 Montgomery County PA IDA PCR CP (PECO) 3.00% 2/16/1999 LOC 11,640 11,640 Montgomery County PA IDA PCR CP (PECO) 3.00% 3/17/1999 LOC 8,000 8,000 Montgomery County PA IDA PCR CP (PECO) 3.35% 2/18/1999 LOC 7,400 7,400 Montgomery County PA VRDO 3.15% 12/2/1998 900 900
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- ------------------------------------------------------------------------------------------------------------------------------------ FACE MARKET MATURITY AMOUNT VALUE* PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000) - ------------------------------------------------------------------------------------------------------------------------------------ Northeastern PA Hosp. & Educ. Auth. VRDO (Wyoming Valley Health Care Obligated Group) 3.10% 12/2/1998 (2) $ 49,100 $ 49,100 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.05% 2/12/1999 (1) 14,800 14,800 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.10% 3/9/1999 (1) 10,300 10,300 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.40% 12/16/1998 (1) 4,000 4,000 Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.55% 12/11/1998 (1) 4,900 4,900 Pennsylvania CP 3.35% 1/14/1999 11,000 11,000 Pennsylvania GO 4.25% 8/1/1999 15,375 15,446 Pennsylvania GO 4.50% 3/1/1999 8,600 8,618 Pennsylvania GO 4.75% 6/15/1999 (1) 2,500 2,519 Pennsylvania GO 5.25% 11/15/1999 (3) 3,500 3,579 Pennsylvania Higher Educ. Assistance Agency Student Loan Rev. VRDO 3.20% 12/2/1998 LOC 123,600 123,600 Pennsylvania Higher Educ. Assistance Agency Student Loan Rev. VRDO 3.35% 12/2/1998 LOC 20,000 20,000 Pennsylvania Higher Educ. Fac. Auth. Rev. 4.50% 6/15/1999 (1) 1,120 1,124 Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 3.25% 12/2/1998 41,300 41,300 Pennsylvania Higher Educ. Fac. Auth. VRDO (St. Joseph's Univ.) 4.00% 11/1/1999 LOC 12,000 12,102 Pennsylvania Higher Educ. Fac. Auth. VRDO (Temple Univ.) 3.30% 12/2/1998 LOC 38,900 38,900 Pennsylvania Higher Educ. Fac. Auth. VRDO (Univ. of Pennsylvania ) 3.25% 12/2/1998 115,700 115,700 Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.75% 6/15/1999 (3) 8,930 9,057 Pennsylvania State Univ. BAN 4.50% 3/30/1999 17,800 17,851 Pennsylvania Turnpike Comm. Rev. 7.625% 12/1/1999 (Prere.) 1,425 1,517 Pennsylvania Turnpike Comm. Rev. VRDO 3.30% 12/2/1998 13,500 13,500 Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. TOB VRDO 3.25% 12/3/1998 (2) 4,130 4,130 Philadelphia PA GO 4.60% 5/15/1999 (3) 4,345 4,375 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. (Albert Einstein Medical Center) 7.625% 4/1/1999 (Prere.) 4,500 4,657 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. (Jefferson Health System) 4.25% 5/15/1999 (1) 2,860 2,868 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO (Children's Hosp. of Philadelphia) 3.25% 12/2/1998 42,560 42,560 Philadelphia PA IDA VRDO (Cancer Research) 3.25% 12/2/1998 LOC 4,000 4,000 Philadelphia PA School Dist. GO 6.70% 7/1/1999 (2) 9,000 9,187 Philadelphia PA School Dist. TRAN 4.25% 6/30/1999 44,000 44,153 Philadelphia PA Water & Sewer Rev. 6.90% 10/1/1999 (1)(Prere.) 5,300 5,568 Philadelphia PA Water & Waste Water Rev. VRDO 3.05% 12/2/1998 (2) 60,900 60,900 St. Mary's Hosp. PA VRDO (Catholic Health Initiatives) 3.05% 12/2/1998 23,100 23,100 Sayre PA Health Care Fac. Auth. VRDO (VHA of Pennsylvania, Pooled Capital Asset Financial Program) 3.20% 12/2/1998 (2) 123,405 123,405 Scranton-Lackawanna PA Health & Welfare Auth. VRDO (Mercy Health System) 3.10% 12/2/1998 6,500 6,500 South Fork PA Muni. Auth. Hosp. Rev. VRDO (Conemaugh Health Systems) 3.15% 12/2/1998 (1) 45,800 45,800 Temple Univ. PA Higher Educ. GO 4.50% 5/14/1999 13,500 13,544 Univ. of Pittsburgh PA Higher Educ. VRDO 3.00% 12/3/1998 LOC 37,000 37,000 Washington County PA Higher Educ. VRDO (Pooled Equipment Lease Program) 3.25% 12/2/1998 LOC 17,200 17,200 York County PA IDA PCR VRDO (PECO) 3.30% 12/2/1998 LOC 6,340 6,340 York County PA IDA PCR VRDO (Public Service Electric & Gas) 3.10% 12/2/1998 (1) 5,200 5,200 OUTSIDE PENNSYLVANIA: Puerto Rico TRAN 3.50% 7/30/1999 ++ 18,000 18,076 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (COST $1,892,435) $1,892,435 - ------------------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------------------ MARKET VALUE* (000) - ------------------------------------------------------------------------------------------------------------------------------------ OTHER ASSETS AND LIABILITIES (-1.3%) - ------------------------------------------------------------------------------------------------------------------------------------ Other Assets--Note B $ 40,327 Payables for Investment Securities Purchased (58,437) Other Liabilities (5,700) ------------ (23,810) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS (100%) - ------------------------------------------------------------------------------------------------------------------------------------ Applicable to 1,868,661,880 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $1,868,625 ==================================================================================================================================== NET ASSET VALUE PER SHARE $1.00 ====================================================================================================================================
*See Note A in Notes to Financial Statements. For key to abbreviations and other references, see page 25.
- ------------------------------------------------------------------------------------------------------------------------------------ AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF: - ------------------------------------------------------------------------------------------------------------------------------------ AMOUNT PER (000) SHARE - ------------------------------------------------------------------------------------------------------------------------------------ Paid in Capital $1,868,661 $1.00 Undistributed Net Investment Income -- -- Accumulated Net Realized Losses (36) -- Unrealized Appreciation -- -- - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS $1,868,625 $1.00 ====================================================================================================================================
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- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (99.2%) =================================================================================================================================== ISSUER INSURED (95.3%) Allegheny County PA Airport Rev. (Pittsburgh International Airport) 5.00% 1/1/2017 (1) $ 12,205 $ 12,243 Allegheny County PA Airport Rev. (Pittsburgh International Airport) 5.00% 1/1/2019 (1) 15,750 15,729 Allegheny County PA GO 0.00% 5/1/2003 (2) 8,815 7,387 Allegheny County PA GO 6.00% 5/1/2010 (2) 3,030 3,272 Allegheny County PA GO 6.00% 5/1/2012 (2) 3,000 3,242 Allegheny County PA Hosp. Dev. Auth. Rev. (Catholic Health East) 5.25% 11/15/2013 (2) 1,000 1,041 Allegheny County PA Hosp. Dev. Auth. Rev. (Magee Women's Hosp.) 6.00% 10/1/2010 (3) 4,235 4,867 Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health) 3.30% 12/3/1998 (1) 6,000 6,000 Allegheny County PA Hosp. Dev. Auth. Rev. (Presbyterian Univ. Health System) 6.00% 11/1/2002 (1)(Prere.) 3,000 3,244 Allegheny County PA Hosp. Dev. Auth. Rev. (Presbyterian Univ. Health System) 7.125% 7/1/1999 (1)(Prere.) 6,835 7,129 Allegheny County PA Hosp. Dev. Auth. Rev. (Univ. of Pittsburgh) 5.125% 7/1/2022 (1) 5,960 5,883 Allegheny County PA Hosp. Dev. Auth. Rev. (Univ. of Pittsburgh) 5.60% 4/1/2017 (1) 2,000 2,127 Allegheny County PA Hosp. Dev. Auth. VRDO (Children's Hosp. Pittsburgh) 3.35% 12/3/1998 (1) 2,050 2,050 Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health System) 3.30% 12/3/1998 (1) 2,700 2,700 Allegheny County PA Sanitation Auth. Sewer Rev. 5.50% 12/1/2013 (3) 19,000 20,083 Allegheny County PA Sanitation Auth. Sewer Rev. 5.50% 12/1/2016 (3) 23,665 24,545 Allegheny County PA Sanitation Auth. Sewer Rev. 6.00% 12/1/2019 (1) 20,000 22,350 Allegheny County PA Sanitation Auth. Sewer Rev. 6.25% 12/1/2014 (1) 9,660 10,852 Allegheny County PA Sanitation Auth. Sewer Rev. 6.50% 12/1/2011 (3) 8,000 8,596 Altoona PA Water Rev. Auth. 6.50% 11/1/2004 (3)(Prere.) 19,790 22,778 Altoona PA Water Rev. Auth. 6.50% 11/1/2019 (3) 210 238 Beaver County PA IDA PCR (Ohio Edison) 7.00% 6/1/2021 (3) 22,715 24,666 Beaver County PA IDA PCR (Ohio Edison) 7.10% 6/1/2018 (3) 5,000 5,327 Berks County PA GO 0.00% 11/15/2013 (3)(ETM) 7,250 3,514 Berks County PA GO 0.00% 11/15/2014 (3)(ETM) 8,615 3,948 Berks County PA GO 0.00% 11/15/2015 (3)(ETM) 6,250 2,705 Berks County PA GO 5.75% 11/15/2012 (3) 7,750 8,256 Berks County PA Hosp. Rev. (Reading Hosp.) 5.70% 10/1/2014 (1) 4,500 4,993 Berks County PA Hosp. Rev. (Reading Hosp.) 6.10% 10/1/2023 (1) 16,500 18,269 Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 5.00% 7/1/2022 (2) 5,815 5,720 Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 5.50% 7/1/2016 (2) 4,480 4,811 Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 6.50% 7/1/2002 (2)(Prere.) 8,500 9,426 Boyertown PA Area School Dist. GO 6.10% 9/1/2002 (2)(Prere.) 6,000 6,493 Butler County PA GO 6.00% 7/15/2012 (3) 5,185 5,540 Center City Philadelphia PA Business Improvement 5.50% 12/1/2015 (2) 6,955 7,370 Center Township PA Sewer Auth. Rev. 5.50% 4/15/2011 (1) 2,375 2,522 Central Dauphin PA School Dist. GO 0.00% 6/1/2004 (2) 4,800 3,831 Chester County PA Health & Educ. Fac. Auth. Rev. (Chester County Hosp.) 5.875% 7/1/2016 (1) 7,870 8,494 Chester County PA Health & Educ. Fac. Auth. Rev. (Jefferson Health System) 5.125% 5/15/2018 (2) 12,445 12,536 Chester County PA Health & Educ. Fac. Auth. Rev. (Jefferson Health System) 5.25% 5/15/2022 (2) 35,555 35,920 Coatesville PA School Dist. GO 5.75% 4/1/2015 (4) 10,080 10,925 Cornwall Lebanon PA Suburban Joint School Dist. GO 5.875% 3/1/2004 (3)(Prere.) 5,635 6,075 Cornwall Lebanon PA Suburban Joint School Dist. GO 5.90% 3/1/2004 (3)(Prere.) 3,270 3,537 Corry PA Area School Dist. GO 5.50% 12/15/2010 (1) 4,000 4,225 Dauphin County PA General Auth. Rev. (West Pennsylvania Hosp.) 5.50% 7/1/2013 (1) 5,000 5,279 Delaware County PA Auth. College Rev. (Haverford College) 5.40% 11/15/2013 (1) 1,750 1,844 Delaware County PA Auth. Rev. (Catholic Health East) 5.25% 11/15/2012 (2) 3,435 3,603 Delaware County PA Auth. Rev. (Catholic Health East) 5.25% 11/15/2013 (2) 4,665 4,859 Delaware County PA Auth. Rev. (Villanova Univ.) 5.00% 12/1/2028 (1) 26,885 26,637 Delaware County PA Hosp. Auth. Rev. (Delaware County Memorial Hosp.) 5.50% 8/15/2013 (1) 12,000 12,714
20 23
- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Delaware County PA Hosp. Auth. Rev. (Delaware County Memorial Hosp.) 7.125% 8/15/1999 (1)(Prere.) $ 5,160 $ 5,406 Delaware County PA Hosp. Auth. Rev. (Delaware County Memorial Hosp.) 7.20% 8/15/1999 (1)(Prere.) 8,000 8,385 Delaware River Joint Toll Bridge Comm. Pennsylvania & New Jersey Rev. 6.00% 7/1/2018 (3) 3,040 3,231 Delaware River Port Auth. Pennsylvania & New Jersey Rev. 5.50% 1/1/2026 (3) 21,450 22,448 Delaware River Port Auth. Pennsylvania & New Jersey Rev. 6.50% 1/1/2009 (2) 4,500 4,513 Delaware River Port Auth. Pennsylvania & New Jersey Rev. 7.375% 1/1/2007 (2) 13,500 13,818 Delaware Valley PA Regional Finance Auth. Local Govt. Rev. 5.50% 8/1/2028 (2) 36,750 40,361 Dover Township PA Sewer Auth. Rev. 5.50% 11/1/2017 (1) 2,235 2,347 Dover Township PA Sewer Auth. Rev. 5.55% 11/1/2022 (1) 4,000 4,194 Erie County PA Hosp. Auth. Rev. (St. Vincent Health Care) 6.125% 7/1/2013 (1) 3,900 4,228 Erie PA School Dist. GO 0.00% 9/1/2010 (4) 5,665 3,331 Erie PA School Dist. GO 0.00% 9/1/2011 (4) 5,780 3,216 Erie PA School Dist. GO 0.00% 9/1/2013 (4) 2,780 1,371 Erie PA School Dist. GO 0.00% 9/1/2016 (4) 5,785 2,403 Fort LeBoeuf PA School Dist. GO 5.80% 1/1/2003 (1)(Prere.) 5,500 5,908 Garnet Valley PA School Dist. GO 5.70% 4/1/2011 (2) 3,000 3,162 Greensburg Salem PA School Dist. GO 6.45% 9/15/2018 (1) 7,500 8,140 Hazleton PA Area School Dist. GO 5.50% 3/1/2011 (3) 3,740 4,067 Hazleton PA Area School Dist. GO 5.75% 3/1/2012 (3) 3,945 4,379 Hazleton PA Area School Dist. GO 6.00% 3/1/2016 (3) 18,245 20,723 Lancaster PA Higher Educ. Auth. Rev. (Franklin & Marshall College) 6.60% 4/15/2010 (1) 4,940 5,337 Lancaster PA Higher Educ. Auth. Rev. (Franklin & Marshall College) 6.70% 4/15/2012 (1) 4,000 4,344 Lancaster PA School Dist. GO 5.375% 2/15/2017 (3) 5,590 5,783 Lehigh County PA General Purpose Hosp. Auth. Rev. (Lehigh Valley Health Network) 5.00% 7/1/2028 (1) 15,905 15,615 Lehigh County PA General Purpose Hosp. Auth. Rev. (Lehigh Valley Health Network) 5.625% 7/1/2005 (1)(Prere.) 800 886 Lehigh County PA General Purpose Hosp. Auth. Rev. (Lehigh Valley Health Network) 5.625% 7/1/2025 (1) 9,200 9,722 Lehigh County PA General Purpose Hosp. Auth. Rev. (Lehigh Valley Health Network) 5.70% 7/1/2010 (1) 3,905 4,234 Lehigh County PA General Purpose Hosp. Auth. Rev. (Lehigh Valley Health Network) 7.00% 7/1/2016 (1) 4,415 5,517 Lehigh County PA GO 6.00% 10/15/1999 (2)(Prere.) 1,000 1,025 Lewisburg PA Area School Dist. GO 6.20% 6/1/2002 (1)(Prere.) 3,500 3,782 Lewisburg PA Area School Dist. GO 6.25% 6/1/2002 (1)(Prere.) 3,685 3,988 Ligonier Valley PA School Dist. GO 6.00% 3/1/2004 (1)(Prere.) 6,000 6,587 Manheim PA Central School Dist. GO 6.85% 3/1/2008 (3) 2,705 2,881 McKeesport PA Area School Dist. GO 0.00% 10/1/2004 (1) 1,040 819 McKeesport PA Area School Dist. GO 0.00% 10/1/2005 (1) 1,050 789 McKeesport PA Area School Dist. GO 0.00% 10/1/2006 (1) 2,015 1,447 McKeesport PA Area School Dist. GO 0.00% 10/1/2007 (1) 2,080 1,425 McKeesport PA Area School Dist. GO 0.00% 10/1/2008 (1) 2,270 1,477 McKeesport PA Area School Dist. GO 0.00% 10/1/2009 (1) 2,020 1,245 McKeesport PA Area School Dist. GO 0.00% 10/1/2010 (1) 1,840 1,072 McKeesport PA Area School Dist. GO 0.00% 10/1/2011 (1) 1,835 1,011 Montgomery County PA Higher Educ. & Health Auth. Rev. (Abington Memorial Hosp.) 5.00% 6/1/2028 (2) 8,660 8,503 Montgomery County PA Higher Educ. & Health Auth. Rev. (Abington Memorial Hosp.) 6.00% 6/1/2003 (2)(Prere.) 8,140 8,998 Montgomery County PA Higher Educ. & Health Auth. Rev. (Abington Memorial Hosp.) 6.00% 6/1/2022 (2) 2,020 2,201 Montgomery County PA Higher Educ. & Health Auth. Rev. (Abington Memorial Hosp.) 6.10% 6/1/2012 (2) 5,000 5,491 Montgomery County PA Higher Educ. & Health Auth. Rev. (Pottstown Healthcare) 5.00% 1/1/2027 (4) 6,250 6,139 Montgomery County PA Higher Educ. & Health Auth. Rev. (Pottstown Healthcare) 5.375% 1/1/2012 (4) 5,085 5,398
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- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Montgomery County PA IDA PCR (PECO) 6.70% 12/1/2021 (1) $ 12,000 $ 13,051 Mount Lebanon PA Hosp. Dev. Auth. Rev. (St. Clair Memorial Hosp.) 6.25% 7/1/2006 (3) 9,250 10,503 Nazareth PA School Dist. GO 5.50% 11/15/2015 (2) 1,500 1,587 Neshaminy PA School Dist. GO 5.70% 2/15/2014 (3) 8,795 9,535 Neshaminy PA School Dist. GO 6.30% 8/15/2002 (3)(Prere.) 10,000 10,882 North Hills PA School Dist. GO 5.25% 11/15/2017 (3) 7,440 8,064 North Penn PA Water Auth. Rev. 6.125% 11/1/2010 (3) 5,140 5,571 North Wales PA Water Auth. Rev. 5.25% 11/1/2019 (3) 12,350 12,557 North Wales PA Water Auth. Rev. 6.125% 11/1/2002 (3)(Prere.) 11,300 12,137 Northampton County PA Higher Educ. Auth. Rev. (Lehigh Univ.) 7.10% 11/15/1999 (1)(Prere.) 6,000 6,341 Northampton County PA Higher Educ. Auth. Rev. (Lehigh Univ.) 7.10% 11/15/2009 (1) 1,035 1,092 Northampton County PA Hosp. Auth. Rev. (Easton Hosp.) 6.25% 1/1/2019 (1) 10,000 10,900 Northampton County PA Hosp. Auth. Rev. (Easton Hosp.) 7.875% 1/1/2019 (5) 285 292 Northampton County PA IDA PCR (Central Metro. Edison) 6.10% 7/15/2021 (1) 4,410 4,917 Northeastern PA Hosp. & Educ. Health Rev. (Wyoming Valley Health) 5.25% 1/1/2016 (2) 6,560 6,714 Northeastern PA Hosp. & Educ. Health Rev. (Wyoming Valley Health) 5.25% 1/1/2026 (2) 5,350 5,400 Northumberland County PA Commonwealth Lease Rev. 6.25% 10/15/2001 (1)(Prere.) 13,600 14,565 Owen J. Roberts School Dist. PA GO 5.375% 5/15/2018 (1) 4,565 4,726 Penn Hills PA GO 5.80% 12/1/2002 (2)(Prere.) 11,735 12,630 Penn Trafford PA School Dist. GO 5.85% 5/1/2004 (1)(Prere.) 2,435 2,662 Pennsylvania Convention Center Auth. Rev. 0.00% 9/1/2004 (3)(ETM) 5,000 3,966 Pennsylvania Convention Center Auth. Rev. 6.00% 9/1/2019 (3)(ETM) 12,600 14,447 Pennsylvania Convention Center Auth. Rev. 6.70% 9/1/2016 (3)(ETM) 19,150 23,275 Pennsylvania GO 5.125% 3/15/2017 (2) 7,990 8,159 Pennsylvania GO 5.375% 5/15/2010 (3) 13,800 14,833 Pennsylvania GO 5.375% 5/15/2012 (3) 16,570 17,625 Pennsylvania GO 5.375% 5/15/2014 (3) 14,000 14,746 Pennsylvania GO 5.375% 5/15/2016 (3) 5,000 5,229 Pennsylvania Higher Educ. Auth. Rev. (Allegheny/Delaware Valley Obligated Group) 5.50% 11/15/2008 (1) 2,000 2,022 Pennsylvania Higher Educ. Auth. Rev. (Allegheny/Delaware Valley Obligated Group) 5.875% 11/15/2016 (1) 20,000 20,244 Pennsylvania Higher Educ. Auth. Rev. (Allegheny/Delaware Valley Obligated Group) 5.875% 11/15/2021 (1) 9,545 9,661 Pennsylvania Higher Educ. Auth. Rev. (Bryn Mawr College) 5.625% 12/1/2014 (1) 2,200 2,395 Pennsylvania Higher Educ. Auth. Rev. (Hahnemann Univ.) 7.20% 7/1/1999 (1)(Prere.) 1,400 1,461 Pennsylvania Higher Educ. Auth. Rev. (College and Univ.) 7.20% 1/1/2004 (2) 2,120 2,127 Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.00% 4/1/2029 (1) 8,700 8,606 Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.25% 4/1/2011 (1) 3,545 3,772 Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.25% 4/1/2012 (1) 1,040 1,099 Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.25% 4/1/2016 (1) 4,000 4,152 Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.625% 6/15/2013 (3) 2,605 2,807 Pennsylvania Intergovernmental Cooperative Auth. Rev. 7.00% 6/15/2005 (3)(Prere.) 2,250 2,635 Pennsylvania Turnpike Comm. Rev. 5.50% 12/1/2017 (3) + 16,000 16,570 Pennsylvania Turnpike Comm. Rev. 5.75% 12/1/2012 (2) 10,000 10,793 Pennsylvania Turnpike Comm. Rev. 6.00% 6/1/2015 (1) 28,800 30,752 Pennsylvania Turnpike Comm. Rev. 6.25% 6/1/2011 (2) 14,390 15,450 Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 5.00% 12/1/2023 (2) 24,325 24,139 Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 5.125% 12/1/2016 (2) 4,735 4,857 Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 6.00% 12/1/2004 (2)(Prere.) 7,450 8,377 Philadelphia PA Airport Rev. 5.00% 7/1/2023 (3) 8,950 8,715 Philadelphia PA Airport Rev. 5.125% 7/1/2028 (3) 12,650 12,507 Philadelphia PA Airport Rev. 5.750% 6/15/2010 (3) 4,440 4,914 Philadelphia PA Gas Works Rev. 5.00% 7/1/2028 (4) 5,000 4,946 Philadelphia PA Gas Works Rev. 5.25% 7/1/2011 (4) 3,965 4,163 Philadelphia PA Gas Works Rev. 5.375% 7/1/2012 (4) 4,000 4,222 Philadelphia PA Gas Works Rev. 5.375% 7/1/2014 (4) 4,810 5,024 Philadelphia PA Gas Works Rev. 6.00% 5/15/2000 (2)(Prere.) 14,250 15,041 Philadelphia PA Gas Works Rev. 6.75% 1/1/2015 (2) 13,930 14,248 Philadelphia PA Gas Works Rev. 7.25% 1/1/2010 (2) 10,085 10,319 Philadelphia PA GO 5.00% 5/15/2020 (1) 12,650 12,567
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- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Philadelphia PA GO 5.00% 3/15/2028 (4) ++ $ 10,000 $ 9,833 Philadelphia PA GO 5.25% 3/15/2014 (4) ++ 2,000 2,077 Philadelphia PA GO 5.25% 3/15/2015 (4) ++ 2,600 2,690 Philadelphia PA GO 6.00% 11/15/2010 (3) 2,810 3,101 Philadelphia PA GO 6.00% 11/15/2011 (3) 3,025 3,340 Philadelphia PA GO 6.00% 11/15/2012 (3) 3,355 3,704 Philadelphia PA GO 6.00% 11/15/2013 (3) 1,885 2,076 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev. (Jefferson Health System) 5.125% 5/15/2018 (2) 5,700 5,742 Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2011 (2) 4,520 4,822 Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2012 (2) 5,990 6,355 Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2015 (2) 6,350 6,648 Philadelphia PA Parking Auth. Rev. 5.50% 9/1/2018 (2) 4,250 4,460 Philadelphia PA School Dist. GO 0.00% 7/1/2001 (2) 11,750 10,649 Philadelphia PA School Dist. GO 5.25% 4/1/2017 (2) 5,470 5,577 Philadelphia PA School Dist. GO 5.50% 9/1/2015 (2) 5,000 5,255 Philadelphia PA School Dist. GO 5.50% 9/1/2018 (2) 4,000 4,167 Philadelphia PA School Dist. GO 5.50% 9/1/2025 (2) 15,000 15,654 Philadelphia PA Water & Waste Water Rev. 5.50% 8/1/2014 (1) 12,900 13,599 Philadelphia PA Water & Waste Water Rev. 5.60% 8/1/2018 (1) 5,920 6,234 Philadelphia PA Water & Waste Water Rev. 6.25% 8/1/2011 (1) 3,750 4,355 Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2010 (3) 33,865 41,593 Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2011 (3) 35,685 44,125 Pine Richland School Dist. PA GO 5.50% 9/1/2019 (4) 3,430 3,579 Pittsburgh PA GO 5.125% 9/1/2014 (3) 10,435 10,737 Pittsburgh PA GO 5.125% 9/1/2015 (3) 7,795 7,978 Pittsburgh PA GO 5.25% 9/1/2017 (3) 4,980 5,117 Pittsburgh PA GO 5.25% 9/1/2018 (2) 5,500 5,623 Pittsburgh PA GO 5.50% 9/1/2014 (2) 10,500 11,439 Pittsburgh PA GO 6.25% 9/1/2001 (1)(Prere.) 11,030 11,982 Pittsburgh PA Public Parking Auth. Rev. 5.875% 12/1/2012 (3) 8,200 8,903 Pittsburgh PA School Dist. 0.00% 8/1/2009 (2) 4,000 2,483 Pittsburgh PA Water & Sewer System Rev. 5.00% 9/1/2019 (4) 5,170 5,181 Pittsburgh PA Water & Sewer System Rev. 7.25% 9/1/2014 (3)(ETM) 25,210 31,249 Pittsburgh PA Water & Sewer System Rev. 7.625% 9/1/2004 (3)(ETM) 5,370 6,200 Pocono Mountain PA School Dist. GO 5.75% 10/1/2009 (2) 6,000 6,328 Reading PA GO 5.875% 11/15/2002 (2)(Prere.) 4,175 4,498 Reading PA GO 5.875% 11/15/2012 (2) 13,825 14,765 St. Mary's Hosp. Auth. Langhorne PA Rev. (Franciscan Health System) 7.00% 7/1/2009 (5) 1,000 1,040 St. Mary's Hosp. Auth. Langhorne PA Rev. (Franciscan Health System) 7.00% 7/1/2013 (5) 5,050 5,253 St. Mary's Hosp. Auth. Langhorne PA Rev. (Franciscan Health System) 7.00% 6/15/2015 (5) 1,770 1,838 Sayre PA Health Care Fac. Auth. Rev. (Guthrie Health Care System) 7.00% 3/1/2011 (2) 2,000 2,164 Sayre PA Health Care Fac. Auth. VRDO (VHA of Pennsylvania, Pooled Capital Asset Financial Program) 3.20% 12/2/1998 (2) 10,100 10,100 Scranton-Lackawanna PA Health & Welfare Auth. Rev. (Mercy Health System) 5.625% 1/1/2016 (1) 5,490 5,862 Scranton-Lackawanna PA Health & Welfare Auth. Rev. (Mercy Health System) 5.70% 1/1/2023 (1) 9,205 9,793 Seneca Valley PA School Dist. GO 5.50% 7/1/2002 (3)(Prere.) 9,965 10,552 Seneca Valley PA School Dist. GO 5.75% 7/1/2002 (3)(Prere.) 4,000 4,269 South Fork PA Hosp. Auth. Rev. (Conemaugh Valley Hosp.) 5.625% 7/1/2010 (6) + 2,300 2,542 South Fork PA Hosp. Auth. Rev. (Conemaugh Valley Hosp.) 5.75% 7/1/2018 (6) 7,000 7,669 Southeastern PA Transp. Auth. Rev. 5.375% 3/1/2017 (3) 2,500 2,607 Southeastern PA Transp. Auth. Rev. 5.375% 3/1/2022 (3) 15,825 16,398 Southeastern PA Transp. Auth. Rev. 5.45% 3/1/2011 (3) 3,730 4,030 Southwestern PA School Dist. GO 6.40% 6/15/2002 (3)(Prere.) 3,825 4,228 Univ. of Pittsburgh PA 5.00% 6/1/2021 (1) 6,000 5,952 Univ. of Pittsburgh PA 5.25% 6/1/2017 (3) 6,995 7,223
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- ----------------------------------------------------------------------------------------------------------------------------------- FACE MARKET MATURITY AMOUNT VALUE* PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Univ. of Pittsburgh PA 5.50% 6/1/2010 (1) $ 5,285 $ 5,779 Univ. of Pittsburgh PA 5.50% 6/1/2014 (1) 12,620 13,525 Univ. of Pittsburgh PA 6.125% 6/1/2002 (1)(Prere.) 25,025 27,418 Univ. of Pittsburgh PA 6.125% 6/1/2021 (1) 13,545 14,713 Univ. of Pittsburgh PA 6.25% 6/1/2002 (1)(Prere.) 2,760 3,035 Univ. of Pittsburgh PA 6.25% 6/1/2012 (1) 1,490 1,625 Washington County PA Hosp. Auth. Rev. (Shadyside Hosp.) 5.875% 12/15/2009 (2) 22,000 23,874 Washington County PA Hosp. Auth. Rev. (Washington Hosp.) 6.75% 7/1/2012 (2) 10,000 10,621 West Allegheny PA School Dist. GO 6.25% 8/1/2002 (2)(Prere.) 6,155 6,623 West Jefferson Hills PA School Dist. GO 5.90% 8/1/2010 (3) 3,160 3,359 West Jefferson Hills PA School Dist. GO 5.95% 8/1/2014 (3) 7,180 7,653 West Mifflin PA School Dist. GO 5.35% 2/15/2009 (3) 1,555 1,654 West Mifflin PA School Dist. GO 5.625% 2/15/2015 (3) 7,000 7,473 Westmoreland County PA Auth. Rev. 6.125% 7/1/2017 (1)(ETM) 8,205 9,438 York County PA Hosp. Auth. Rev. (York Hosp.) 5.25% 7/1/2017 (2) 3,500 3,574 York County PA Hosp. Auth. Rev. (York Hosp.) 5.25% 7/1/2023 (2) 8,675 8,759 York County PA Solid Waste & Refuse Auth. Rev. 5.50% 12/1/2013 (3) 6,750 7,365 York County PA Solid Waste & Refuse Auth. Rev. 5.50% 12/1/2014 (3) 4,050 4,407 York PA City Sewer Auth. Rev. 0.00% 12/1/2012 (1) 3,235 1,665 OUTSIDE PENNSYLVANIA: Puerto Rico Govt. Dev. Bank VRDO 2.90% 12/2/1998 (1) 200 200 ---------- 1,853,131 ---------- NONINSURED (3.9%) Delaware County PA Hosp. Auth. VRDO (Crozier-Chester Medical Center) 3.53% 12/2/1998 LOC 4,900 4,900 Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 3.30% 12/2/1998 700 700 Emmaus PA General Auth. Local Govt. Rev. VRDO 3.25% 12/2/1998 400 400 Lower Merion Township PA School Dist. GO 5.00% 5/15/2023 11,600 11,407 Montgomery County PA GO 5.375% 10/15/2025 7,930 8,132 Pennsylvania Higher Educ. Fac. Auth. Rev. (Univ. of Pennsylvania Health System Obligated Group) 5.75% 1/1/2012 6,000 6,415 Pennsylvania Higher Educ. Fac. Auth. Rev. (Univ. of Pennsylvania Health System Obligated Group) 5.75% 1/1/2022 12,415 13,082 Pennsylvania Higher Educ. Fac. Auth. Rev. (Univ. of Pennsylvania Health System Obligated Group) 5.875% 1/1/2015 1,800 1,921 Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 3.25% 12/2/1998 2,350 2,350 Pennsylvania Higher Educ. Fac. Auth. VRDO (Univ. of Pennsylvania) 3.25% 12/2/1998 300 300 Pennsylvania Housing Single Family Mortgage Finance Agency Rev. 6.90% 4/1/2017 5,225 5,562 Pennsylvania Housing Single Family Mortgage Finance Agency Rev. 7.55% 4/1/2016 2,875 3,010 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO (Children's Hosp. of Philadelphia) 3.25% 12/2/1998 LOC 300 300 St. Mary's Hosp. Auth. Bucks County PA Rev. (Catholic Health System) 5.375% 12/1/2011 2,525 2,693 St. Mary's Hosp. Auth. Bucks County PA Rev. (Catholic Health System) 5.375% 12/1/2013 2,340 2,467 OUTSIDE PENNSYLVANIA: Puerto Rico Highway & Transp. Auth. Rev. VRDO 2.90% 12/2/1998 LOC 1,900 1,900 Puerto Rico TRAN 3.50% 7/30/1999 10,000 10,045 ---------- 75,584 ---------- - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (COST $1,793,685) 1,928,715 - -----------------------------------------------------------------------------------------------------------------------------------
24 27
- ----------------------------------------------------------------------------------------------------------------------------------- MARKET VALUE* (000) - ----------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (0.8%) - ----------------------------------------------------------------------------------------------------------------------------------- Other Assets--Note B $ 51,195 Liabilities (36,137) ---------- 15,058 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) - ----------------------------------------------------------------------------------------------------------------------------------- Applicable to 168,876,786 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $1,943,773 =================================================================================================================================== NET ASSET VALUE PER SHARE $11.51 ===================================================================================================================================
*See Note A in Notes to Financial Statements. +Securities with an aggregate value of $4,230,000 have been segregated as initial margin for open futures contracts. For key to abbreviations and other references, see below.
- ----------------------------------------------------------------------------------------------------------------------------------- AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF: - ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT PER (000) SHARE - ----------------------------------------------------------------------------------------------------------------------------------- Paid in Capital $1,800,090 $10.66 Undistributed Net Investment Income -- -- Accumulated Net Realized Gains--Note E 9,072 .05 Unrealized Appreciation (Depreciation)--Notes E and F Investment Securities 135,030 .80 Futures Contracts (419) -- - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $1,943,773 $11.51 ===================================================================================================================================
KEY TO ABBREVIATIONS BAN--Bond Anticipation Note. CP--Commercial Paper. GO--General Obligation Bond. IDA--Industrial Development Authority Bond. PCR--Pollution Control Revenue Bond. PUT--Put Option Obligation. TOB--Tender Option Bond. TRAN--Tax Revenue Anticipation Note. VRDO--Variable Rate Demand Obligation. (ETM)--Escrowed to Maturity. (Prere.)--Prerefunded. ++Security purchased on a when-issued or delayed delivery basis for which the fund has not taken delivery as of November 30, 1998. Scheduled principal and interest payments are guaranteed by: (1) MBIA (Municipal Bond Insurance Association). (2) AMBAC (Ambac Assurance Corporation). (3) FGIC (Financial Guaranty Insurance Company). (4) FSA (Financial Security Assurance). (5) BIGI (Bond Investors Guaranty Insurance). (6) Connie Lee Inc. 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. 25 28 STATEMENT OF OPERATIONS This Statement shows interest earned by each fund during the reporting period, and details the operating expenses charged to the fund. These expenses directly reduce the amount of investment income available to pay to shareholders as tax-exempt income dividends. This Statement also shows any Net Gain (Loss) realized on the sale of investments, and the increase or decrease in the Unrealized Appreciation (Depreciation) on investments during the period. If a fund invested in futures contracts during the period, the results of these investments are shown separately.
- -------------------------------------------------------------------------------------------------------- PENNSYLVANIA PENNSYLVANIA INSURED TAX-EXEMPT LONG-TERM MONEY MARKET TAX-EXEMPT FUND FUND ----------------------------------------- YEAR ENDED NOVEMBER 30, 1998 ----------------------------------------- (000) (000) - -------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Interest $59,410 $100,290 ----------------------------------------- Total Income 59,410 100,290 ----------------------------------------- EXPENSES The Vanguard Group--Note B Investment Advisory Services 216 236 Management and Administrative 2,679 3,050 Marketing and Distribution 542 397 Custodian Fees 23 23 Auditing Fees 9 9 Shareholders' Reports 20 27 Annual Meeting and Proxy Costs 3 4 Trustees' Fees and Expenses 3 3 ----------------------------------------- Total Expenses 3,495 3,749 Expenses Paid Indirectly--Note C (23) (110) ----------------------------------------- Net Expenses 3,472 3,639 - -------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 55,938 96,651 - -------------------------------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) Investment Securities Sold 51 16,795 Futures Contracts -- (2,343) - -------------------------------------------------------------------------------------------------------- REALIZED NET GAIN 51 14,452 - -------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities -- 23,763 Futures Contracts -- (328) - -------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- 23,435 - -------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $55,989 $134,538 ========================================================================================================
26 29 STATEMENT OF CHANGES IN NET ASSETS This Statement shows how each fund's total net assets changed during the two most recent reporting periods. The Operations section summarizes information detailed in the Statement of Operations. Because the fund distributes its income to shareholders each day, the amounts of Distributions--Net Investment Income generally equal the net income earned as shown under the Operations section. The amounts of Distributions--Realized Capital Gain may not match the capital gains shown in the Operations section, because distributions are determined on a tax basis and may be made in a period different from the one in which the gains were realized on the financial statements. The Capital Share Transactions section shows the amount shareholders invested in the fund, either by purchasing shares or by reinvesting distributions, and the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed are shown at the end of the Statement.
- --------------------------------------------------------------------------------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT PENNSYLVANIA INSURED LONG-TERM MONEY MARKET FUND TAX-EXEMPT FUND ------------------------------------------------------------------- YEAR ENDED NOVEMBER 30, - --------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1998 1997 (000) (000) (000) (000) - --------------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net Investment Income $ 55,938 $ 50,219 $ 96,651 $ 90,336 Realized Net Gain (Loss) 51 (44) 14,452 (2,333) Change in Unrealized Appreciation (Depreciation) -- -- 23,435 14,002 ------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations 55,989 50,175 134,538 102,005 ------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income (55,938) (50,219) (96,651) (90,336) Realized Capital Gain -- -- -- (9,435 ------------------------------------------------------------------- Total Distributions (55,938) (50,219) (96,651) (99,771) ------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS(1) Issued 2,017,947 1,721,948 379,935 307,829 Issued in Lieu of Cash Distributions 51,617 45,994 66,823 69,664 Redeemed (1,798,948) (1,541,322) (287,190) (284,646) ------------------------------------------------------------------- Net Increase from Capital Share Transactions 270,616 226,620 159,568 92,847 - --------------------------------------------------------------------------------------------------------------------------------- Total Increase 270,667 226,576 197,455 95,081 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Year 1,597,958 1,371,382 1,746,318 1,651,237 ------------------------------------------------------------------- End of Year $1,868,625 $1,597,958 $1,943,773 $1,746,318 ================================================================================================================================= (1)Shares Issued (Redeemed) Issued 2,017,947 1,721,948 33,258 27,683 Issued in Lieu of Cash Distributions 51,617 45,994 5,846 6,259 Redeemed (1,798,948) (1,541,322) (25,162) (25,593) ------------------------------------------------------------------- Net Increase in Shares Outstanding 270,616 226,620 13,942 8,349 =================================================================================================================================
27 30 FINANCIAL HIGHLIGHTS This table summarizes each fund's investment results and distributions to shareholders on a per-share basis. It also presents the fund's Total Return and shows net investment income and expenses as percentages of average net assets. These data will help you assess: the variability of the fund's net income and total returns from year to year; the relative contributions of net income and capital gains to the fund's total return; how much it costs to operate the fund; and the extent to which the fund tends to distribute capital gains. The table also shows the Portfolio Turnover Rate, a measure of trading activity. A turnover rate of 100% means that the average security is held in the fund for one year. Money market funds are not required to report a Portfolio Turnover Rate.
- --------------------------------------------------------------------------------------------------------------------------------- PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND YEAR ENDED NOVEMBER 30, ----------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .033 .034 .033 .036 .025 Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- -- ----------------------------------------------------------------- Total from Investment Operations .033 .034 .033 .036 .025 ----------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.033) (.034) (.033) (.036) (.025) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------- Total Distributions (.033) (.034) (.033) (.036) (.025) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 ================================================================================================================================= TOTAL RETURN 3.33% 3.49% 3.36% 3.69% 2.57% ================================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Year (Millions) $1,869 $1,598 $1,371 $1,200 $1,105 Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.19% 0.20% 0.20% Ratio of Net Investment Income to Average Net Assets 3.27% 3.42% 3.30% 3.62% 2.55% =================================================================================================================================
28 31
- --------------------------------------------------------------------------------------------------------------------------------- PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND YEAR ENDED NOVEMBER 30, ----------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $11.27 $11.26 $11.28 $10.07 $11.36 - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .597 .598 .606 .612 .625 Net Realized and Unrealized Gain (Loss) on Investments .240 .074 .017 1.210 (1.211) ----------------------------------------------------------------- Total from Investment Operations .837 .672 .623 1.822 (.586) ----------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.597) (.598) (.606) (.612) (.625) Distributions from Realized Capital Gain -- (.064) (.037) -- (.079) ----------------------------------------------------------------- Total Distributions (.597) (.662) (.643) (.612) (.704) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $11.51 $11.27 $11.26 $11.28 $10.07 ================================================================================================================================= TOTAL RETURN 7.60% 6.21% 5.77% 18.48% -5.44% ================================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Year (Millions) $1,944 $1,746 $1,651 $1,569 $1,299 Ratio of Total Expenses to Average Net Assets 0.20% 0.18% 0.19% 0.20% 0.20% Ratio of Net Investment Income to Average Net Assets 5.23% 5.37% 5.47% 5.63% 5.76% Portfolio Turnover Rate 19% 9% 13% 12% 16% ================================================================================================================================
29 32 NOTES TO FINANCIAL STATEMENTS Vanguard Pennsylvania Tax-Exempt Funds comprises the Pennsylvania Tax-Exempt Money Market and Pennsylvania Insured Long-Term Tax-Exempt Funds, each of which is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Each fund invests in debt instruments of municipal issuers whose ability to meet their obligations may be affected by economic and political developments in the Commonwealth of Pennsylvania. A. The following significant accounting policies conform to generally accepted accounting principles for mutual funds. The funds consistently follow such policies in preparing their financial statements. 1. SECURITY VALUATION: Tax-Exempt Money Market Fund: Investment securities are valued at amortized cost, which approximates market value. Insured Long-Term Tax-Exempt Fund: Bonds, and temporary cash investments acquired 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 ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued by methods deemed by the Board of Trustees to represent fair value. 2. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements. 3. FUTURES CONTRACTS: The Insured Long-Term Tax-Exempt Fund may use Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of enhancing returns, managing interest rate risk, maintaining liquidity, diversifying credit risk, and minimizing transaction costs. The fund may purchase or sell futures contracts instead of bonds to take advantage of pricing differentials between the futures contracts and the underlying bonds. The fund may also seek to take advantage of price differences among bond market sectors by simultaneously buying futures (or bonds) of one market sector and selling futures (or bonds) of another sector. Futures contracts may also be used to simulate a fully invested position in the underlying bonds while maintaining a cash balance for liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses). 4. DISTRIBUTIONS: 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 funds under methods approved by the Board of Trustees. Each fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At November 30, 1998, the funds had contributed capital to Vanguard (included in Other Assets) of: 30 33
----------------------------------------------------------------------------------------------------- CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE TO VANGUARD OF FUND OF VANGUARD'S PENNSYLVANIA TAX-EXEMPT FUND (000) NET ASSETS CAPITALIZATION ----------------------------------------------------------------------------------------------------- Money Market $343 0.02% 0.5% Insured Long-Term 364 0.02 0.5 -----------------------------------------------------------------------------------------------------
The funds' Trustees and officers are also Directors and officers of Vanguard. C. The funds' investment adviser may direct new issue purchases, subject to obtaining the best price and execution, to underwriters who have agreed to rebate or credit to the funds part of the underwriting fees generated. Such rebates or credits are used solely to reduce the funds' administrative expenses. The funds' custodian bank has also agreed to reduce its fees when the funds maintain cash on deposit in the noninterest-bearing custody account. For the year ended November 30, 1998, directed brokerage and custodian fee offset arrangements reduced expenses by:
--------------------------------------------------------------------------------------------------------------------- EXPENSE REDUCTION (000) TOTAL EXPENSE -------------------------------------------- REDUCTION AS A DIRECTED CUSTODIAN PERCENTAGE OF PENNSYLVANIA TAX-EXEMPT FUND BROKERAGE FEES AVERAGE NET ASSETS --------------------------------------------------------------------------------------------------------------------- Money Market -- $23 -- Insured Long-Term $87 23 0.01% ---------------------------------------------------------------------------------------------------------------------
D. During the year ended November 30, 1998, the Insured Long-Term Tax-Exempt Fund purchased $452,328,000 of investment securities and sold $344,570,000 of investment securities, other than temporary cash investments. E. Capital gains distributions are determined on a tax basis and may differ from realized capital gains for financial reporting purposes due to differences in the timing of realization of gains. The Insured Long-Term Tax-Exempt Fund had realized losses totaling $6,980,000 through November 30, 1998, which are deferred for tax purposes and reduce the amount of unrealized appreciation on investment securities for tax purposes (see Note F.) At November 30, 1998, the Insured Long-Term Tax-Exempt Fund had capital gains of $15,633,000 available for distribution. The Insured Long-Term Tax-Exempt Fund used a capital loss carryforward of $532,000 to offset taxable capital gains realized during the year ended November 30, 1998, reducing the amount of capital gains that would otherwise be available to distribute to shareholders. F. At November 30, 1998, net unrealized appreciation of Insured Long-Term Tax-Exempt Fund investment securities for federal income tax purposes was $128,050,000, consisting of unrealized gains of $128,934,000 on securities that had risen in value since their purchase and $884,000 in unrealized losses on securities that had fallen in value since their purchase. At November 30, 1998, the aggregate settlement value of open futures contracts expiring through March 1999 and the related unrealized appreciation (depreciation) were:
----------------------------------------------------------------------------------------------------------------------- (000) ----------------------------------------------- PENNSYLVANIA AGGREGATE UNREALIZED TAX-EXEMPT FUND/ NUMBER OF LONG SETTLEMENT APPRECIATION FUTURES CONTRACTS (SHORT) CONTRACTS VALUE (DEPRECIATION) ----------------------------------------------------------------------------------------------------------------------- Insured Long-Term/ Municipal Bond Index 60 $ 7,588 $ 88 U.S. Treasury Bond (516) 66,965 (615) U.S. Treasury Note (186) 22,154 108 -----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on open futures contracts is treated as realized loss for tax purposes. 31 34 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Trustees of Vanguard Pennsylvania Tax-Exempt Funds [PHOTO] In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Pennsylvania Tax-Exempt Money Market Fund and Vanguard Pennsylvania Insured Long-Term Tax-Exempt Fund (constituting Vanguard Pennsylvania Tax-Exempt Funds, hereafter referred to as the "Funds") at November 30, 1998, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 1998 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Thirty South Seventeenth Street Philadelphia, Pennsylvania 19103 January 6, 1999 SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD PENNSYLVANIA TAX-EXEMPT FUNDS This information for the fiscal year ended November 30, 1998, is included pursuant to provisions of the Internal Revenue Code. Each fund designates 100% of its income dividends as exempt-interest dividends. 32 35 TRUSTEES AND OFFICERS JOHN C. BOGLE Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard Group, Inc., and each of the investment companies in The Vanguard Group. JOHN J. BRENNAN Chairman of the Board, Chief Executive Officer, and Director/Trustee of The Vanguard Group, Inc., and each of the investment companies in The Vanguard Group. BARBARA BARNES HAUPTFUHRER Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc., Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and Ladies Professional Golf Association; Trustee Emerita of Wellesley College. JOANN HEFFERNAN HEISEN Vice President, Chief Information Officer, and a member of the Executive Committee of Johnson & Johnson; Director of Johnson & JohnsonoMerck Consumer Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and Dyslexic, The Medical Center at Princeton, and Women's Research and Education Institute. BURTON G. MALKIEL Chemical Bank Chairman's Professor of Economics, Princeton University; Director of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Southern New England Telecommunications Co. ALFRED M. RANKIN, JR. Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co. JOHN C. SAWHILL President and Chief Executive Officer of The Nature Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and President of New York University; Director of Pacific Gas and Electric Co., Procter & Gamble Co., NACCO Industries, and Newfield Exploration Co. JAMES O. WELCH, JR. Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp. J. LAWRENCE WILSON Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins Engine Co. and The Mead Corp.; Trustee of Vanderbilt University. OTHER FUND OFFICERS RAYMOND J. KLAPINSKY Secretary; Managing Director and Secretary of The Vanguard Group, Inc.; Secretary of each of the investment companies in The Vanguard Group. THOMAS J. HIGGINS Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies in The Vanguard Group. KAREN E. WEST Controller; Principal of The Vanguard Group, Inc.; Controller of each of the investment companies in The Vanguard Group. OTHER VANGUARD OFFICERS R. GREGORY BARTON Managing Director, Legal Department. ROBERT A. DISTEFANO Managing Director, Information Technology. JAMES H. GATELY Managing Director, Individual Investor Group. KATHLEEN C. GUBANICH Managing Director, Human Resources. IAN A. MACKINNON Managing Director, Fixed Income Group. F. WILLIAM MCNABB, III Managing Director, Institutional Investor Group. MICHAEL S. MILLER Managing Director, Planning and Development. RALPH K. PACKARD Managing Director and Chief Financial Officer. GEORGE U. SAUTER Managing Director, Core Management Group. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company is the owner of trademarks and copyrights relating to the Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates. 36 VANGUARD MILESTONES [GRAPHIC] The Vanguard Group is named for HMS Vanguard, Admiral Horatio Nelson's flagship at the Battle of the Nile on August 1, 1798. Our founder, John C. Bogle, chose the name after reading Nelson's inspiring tribute to his fleet: "Nothing could withstand the squadron . . . with the judgment of the captains, together with their valour, and that of the officers and men of every description, it was absolutely irresistible." [GRAPHIC] Walter L. Morgan, founder of Wellington Fund, the nation's first balanced mutual fund and forerunner of today's family of some 100 Vanguard funds, celebrated his 100th birthday on July 23, 1998. Mr. Morgan, a true investment pioneer, died six weeks later on September 2. [GRAPHIC] Wellington Fund, The Vanguard Group's oldest fund, was incorporated by Mr. Morgan 70 years ago, on December 28, 1928. The fund was named after the Duke of Wellington, whose forces defeated Napoleon Bonaparte at the Battle of Waterloo in 1815. [THE VANGUARD GROUP LOGO] Post Office Box 2600 Valley Forge, Pennsylvania 19482 FUND INFORMATION 1-800-662-7447 INDIVIDUAL ACCOUNT SERVICES 1-800-662-2739 INSTITUTIONAL INVESTOR SERVICES 1-800-523-1036 www.vanguard.com online@vanguard.com All Vanguard funds are offered by prospectus only. Prospectuses contain more complete information on advisory fees, distribution charges, and other expenses and should be read carefully before you invest or send money. Prospectuses can be obtained directly from The Vanguard Group. Q770-01/25/1999 (C) 1999 Vanguard Marketing Corporation, Distributor. All rights reserved. [GRAPHIC] -----END PRIVACY-ENHANCED MESSAGE-----