<PAGE> 1
[PHOTO]
VANGUARD
PENNSYLVANIA
TAX-FREE FUND
Annual Report
November 30, 1996
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our
course toward the twenty-first century. Our Report cover reflects that blending
of tradition and innovation, of past, present, and future. The montage includes
a bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's
flagship at The Battle of the Nile); a clock built circa 1816 in Scotland,
featuring a portrait of Nelson (who is also shown, accepting a surrender, in a
detail from a nineteenth-century engraving); and several views of our recently
completed campus, which is steeped in nautical imagery--from our buildings
named after Nelson's warships (Victory, Majestic, and Goliath are three shown),
to our artwork and ornamental compass rose.
<PAGE> 2
[PHOTO]
VANGUARD HAS ALWAYS STRIVED TO BE THE STANDARD-BEARER for mutual fund
disclosure, going well beyond the "letter of the law" in our shareholder
communications. During the past year, we raised the standard once again by
rewriting and reformatting our Fund prospectuses. They are designed to ensure
that prospective investors fully understand, before they make an investment,
each Fund's investment strategies, risks, and costs. In that spirit, we have
redesigned our Annual Reports to shareholders, which provide a comprehensive
discussion and analysis of the year's results in the context of each Fund's
investment objectives and policies. Since Vanguard has long been recognized for
the quality and content of these Fund Reports, our overriding objective was to
maintain the character of the previous Reports, while adding information to
assist shareholders in understanding the investment characteristics of their
Fund.
THE NEW FUND REPORTS INCLUDE A MESSAGE TO SHAREHOLDERS from Chairman John C.
Bogle and President John J. Brennan. This Message continues to provide a candid
assessment of the Fund's performance relative to an appropriate unmanaged
market benchmark and a peer group of mutual funds with similar investment
policies. It also reviews the principal factors contributing to--and detracting
from--the returns earned by the Fund. To help you evaluate your Fund's
current-year performance, the Message includes a discussion of the Fund's
long-term investment results, as well as a look ahead to the prospects for the
coming year. A recap of the financial markets, which had been included as part
of the Chairman's letter, now appears in The Markets In Perspective. This
overview covers the world's financial markets, putting the results of the
Fund's strategy in a global perspective.
THE PORTFOLIO PROFILE REPRESENTS AN ADDITION TO OUR FUND REPORTS. In this day
and age, many investors use detailed statistical information to evaluate their
mutual fund holdings, and our new Portfolio Profile furnishes shareholders with
comprehensive data on key characteristics--sector diversification, volatility,
top-ten holdings, among others--that ultimately define how a Fund is likely to
perform in various market environments. For this information to be used
effectively, we include a brief description of the profiled characteristics.
The Report From The Adviser (for our traditionally managed Funds) now covers
specific topics that we have defined as being the important ones for the
adviser to address--and we do our best to ensure that this Report is written in
the same simple and candid manner that characterizes all Vanguard
communications. Finally, each Adviser's Report will include an inset reminder
of the adviser's basic investment philosophy.
WE TRUST THAT THIS REDESIGNED FUND REPORT will continue to meet your need for a
fair, candid, and clear presentation of your Fund's investment results and a
thorough portfolio review. We welcome any comments that you might have at any
time regarding these Reports.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Report From
The Adviser
6
Performance
Summaries
8
Portfolio
Profiles
10
Financial
Statements
13
Report Of
Independent
Accountants
27
Trustees And
Officers
INSIDE BACK COVER
<PAGE> 3
[PHOTO]
JOHN C. BOGLE
[PHOTO]
JOHN J. BRENNAN
Fellow Shareholder,
The 1996 fiscal year for Vanguard Pennsylvania Tax-Free Fund, which ended
on November 30, proved notable for one important reason: Relative stability
returned to the municipal bond market for the first time in the past four years.
Interest rates fluctuated in a fairly narrow range during the
year--responding to marked shifts in investor sentiment about the strength of
the U.S. economy and the specter of inflation--but on balance the yield on
long-term U.S. Treasury bonds increased only slightly and the yield available on
long-term tax-exempt bonds was essentially unchanged. In this calmer
environment, the returns of our Insured Long-Term and Money Market Portfolios
exceeded the results of their competitive fund groups. The table at right
presents each Portfolio's twelve-month return as well as its income and capital
components.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
INVESTMENT RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1996
-----------------------------------
PORTFOLIO INCOME CAPITAL TOTAL
- ---------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term +5.6% +0.2% +5.8%
Money Market +3.4 0.0 +3.4
- ---------------------------------------------------------
</TABLE>
The total return (capital change plus reinvested dividends) of the Insured
Long-Term Portfolio is based on a change in net asset value from $11.28 per
share on November 30, 1995, to $11.26 per share on November 30, 1996, adjusted
for dividends totaling $0.606 per share from net investment income and a
distribution of $0.037 per share from net realized capital gains. As
expected--but is by no means guaranteed--the Money Market Portfolio's net asset
value remained at $1.00 per share. The Portfolio's yield at the end of the
fiscal year stood at 3.4%, down from 3.6% a year earlier.
FISCAL 1996 PERFORMANCE OVERVIEW
In the taxable bond market, yields experienced some interim variability, but
ended the period just a bit higher than their beginning levels. Yields on
municipal bonds remained unchanged on balance at 5.7%, as investor concerns
about the prospect of a "flat tax" all but disappeared.
This environment of relative stability contrasted starkly with the three
previous years. During 1993, interest rates tumbled and bond prices surged, only
to reverse themselves in the rapidly rising interest-rate environment of 1994.
But in 1995, a remarkable about-face in the course of interest rates sent bond
prices soaring once again. The lesson is clear: While bond (and bond fund)
prices can fluctuate sharply over short periods, these price swings tend to be
offsetting over longer periods.
During fiscal 1996, when most municipal bond funds essentially earned their
coupons, the +5.8% annual total return for the Pennsylvania Insured Long-Term
Portfolio was better than the +5.1% annual return for the average Pennsylvania
municipal bond fund but a hair behind the +5.9% return of the Lehman Municipal
Bond Index. This national Index is a tough standard for all state tax-free
funds, existing, as it does, only on paper, outside the "real world" in which
fund operating expenses and transaction costs are very much in evidence.
1
<PAGE> 4
For Pennsylvania residents, the income earned by our Portfolios is exempt
from state, local, and federal income taxes. Given these tax advantages,
investors in the Pennsylvania Insured Long-Term Portfolio who are taxed at the
highest federal and state marginal tax rates can earn 54% more after-tax income
than they could in a comparable long-term taxable bond fund. For similarly
situated investors in our Money Market Portfolio, the after-tax yield premium of
MIG-1 notes over U.S. Treasury bills was 24% at the end of the twelve-month
period. Put another way, for a Pennsylvania investor, a yield of 5.7% on a
tax-exempt long-term portfolio would be the equivalent of a 9.9% taxable yield.
(For a tax-exempt short-term yield of 3.6%, the taxable equivalent yield would
be 6.3%.)
The table below presents a general comparison of the annual income earned
on tax-exempt and taxable securities as of November 30, 1996, assuming a
$100,000 investment. Please note that these examples ignore two important
quality distinctions between state- specific municipal bond funds and U.S.
Treasury bond funds: (1) U.S. Treasury bond funds hold solely Treasury
securities, which are backed by the full faith and credit of the U.S.
government; and (2) state-specific municipal bond funds incur a significant risk
by concentrating their assets in securities from a particular economic region.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
--------------------------------
LONG-TERM SHORT-TERM
- ---------------------------------------------------------
<S> <C> <C>
Taxable gross income $6,400 $5,100
Less taxes (42.4%) (2,700) (2,200)
Net after-tax income 3,700 2,900
- ---------------------------------------------------------
Tax-exempt income $5,700 $3,600
- ---------------------------------------------------------
Tax-exempt income advantage $2,000 $ 700
- ---------------------------------------------------------
Percentage advantage 54% 24%
- ---------------------------------------------------------
</TABLE>
The illustration assumes current yields (as of November 30, 1996) of 6.4% for
long-term U.S. Treasury bonds, 5.1% for U.S. Treasury bills, 5.7% for long-term
municipals, and 3.6% for short-term municipals. The tax adjustment assumes a
federal tax rate of 39.6% and a top state tax rate of 2.8%; local taxes not
considered. The illustration is not intended to represent future results.
For our Insured Long-Term Portfolio, these added risks are substantially
mitigated by private insurance, which, in effect, guarantees the full payment of
annual income and the return of principal at maturity for the municipal bonds we
hold. Portfolio insurance is generally not available for short-term securities;
thus, the task of preserving principal in our Money Market Portfolio falls to
our investment adviser, Vanguard Fixed Income Group. The Group carefully
scrutinizes the credit quality of our holdings and has earned our Portfolio
Moody's Investor Service's highest quality rating (or the equivalent) for
shorter-term securities. That said, we emphasize that money market fund
investments are not guaranteed by the Federal Deposit Insurance Corporation,
which insures bank accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
The table on page 3 compares the longer-term performance of each
Pennsylvania Portfolio with that of its mutual fund peer group. It also
illustrates the "Vanguard Advantage"--the performance edge our Portfolios
provided over their respective competitive standards.
Our expense ratio advantage over our typical competitor plays a key role in
our performance advantage. Our Portfolios maintain expense ratios (expenses as a
percentage of average net assets) of 0.19%, compared with the 1.01% charged by
the average long-term state tax-free fund, and 0.59% for the average money
market state tax-free fund. This benefit over our competitors has been available
to our shareholders year after year
2
<PAGE> 5
with no sacrifice in credit quality. Vanguard Fixed Income Group also plays a
key role in our success, managing the Portfolios ably and maintaining a level of
investment quality that is, in our judgment, second to none in the field.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
------------------------------------
AVERAGE
VANGUARD COMPETITIVE VANGUARD
PORTFOLIO (INCEPTION DATE) FUND FUND ADVANTAGE
- -----------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term* (4/7/86) +7.8% +7.3% +0.5%
Money Market** (6/13/88) +4.1 +3.9 +0.2
- -----------------------------------------------------------------
</TABLE>
* Annualized ten-year return.
**Annualized returns since inception.
IN SUMMARY
The past four years have illustrated the range of market environments that bond
fund investors may enjoy--or be forced to endure. Which of these environments is
normal for municipal bonds? The answer is probably: all of the above. In the
years ahead, there are sure to be more sharp rises in interest rates, more
sustained declines, and more years of relative tranquility. Indeed, this is part
and parcel of investing in bond funds. In the long run, however, the rate of
interest income--"the coupon"--will be the dominant source of our returns.
Whatever the year-to-year turbulence of the bond market, Vanguard
Pennsylvania Tax-Free Fund will do what it has always done: continue our focus
on providing returns that exceed those of competitive norms, even as we maintain
the highest standards of credit quality. As part of a long-term investment
program that includes stock funds, bond funds, and money market funds, the
Pennsylvania Tax-Free Fund should prove rewarding to investors.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
Chairman of the Board President
December 18, 1996
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE: FISCAL YEAR ENDED NOVEMBER 30, 1996
[PHOTO]
U.S. EQUITY MARKETS
Few investors would have expected the stock market over the past 12 months to
come close to matching the 37.0% return of the prior 12. Yet when the past two
fiscal years are considered cumulatively, the Standard & Poor's 500 Composite
Stock Price Index has risen 75.1%. Not surprisingly, many of the factors that
drove the market higher in 1995 were also in place this year. Once again, steady
economic growth and low inflation were powerful motivators.
The equity markets were decidedly "un-equitable," however, when it came to
size and sectors. Companies with larger market values, such as those that
dominate the S&P 500 Index, prevailed. In fact, even within the Index, it was
the largest companies that turned in the best performance. The 50 biggest
companies in the S&P 500 Index (which account for roughly half its market value)
gained 31.8% in the fiscal year ended November 30, compared with an increase of
27.9% for the entire Index. Looking at the S&P 500 Index's performance by
sector, financial stocks were strongest, closing the year with a 41.9% gain.
Technology stocks were a close second, gaining 39.3%. Utilities, plagued early
in the year by higher interest rates and a rapidly changing competitive
landscape, eked out a 4.4% return, the lowest within the Index.
With the largest companies performing so well, it was difficult for smaller
issues to keep pace. This was evidenced in the considerable difference between
the 27.9% return of the S&P 500 Index and the 16.5% return of the Russell 2000
Small Stock Index. Even for the smaller companies, there was a significant range
of performance among sectors. Energy stocks led the Russell 2000 Index with a
77.0% gain for the year. Here, rising prices, limited exposure to the cyclical
refining business, and a reduced number of competitors created a favorable
environment for the stocks. At the other end of the spectrum were health-care
stocks, which showed a loss of -0.4%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------
1 YEAR 3 YEARS 5 YEARS
- -------------------------------------------------------------------
<S> <C> <C> <C>
Equity
S&P 500 Index 27.9% 21.0% 18.2%
Russell 2000 Index 16.5 14.0 16.8
MSCI-EAFE Index 12.1 11.7 9.9
- ------------------------------------------------------------------
Fixed-Income
Lehman Aggregate Bond Index 6.1% 6.5% 7.9%
Lehman 10-Year Municipal
Bond Index 5.7 6.2 8.0
Salomon 90-Day U.S. Treasury
Bills 5.3 5.0 4.4
- ------------------------------------------------------------------
Other
Consumer Price Index 3.2% 2.8% 2.9%
- ------------------------------------------------------------------
</TABLE>
U.S. FIXED-INCOME MARKETS
As the fiscal year ended, the 30-year U.S. Treasury yield of 6.4% was modestly
higher than its 6.1% level on November 30, 1995. The relatively small difference
in these figures belies the turmoil endured by the fixed-income markets over the
past 12 months.
When the fiscal year began, "Steady as she goes" was the common wisdom.
Modest economic growth and benign inflation were expected to continue, giving
the Federal Re-
4
<PAGE> 7
serve no reason to move interest rates higher. That complacency was shattered by
an exceptionally strong February jobs report, the first of what turned out to be
a succession of signs that in fact the economy was growing at a much faster--and
potentially inflation-inducing--pace. The bond market reacted swiftly to
compensate for the perceived risk: The 30-year Treasury yield jumped from just
below 6.0% in late December to 6.7% in late March. The next several months saw a
consistent pattern in which bond yields rose on the Friday of the jobs-report
release only to fall back by the middle of the month. In reality, there was
little bite to the bark. Inflation, as measured by the Consumer Price Index,
remained near an annualized rate of 3.2%. And, as the fiscal year entered its
final quarter, evidence once again pointed to more "acceptable" levels of
growth. That--plus the market's satisfaction with the national election results
and prospects for budget action--helped bonds finish the fiscal year with a
strong rally.
The rally enabled the longer-maturity sectors of the market to overcome
performance deficits and finish the year with positive returns. Although the
specter of the Federal Reserve Board loomed large during the year, in fact the
Board acted only twice, lowering the federal funds rate by a total of 0.5%.
Corporate bonds, mortgage-backed issues, and municipals were three
relatively bright spots over the past year. The strength in earnings that
benefited stock prices extended to the corporate bond sector as well. These
bonds, especially those of lower credit quality, performed well relative to
Treasuries as there appeared to be little risk of skipped interest payments or
bankruptcy against the good earnings backdrop. The stable-to-rising
interest-rate environment throughout most of the year benefited another large
segment of the bond market--mortgages--as the threat of refinancings receded.
Finally, municipal bonds outpaced their U.S. Treasury counterparts. The sector
was shielded to a certain extent from the inflation wars of the Treasury market,
and demand outstripped supply for much of the year.
INTERNATIONAL EQUITY MARKETS
Concern about U.S. Federal Reserve Board policy appeared to drive global markets
as much as it did those in the United States. In aggregate, the markets rose
17.0%, as measured by the Morgan Stanley Capital International-Europe,
Australasia, Far East Index. A stronger dollar reduced this return to 12.1% for
U.S.-based investors.
Regionally, Europe's 22.9% return overshadowed the 1.4% generated by the
Pacific Basin. Europe's major markets continued to work toward the economic
targets that must be attained by 1999 under the Maastricht Treaty. This ongoing,
albeit bumpy, effort kept the continent's economic growth modest and gave
investors confidence. The Pacific region, of course, was dominated by the
influence of the Japanese market. Despite evidence of a strengthening economy
early in the year, Japan's market was shadowed by lingering problems in the
banking and real estate sectors and by tepid interest on the part of Japanese
investors. The dollar's appreciation against the yen had a significant impact on
returns, turning the year's 7.1% gain in yen into a -4.5% loss in dollars. In
contrast, the returns for a number of other countries in the region were quite
strong: for example, Hong Kong, 38.2%, and Malaysia, 31.8% (in U.S. dollars).
5
<PAGE> 8
REPORT FROM THE ADVISER
[PHOTO]
Yields on tax-exempt securities decreased slightly while yields on
short-term securities ended virtually unchanged in the 12 months ended November
30, 1996, the fiscal year for Vanguard Pennsylvania Tax-Free Fund.
THE INSURED LONG-TERM PORTFOLIO
Over the 12 months, the yield on high-grade, long-term municipal bonds declined
by 8 basis points, or 0.08 percentage point, from 5.74% to 5.66%. By way of
comparison, the yield on the benchmark 30-year U.S. Treasury bond increased by
22 basis points, from 6.13% to 6.35%. However, these relatively small changes
obscure the volatility in both markets during the course of the year.
During the first half, reports of a solid increase in economic activity and
robust employment gains fanned fears of inflation. In reaction, by June the
fixed-income market had driven up the yields on the 30-year Treasury bond and on
long-term, high-grade municipal bonds to 7.19% and 6.22%, respectively. But as
the economy cooled from its earlier torrid pace, investors grew more confident
that the Federal Reserve Board would not have to tighten monetary policy, and
yields fell back nearly to their levels at the start of the year.
For municipal bonds, the issue of tax reform grew in importance in early
1996. Various flat-tax proposals either directly or indirectly threatened the
tax-exempt privilege of municipal securities. In its basic form, a flat tax
would reduce the current hierarchy of income-tax rates to only one lower level
for all earned income. Unearned income (interest, dividends, and capital gains)
would not be taxed at all. Since all interest would be exempt from federal
income tax, municipal bond interest payments would no longer offer a special tax
benefit. Early in the fiscal year, concern about such proposals caused the
prices of municipal bonds to fall relative to those of taxable bonds, enabling
municipal investors to purchase high-grade, tax-exempt bonds with attractive
yields--as high as 94% of comparable U.S. Treasury obligations.
However, as a campaign issue, the complete overhaul of the federal tax
system bombed by early summer. The flat tax suffered a peaceful demise upon the
nomination of Bob Dole and was effectively buried with the reelection of
President Clinton. By the end of the year, with the flat-tax trauma a thing of
the past, the ratio of tax-exempt yields to taxable yields fell to 89%. The
relative outperformance of municipals came despite an increase late in the year
in the supply of new tax-exempt bond issues, which raised the tax-exempt/taxable
yield ratio from a low of 84% in August.
For 1996, the Insured Long-Term Portfolio provided a positive rate of
return, roughly commensurate with the dividends derived from interest income on
the Portfolio. Because market yields changed only slightly over the year, income
was the dominant component of total return. In this environment, Vanguard's low
expense
INVESTMENT PHILOSOPHY
The Fund reflects a belief that it can achieve a high level of current
income, consistent with each Portfolio's stated maturity and stringent quality
targets, that is exempt from federal and Pennsylvania income taxes by investing
in insured and high-quality uninsured securities issued by state, county, and
municipal governments in Pennsylvania.
6
<PAGE> 9
ratio provided a powerful advantage in maximizing the tax-exempt return to
shareholders. The lower expense ratio allows more investment income to flow
directly to shareholders, which translates into higher Portfolio returns. Over
time, this has the powerful and enduring effect of contributing to superior
performance.
Looking ahead, we believe that the tax-exempt investment arena will
continue to provide above-average value to shareholders who seek a high-quality
investment with durable and attractive after-tax returns. This is especially
true for our State Tax-Free Portfolios, which offer the extra benefit of income
that is exempt from state, as well as federal, taxes.
THE MONEY MARKET PORTFOLIO
Among money market segments, stable Federal Reserve policy during the
second half of the fiscal year allowed yields on U.S. Treasury bills and
municipal notes to move somewhat lower. The yields on one-year municipal notes
declined by 15 basis points during the second half, while yields on one-year
U.S. Treasury bills fell 35 basis points. Aside from the Fed's stable policy,
two issues had a significant impact on the short-term securities market.
The first was the onset of the traditional spring/summer municipal
borrowing season. This seasonal deluge of new short-term issues created a
temporary summertime overabundance of municipal notes and bonds in the market.
The excess supply caused a dramatic rise in yields during late July and August
(though in late September yields commenced a steady downward movement). We took
advantage of the opportunity to extend the average maturities of the Money
Market Portfolio, thereby locking in higher yields. Additionally, we further
diversified the Portfolio, thereby further spreading credit risk.
The second big influence on the market was the Securities and Exchange
Commission's decision to postpone the effective date for changes to its Rule
2a-7 under the Investment Company Act of 1940. This rule governs the credit and
maturity risk of money market funds. Under the proposed changes, regulations
would be tightened on tax-exempt money market funds so as to increase the
likelihood of their maintaining a stable net asset value. The changes were
expected to take effect on June 3, 1996, but the mutual fund industry made the
SEC aware of the need for numerous technical amendments, and the deadline was
therefore postponed. We anticipate that new regulations will be completed and
made mandatory by the second quarter of 1997. Competing funds that operate under
lower quality standards than Vanguard will need to alter their fund management
policies. Vanguard's tax-exempt money market Portfolios, however, have always
been managed in a conservative, quality-oriented manner, and we anticipate
minimal impact when the new regulations take effect.
In summary, the coming months will require vigilance. Market participants
will be required to adopt more stringent regulations at a time when tax-exempt
assets are growing and the supply of new issues is minimal. Vanguard's
conservative management style will give the Money Market Portfolio a strategic
advantage as stricter regulations dictate that competitors play catch-up in
terms of quality.
Ian A. MacKinnon, Senior Vice President
Pamela W. Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Vanguard Fixed Income Group December 16, 1996
7
<PAGE> 10
PERFORMANCE SUMMARY: INSURED LONG-TERM PORTFOLIO
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
both share price and return can fluctuate widely so that an investment in the
Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 4/7/86-11/30/96
- --------------------------------------------
INSURED LONG-TERM PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------
<S> <C> <C> <C> <C>
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
- --------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 23 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: 6/13/88-11/30/96
- -------------------------------------------------------------------------------------------
Cumulative Performance 10 yr Graph - Portfolio/ Benchmark -
Vanguard Pennsylvania Tax-Free Fund Insured Long-Term Portfolio
PA Insured Long-Term Lipper PA Municipal Debt Lehman Municipal Bond Index
<S> <C> <C> <C>
31717 10,000 10000 10000
31809 10,331 10337 10332
1987 05 9,431 9427 9662
1987 08 9,770 9799 10069
1987 11 9,667 9623 9987
1988 02 10,427 10355 10603
1988 05 10,221 10215 10529
32356 10,510 10534 10762
1988 11 10,829 10879 11048
1989 02 11,098 11127 11262
1989 05 11,661 11573 11741
1989 08 11,790 11724 11944
1989 11 12,146 12013 12265
1990 02 12,231 12115 12417
1990 05 12,452 12271 12600
1990 08 12,373 12296 12711
1990 11 13,029 12778 13209
1991 02 13,302 13060 13561
1991 05 13,662 13407 13870
1991 08 13,981 13724 14210
1991 11 14,287 14063 14565
1992 02 14,680 14423 14916
1992 05 15,024 14740 15231
1992 08 15,680 15311 15796
1992 11 15,952 15502 16025
1993 02 16,958 16469 16969
1993 05 17,091 16542 17054
1993 08 17,749 17227 17723
1993 11 17,851 17283 17801
1994 02 17,930 17366 18084
1994 05 17,652 16802 17648
1994 08 17,894 17049 17754
1994 11 16,880 16043 16870
1995 02 18,472 17497 18250
1995 05 19,113 18230 19071
1995 08 19,239 18352 19325
1995 11 19,999 19211 20057
1996 02 20,229 19367 20266
1996 05 19,926 19043 19943
1996 08 20,316 19388 20338
1996 11 21,164 20181 21220
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996 FINAL VALUE OF A
------------------------------- ------------------
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LONG-TERM PORTFOLIO 5.77% 8.16% 7.79% $21,164
AVERAGE PENNSYLVANIA
MUNICIPAL FUND 5.05 7.41 7.27 20,181
LEHMAN MUNICIPAL BOND INDEX 5.88 7.84 7.81 21,220
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- ------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insured Long-Term Portfolio 4/7/86 6.36% 7.71% 1.37% 6.58% 7.95%
- ------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
8
<PAGE> 11
PERFORMANCE SUMMARY: MONEY MARKET PORTFOLIO
All of the data on this page represent past performance, which cannot be
used to predict future returns that may be achieved by the Portfolio. 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 $1.00 per
share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 6/13/88-11/30/96
- ---------------------------------------------
MONEY MARKET PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------
<S> <C> <C> <C> <C>
1988 0.0% 2.5% 2.5% 2.5%
1989 0.0 6.4 6.4 6.4
1990 0.0 5.9 5.9 5.4
1991 0.0 4.6 4.6 4.6
1992 0.0 3.0 3.0 2.9
1993 0.0 2.4 2.4 2.2
1994 0.0 2.6 2.6 2.4
1995 0.0 3.7 3.7 3.5
1996 0.0 3.4 3.4 3.1
- ---------------------------------------------
</TABLE>
*Average Pennsylvania Tax-Exempt Money Market Fund.
See Financial Highlights table on page 24 for dividend information for the
past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: 11/30/86-11/30/96
- --------------------------------------------------------------------------
Cumulative Performance 10 yr Graph - Portfolio/ Benchmark -
Vanguard Pennsylvania Tax-Free Fund Money Market Portfolio
PA Tax-Free Money Market Lipper PA Tax-Exempt Money Market
<S> <C> <C> <C>
1988 06 10000 10000
1988 08 10113 10109
1988 11 10254 10252
1989 02 10407 10407
1989 05 10582 10581
1989 08 10747 10744
1989 11 10909 10904
1990 02 11065 11061
1990 05 11229 11224
1990 08 11386 11381
1990 11 11548 11545
1991 02 11698 11695
1991 05 11832 11825
1991 08 11955 11947
1991 11 12079 12070
1992 02 12182 12171
1992 05 12278 12265
1992 08 12356 12341
1992 11 12437 12417
1993 02 12513 12487
1993 05 12588 12552
1993 08 12659 12617
1993 11 12734 12685
1994 02 12803 12749
1994 05 12879 12819
1994 08 12961 12894
1994 11 13062 12987
1995 02 13176 13095
1995 05 13305 13215
1995 08 13422 13326
1995 11 13543 13438
1996 02 13659 13544
1996 05 13773 13649
1996 08 13883 13750
1996 11 13998 13801
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO 3.36% 2.99% 4.05% $13,998
AVERAGE PENNSYLVANIA TAX-
EXEMPT MONEY MARKET FUND 3.11 2.81 3.88 13,801
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 6/13/88 3.42% 3.02% 0.00% 4.07% 4.07%
- ------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
9
<PAGE> 12
PORTFOLIO PROFILE: INSURED LONG-TERM PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to an unmanaged index. Key elements of this Profile are
defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -------------------------------------------
<S> <C>
Number of Issues 190
Yield 4.9%
Yield to Maturity* 4.9%
Average Coupon 5.7%
Average Maturity 10.1 years
Average Quality Aaa
Average Duration 6.4 years
Expense Ratio 0.19%
</TABLE>
*After expenses.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
INSURED LONG-TERM LEHMAN
PORTFOLIO INDEX*
- -------------------------------------------
<S> <C> <C>
R-Squared 0.97 1.00
Beta 1.01 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------
<S> <C>
Under 1 Year 13.2%
1-5 Years 14.8
5-10 Years 37.7
10-20 Years 21.9
20-30 Years 12.4
Over 30 Years --
- -------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- --------------------------------------------
AVERAGE MATURITY
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Aaa 98.4%
Aa 1.6
A --
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
[PHOTO]
AVERAGE COUPON. The average interest rate, expressed as a percentage of
face value, paid on the securities held by a portfolio.
AVERAGE DURATION. An estimate of how much a portfolio's share price will
fluctuate in response to a change in interest rates. To estimate the price
sensitivity of a portfolio, multiply its duration by the change in rates. If
interest rates rise by one percentage point, the share price of a portfolio with
an average duration of five years would decline by about 5%. If rates decrease
by a percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity and are repaid. In general, the longer the average maturity, the
more a portfolio'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 credit ratings assigned to the portfolio's securities holdings by
credit-rating agencies. Agencies assign credit ratings after appraising an
issuer's ability to meet its debt obligations. Quality is graded on a scale,
with Aaa indicating the most creditworthy bond issuers and MIG-1 indicating the
most creditworthy issues of municipal money market securities. (Individual money
market securities with a rating of A, Aa, and Aaa all receive a MIG-1
designation.)
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the fluctuations in the overall market (or appropriate market
index). The market, or index, has a beta of 1.00, so a portfolio 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%.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or
other credit problems on securities held by a portfolio.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates. Callable
securities trading at premium to par value are treated as coming due on their
earliest redemption date.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors. The average expense ratio in 1995 for state tax-free bond
funds was 1.01%; for state tax-free money market funds, the figure was 0.59%.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio 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
portfolio 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 portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of a portfolio's net asset value, is based on income earned by the
portfolio over the past 30 days (7 days for money market portfolios) 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 portfolio were held to their maturity dates.
11
<PAGE> 14
PORTFOLIO PROFILE: MONEY MARKET PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics. Key
elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------
<S> <C>
Yield 3.4%
Average Maturity 43 days
Average Quality MIG-1
Expense Ratio 0.19%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Aaa 43.5%
Aa 36.7
A 19.8
Baa --
Ba --
B --
Not Rated --
- ----------------------------------------------
Total 100.0%
</TABLE>
12
<PAGE> 15
FINANCIAL STATEMENTS
NOVEMBER 30, 1996
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's municipal bond
holdings, including each security's market value on the last day of the
reporting period and information on credit enhancements (insurance or letters
of credit). Securities are grouped and subtotaled according to their insured or
non-insured status. Other assets are added to, and liabilities are subtracted
from, the value of Total Municipal Bonds to calculate the Portfolio's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the
Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the Portfolio's net assets on both a dollar and per-share
basis. Undistributed Net Investment Income is usually zero because the
Portfolio distributes its net income to shareholders as a dividend each day.
Any realized gains must be distributed annually, so the bulk of net assets
consists of Paid in Capital (money invested by shareholders). The balance shown
for Accumulated Net Realized Gains usually approximates the amount available to
distribute to shareholders as taxable capital gains as of the statement date,
but may differ because certain investments or transactions may be treated
differently for financial statement and tax purposes. Any Accumulated Net
Realized Losses, and any cumulative excess of distributions over net realized
gains, will appear as negative balances. Unrealized Appreciation
(Depreciation) is the difference between the value of the Portfolio's
investments and their cost, and reflects the gains (losses) that would be
realized if the Portfolio were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS (99.8%)
- ---------------------------------------------------------------------------------------------------------------------------------
ISSUER INSURED (91.1%)
Allegheny County PA GO 0.00% 5/1/03 (2) 12,315 9,138
Allegheny County PA GO 5.00% 10/1/08 (3) 5,955 5,968
Allegheny County PA GO 5.10% 10/1/09 (3) 1,760 1,762
Allegheny County PA GO 5.15% 10/1/10 (3) 6,570 6,560
Allegheny County PA GO 6.00% 5/1/10 (2) 3,030 3,187
Allegheny County PA GO 6.00% 5/1/12 (2) 3,000 3,139
Allegheny County PA Hosp. Dev. Auth. (Magee Women's Hosp.) 6.00% 10/1/10 (3) 4,235 4,610
Allegheny County PA Hosp. Dev. Auth. (Mercy Hosp.) 6.75% 4/1/21 (2) 4,500 4,990
Allegheny County PA Hosp. Dev. Auth. (Presbyterian Univ. Health) 6.00% 11/1/12 (1) 3,000 3,101
Allegheny County PA Hosp. Dev. Auth. (Presbyterian Univ. Health) 7.125% 7/1/99 (1)(Prere.) 6,835 7,452
Allegheny County PA Hosp. Dev. Auth. (Presbyterian Univ. Health) 7.60% 3/1/98 (1)(Prere.) 5,000 5,322
Allegheny County PA Hosp. Dev. Auth. VRDO
(Children's Hosp.-Pittsburgh) 3.50% 12/5/96 (1) 4,300 4,300
Allegheny County PA Port Auth. 4.50% 3/1/98 (2) 6,000 6,054
Allegheny County PA Sanitation Auth. 5.50% 12/1/13 (3) 19,000 19,124
Allegheny County PA Sanitation Auth. 5.50% 12/1/16 (3) 23,665 23,354
Allegheny County PA Sanitation Auth. 6.25% 12/1/14 (1) 9,660 10,485
Allegheny County PA Sanitation Auth. 6.50% 12/1/11 (3) 8,000 8,691
Altoona City PA Auth. 6.50% 11/1/19 (3) 20,000 22,254
Beaver County PA IDA (Ohio Edison) 7.00% 6/1/21 (3) 22,715 25,330
Beaver County PA IDA (Ohio Edison) 7.10% 6/1/18 (3) 5,000 5,498
Berks County PA GO 0.00% 11/15/13 (3) 7,250 2,874
Berks County PA GO 0.00% 11/15/14 (3) 8,615 3,206
Berks County PA GO 0.00% 11/15/15 (3) 6,250 2,201
Berks County PA GO 5.75% 11/15/12 (3) 7,750 7,898
Berks County PA Hosp. Rev. (Reading Hosp.) 5.70% 10/1/14 (1) 4,500 4,673
Berks County PA Hosp. Rev. (Reading Hosp.) 6.10% 10/1/23 (1) 16,500 17,281
Blair County PA Hosp. Auth. (Altoona Hosp.) 6.50% 7/1/22 (2) 8,500 9,300
Boyertown PA Area School Dist. 6.10% 3/1/15 (2) 6,000 6,229
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Butler County PA GO 6.00% 7/15/12 (3) $ 5,185 $ 5,375
Center City Philadelphia PA Business Improvement 5.50% 12/1/15 (2) 6,955 6,939
Center Township PA Sewer Auth. 5.50% 4/15/11 (1) 2,375 2,411
Central Dauphin County PA School Dist. GO 0.00% 6/1/04 (2) 4,800 3,362
Central Greene PA School Dist. 6.50% 2/15/24 (1) 5,500 6,168
Cornwall Lebanon PA Suburban Joint School Dist. 5.875% 3/1/14 (3) 5,635 5,797
Cornwall Lebanon PA Suburban Joint School Dist. 5.90% 3/1/11 (3) 3,270 3,412
Corry PA Area School Dist. GO 5.50% 12/15/10 (1) 4,600 4,671
Dauphin County PA General Auth. (West Pennsylvania Hosp.) 5.50% 7/1/13 (1) 5,000 4,973
Dauphin County PA Hosp. Auth. (Harrisburg Hosp.) 8.125% 7/1/07 (1) 3,000 3,132
Delaware County PA Auth. College Rev. (Haverford College) 5.40% 11/15/13 (1) 1,750 1,751
Delaware County PA Hosp. Auth. (Crozer Chester Medical Center) 5.30% 12/15/11 (1) 4,660 4,597
Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 5.50% 8/15/13 (1) 12,000 12,047
Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 5.50% 8/15/19 (1) 5,000 4,923
Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 7.125% 8/15/99 (1)(Prere.) 5,160 5,640
Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 7.20% 8/15/99 (1)(Prere.) 8,000 8,760
Delaware River Joint Toll Bridge Comm. PA & NJ 6.00% 7/1/18 (3) 3,040 3,128
Delaware River Port Auth. PA & NJ 5.50% 1/1/26 (3) 21,450 21,295
Delaware River Port Auth. PA & NJ 6.50% 1/1/09 (2) 4,500 4,684
Delaware River Port Auth. PA & NJ 7.375% 1/1/07 (2) 13,500 14,531
Erie County PA Hosp. Auth. (St. Vincent Health Care) 6.125% 7/1/13 (1) 3,900 4,102
Fort LeBoeuf PA School Dist. GO 5.80% 1/1/13 (1) 5,500 5,630
Garnet Valley PA School Dist. GO 5.70% 4/1/11 (2) 3,000 3,066
Greensburg Salem PA School Dist. GO 6.45% 9/15/18 (1) 7,500 8,009
Haverford Township PA School Dist. 6.25% 6/1/04 (3)(Prere.) 11,500 12,685
Hazleton PA Area School Dist. 5.75% 3/1/13 (3) 11,875 12,188
Lancaster PA Higher Educ. Auth. (Franklin & Marshall College) 6.60% 4/15/10 (1) 4,940 5,396
Lancaster PA Higher Educ. Auth. (Franklin & Marshall College) 6.70% 4/15/12 (1) 4,000 4,388
Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 5.625% 7/1/25 (1) 17,500 17,413
Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 5.70% 7/1/10 (1) 3,905 4,029
Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 7.00% 7/1/16 (1) 4,415 5,341
Lehigh County PA GO 6.00% 10/15/99 (2)(Prere.) 1,000 1,050
Lewisburg PA Area School Dist. GO 6.20% 6/1/02 (1)(Prere.) 3,500 3,803
Lewisburg PA Area School Dist. GO 6.25% 6/1/02 (1)(Prere.) 3,685 4,013
Ligonier Valley PA School Dist. GO 6.00% 3/1/19 (1) 6,000 6,220
Lycoming County PA College Auth. (PA College of Technology) 5.40% 11/1/08 (2) 6,000 6,124
Lycoming County PA Hosp. Auth. (Williamsport Hosp.) 5.25% 11/15/15 (6) 15,525 15,107
Lycoming County PA Hosp. Auth. (Williamsport Hosp.) 5.375% 11/15/10 (6) 9,820 9,711
Manheim PA Central School Dist. GO 6.85% 3/1/08 (3) 2,705 2,944
Mars PA Area School Dist. GO 6.25% 9/1/04 (3)(Prere.) 4,000 4,423
Montgomery County PA Higher Educ. & Health Auth.
(Abington Memorial Hosp.) 6.00% 6/1/22 (2) 10,160 10,522
Montgomery County PA Higher Educ. & Health Auth.
(Abington Memorial Hosp.) 6.10% 6/1/12 (2) 5,000 5,278
Montgomery County PA IDA PCR (PECO) 6.70% 12/1/21 (1) 12,000 13,335
Mount Lebanon PA Hosp. Dev. Auth. (St. Clair Memorial Hosp.) 6.25% 7/1/06 (3) 9,250 10,293
Nazareth PA School Dist. 5.50% 11/15/15 (2) 1,500 1,496
Neshaminy PA School Dist. GO 6.30% 2/15/13 (3) 10,000 10,648
North Penn PA Water Auth. 6.125% 11/1/10 (3) 5,140 5,458
North Wales PA Water Auth. 5.25% 11/1/19 (3) 12,350 12,013
North Wales PA Water Auth. 6.125% 11/1/12 (3) 3,000 3,149
North Wales PA Water Auth. 6.125% 11/1/22 (3) 8,300 8,605
North Wales PA Water Auth. 6.25% 11/1/14 (3) 2,300 2,466
Northampton County PA Higher Educ. Auth. (Lehigh Univ.) 7.10% 11/15/09 (1) 7,035 7,674
Northampton County PA Hosp. Auth. (Easton Hosp.) 6.25% 1/1/19 (1) 10,000 10,574
Northampton County PA Hosp. Auth. (Easton Hosp.) 7.875% 1/1/19 (5) 285 310
Northampton County PA IDA PCR (Central Metro Edison) 6.10% 7/15/21 (1) 4,410 4,660
Northumberland County PA Commonwealth Lease 6.25% 10/15/01 (1)(Prere.) 13,600 14,749
Penn Hills PA GO 5.80% 12/1/02 (2)(Prere.) 11,735 12,581
Penn Trafford PA School Dist. GO 5.85% 5/1/14 (1) 2,435 2,502
Pennsylvania Convention Center Auth. 0.00% 9/1/04 (3) 5,000 3,461
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pennsylvania Convention Center Auth. 6.00% 9/1/19 (3) $ 12,600 $ 13,498
Pennsylvania Convention Center Auth. 6.70% 9/1/16 (3) 19,150 22,032
Pennsylvania GO 5.25% 5/15/98 (3) 8,200 8,369
Pennsylvania GO 5.375% 5/15/10 (3) 13,800 14,013
Pennsylvania GO 5.375% 5/15/12 (3) 16,570 16,679
Pennsylvania Higher Educ. Auth.
(Allegheny Delaware Valley Obligated Group) 5.875% 11/15/16 (1) 20,000 20,686
Pennsylvania Higher Educ. Auth. (College and Univ. Rev.) 7.20% 1/1/04 (2) 2,165 2,172
Pennsylvania Higher Educ. Auth. (State System) 5.375% 6/15/18 (2) 8,845 8,630
Pennsylvania Higher Educ. Auth. (Temple Univ.) 6.50% 4/1/21 (1) 6,000 6,529
Pennsylvania Intergovernmental Cooperative Auth. 5.00% 6/15/98 (3) 21,000 21,352
Pennsylvania Intergovernmental Cooperative Auth. 5.40% 6/15/09 (3) 2,700 2,747
Pennsylvania Intergovernmental Cooperative Auth. 5.50% 6/15/10 (3) 3,700 3,763
Pennsylvania Intergovernmental Cooperative Auth. 5.625% 6/15/13 (3) 2,605 2,644
Pennsylvania Intergovernmental Cooperative Auth. 5.625% 6/15/23 (1) 20,500 20,290
Pennsylvania Intergovernmental Cooperative Auth. 6.75% 6/15/05 (3)(Prere.) 23,050 26,326
Pennsylvania Intergovernmental Cooperative Auth. 7.00% 6/15/05 (3)(Prere.) 2,250 2,609
Pennsylvania Turnpike Comm. 5.50% 12/1/17 (3) 29,000 28,609
Pennsylvania Turnpike Comm. 5.75% 12/1/12 (2) 10,000 10,291
Pennsylvania Turnpike Comm. 6.00% 6/1/15 (1) 28,800 29,849
Pennsylvania Turnpike Comm. 6.25% 6/1/11 (2) 14,390 15,254
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 6.00% 12/1/19 (2) 7,450 7,798
Philadelphia PA Airport Rev. 9.875% 6/15/06 (1) 2,215 2,226
Philadelphia PA Gas Works 6.00% 5/15/12 (2) 14,250 14,710
Philadelphia PA Gas Works 6.75% 1/1/15 (2) 13,930 14,822
Philadelphia PA Gas Works 7.25% 1/1/10 (2) 10,085 10,830
Philadelphia PA GO 5.00% 5/15/20 (1) 17,650 16,694
Philadelphia PA GO 6.00% 11/15/10 (3) 2,810 2,996
Philadelphia PA GO 6.00% 11/15/11 (3) 3,025 3,223
Philadelphia PA GO 6.00% 11/15/12 (3) 3,355 3,551
Philadelphia PA GO 6.00% 11/15/13 (3) 1,885 1,988
Philadelphia PA Municipal Auth. Lease Rev. 5.55% 11/15/08 (3) 3,040 3,155
Philadelphia PA Municipal Auth. Lease Rev. 5.60% 11/15/09 (3) 2,100 2,170
Philadelphia PA Municipal Auth. Lease Rev. 5.60% 11/15/10 (3) 6,755 6,932
Philadelphia PA Municipal Auth. Lease Rev. 5.625% 11/15/18 (3) 8,750 8,733
Philadelphia PA Municipal Auth. Lease Rev. 7.10% 11/15/05 (1) 3,000 3,384
Philadelphia PA Parking Auth. Rev. 7.375% 9/1/18 (2) 12,065 12,932
Philadelphia PA School Dist. GO 0.00% 7/1/01 (2) 11,750 9,601
Philadelphia PA School Dist. GO 5.50% 9/1/15 (2) 5,000 4,988
Philadelphia PA School Dist. GO 5.50% 9/1/18 (2) 4,000 3,965
Philadelphia PA School Dist. GO 5.85% 7/1/09 (1) 1,500 1,579
Philadelphia PA Water & Waste Water Rev. 5.00% 6/15/16 (4) 6,000 5,671
Philadelphia PA Water & Waste Water Rev. 5.50% 8/1/14 (1) 12,900 12,951
Philadelphia PA Water & Waste Water Rev. 5.60% 8/1/18 (1) 5,920 5,883
Philadelphia PA Water & Waste Water Rev. 6.25% 8/1/11 (1) 3,750 4,175
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/10 (3) 33,865 40,138
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/11 (3) 35,685 42,424
Pine Richland School Dist. PA 5.50% 9/1/19 (4) 3,430 3,435
Pittsburgh PA GO 5.20% 9/1/06 (2) 1,175 1,208
Pittsburgh PA GO 5.30% 9/1/07 (2) 1,000 1,029
Pittsburgh PA GO 5.50% 9/1/14 (2) 9,500 9,738
Pittsburgh PA GO 6.25% 9/1/16 (1) 11,030 11,699
Pittsburgh PA GO 7.00% 3/1/06 (3) 18,265 18,770
Pittsburgh PA GO 7.00% 3/1/07 (3) 2,135 2,194
Pittsburgh PA Public Parking Auth. 5.875% 12/1/12 (3) 8,200 8,521
Pittsburgh PA Water & Sewer System 7.25% 9/1/14 (3)(ETM) 25,210 29,710
Pittsburgh PA Water & Sewer System 7.625% 9/1/04 (3)(ETM) 5,370 6,210
Pocono Mountain PA School Dist. GO 5.75% 10/1/09 (2) 6,000 6,191
Reading PA GO 5.875% 11/15/12 (2) 18,000 18,550
St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 7/1/09 (5) 1,000 1,080
St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 7/1/13 (5) 5,050 5,453
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 6/15/15 (5) $ 1,770 $ 1,909
Sayre PA Health Care Fac. Auth. VRDO (VHA of Pennsylvania
Pooled Capital Asset Finance Program) 3.60% 12/4/96 (2) 49,225 49,225
Sayre PA Health Care Fac. Auth. (Guthrie Health Care System) 7.00% 3/1/11 (2) 2,000 2,220
Scranton-Lackawanna PA Health & Welfare Auth. (Mercy Health) 5.625% 1/1/16 (1)+ 5,490 5,550
Scranton-Lackawanna PA Health & Welfare Auth. (Mercy Health) 5.70% 1/1/23 (1)+ 8,000 8,103
Seneca PA Valley School Dist. GO 5.50% 7/1/14 (3) 9,965 9,998
Seneca PA Valley School Dist. GO 5.75% 7/1/10 (3) 4,000 4,113
Souderton PA Area School Dist. GO 7.00% 9/1/12 (2) 2,200 2,294
South Fork PA Hosp. Auth. (Conemaugh Valley Hosp.) 5.625% 7/1/10 (6) 2,300 2,387
South Fork PA Hosp. Auth. (Conemaugh Valley Hosp.) 5.75% 7/1/18 (6) 7,000 7,228
Spring-Ford PA Area School Dist. GO 6.50% 2/1/18 (2) 8,260 9,191
Univ. of Pittsburgh PA 6.125% 6/1/21 (1) 38,570 40,301
Univ. of Pittsburgh PA 6.25% 6/1/12 (1) 4,250 4,549
Washington County PA Hosp. Auth. (Shadyside Hosp.) 5.875% 12/15/09 (2) 22,000 23,157
Washington County PA Hosp. Auth. (Washington Hosp.) 6.75% 7/1/12 (2) 10,000 10,894
West Allegheny PA School Dist. 6.25% 2/1/14 (2) 6,155 6,493
West Jefferson Hills PA School Dist. GO 5.90% 8/1/10 (3) 3,160 3,273
West Jefferson Hills PA School Dist. GO 5.95% 8/1/14 (3) 7,180 7,380
West Mifflin PA School Dist. GO 5.35% 2/15/09 (3) 1,555 1,578
West Mifflin PA School Dist. GO 5.625% 2/15/15 (3) 7,000 7,011
Westmoreland County PA Auth. 6.125% 7/1/17 (1)(ETM) 8,205 8,617
York County PA Southwestern School Dist. GO 6.40% 6/15/12 (3) 3,825 4,256
-----------
1,504,369
-----------
PORTFOLIO INSURED (0.1%)
Allegheny County PA Hosp. Dev. Auth. (St. Margaret's Hosp.) 9.80% 7/1/10 1,500 1,528
-----------
NON-INSURED (8.6%)
Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.45% 12/5/96 LOC 6,000 6,000
Allegheny County PA Hosp. Dev. Auth. VRDO (Allegheny General Hosp.) 3.55% 12/4/96 LOC 20,800 20,800
Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health) 3.60% 12/5/96 600 600
Allegheny County PA Hosp. Dev. Auth. VRDO (South Hills Health System) 3.50% 12/4/96 LOC 6,800 6,800
Delaware County PA Hosp. Auth. VRDO (Crozier-Chester Medical Center) 3.57% 12/4/96 LOC 2,000 2,000
Delaware County PA IDA PCR VRDO (PECO) 4.05% 12/3/96 LOC 400 400
Emmaus PA General Auth. Local Rev. VRDO
(Hatboro-Horsham School Dist.) 3.65% 12/4/96 LOC 900 900
Geisinger Health System Auth. of PA VRDO (Geisinger Health System) 4.00% 12/3/96 4,800 4,800
Pennsylvania GO 4.75% 6/15/97 1,750 1,761
Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 4.10% 12/3/96 2,900 2,900
Pennsylvania Higher Educ. Fac. Auth. (Univ. of Pennsylvania) 5.75% 1/1/22 12,415 12,554
Pennsylvania Higher Educ. Fac. Auth. VRDO
(Univ. of Pennsylvania Health System Obligated Group) 3.60% 12/4/96 4,100 4,100
Pennsylvania Housing Single Family Mortgage Finance Agency 6.90% 4/1/17 6,475 6,852
Pennsylvania Housing Single Family Mortgage Finance Agency 7.55% 4/1/16 4,040 4,319
Pennsylvania TAN 4.50% 6/30/97 15,000 15,081
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO
(Children's Hosp. of Philadelphia) 4.00% 12/3/96 35,750 35,750
Philadelphia PA IDA VRDO (Franklin Institute) 3.65% 12/5/96 LOC 6,700 6,700
Philadelphia PA TRAN 4.50% 6/30/97 5,000 5,023
Swarthmore Borough PA Auth. College Rev. 7.375% 9/15/18 2,200 2,347
Univ. of Pittsburgh PA Higher Educ. VRDO 3.45% 12/5/96 LOC 2,100 2,100
-----------
141,787
-----------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $1,550,770) 1,647,684
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 29,825
Liabilities (26,272)
-----------
3,553
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------------------------------------------------
Applicable to 146,585,821 outstanding shares of beneficial interest
(unlimited authorization--no par value) $1,651,237
=================================================================================================================================
NET ASSET VALUE PER SHARE $11.26
=================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 20.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,547,675 $10.56
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 6,388 .04
Unrealized Appreciation--Note F
Investment Securities 96,914 .66
Futures Contracts 260 --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,651,237 $11.26
=================================================================================================================================
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS (100.9%)
- ---------------------------------------------------------------------------------------------------------------------------------
Allegheny County PA GO VRDO 3.60% 12/5/96 $ 8,900 $ 8,900
Allegheny County PA GO TOB VRDO 3.65% 12/5/96 (2) 3,000 3,000
Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.35% 12/5/96 LOC 31,230 31,230
Allegheny County PA Hosp. Dev. Auth. VRDO (Allegheny General Hosp.) 3.55% 12/4/96 LOC 17,050 17,050
Allegheny County PA Hosp. Dev. Auth. VRDO
(Children's Hosp.-Pittsburgh) 3.50% 12/5/96 (1) 19,150 19,150
Allegheny County PA Hosp. Dev. Auth. CP (Health Center Dev.) 3.45% 2/11/97 LOC 6,800 6,800
Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health) 3.60% 12/5/96 (1) 1,200 1,200
Allegheny County PA Hosp. Dev. Auth. VRDO (South Hills Health System) 3.50% 12/4/96 LOC 1,200 1,200
Allegheny County PA PCR CP (Duquesne Light Co.) 3.70% 2/21/97 LOC 5,000 5,000
Allegheny County PA Port Auth. 4.00% 3/1/97 (2) 6,845 6,859
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.50% 2/11/97 LOC 9,500 9,500
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.50% 2/18/97 LOC 14,750 14,750
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.50% 2/26/97 LOC 7,500 7,500
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.55% 2/20/97 LOC 3,200 3,200
Beaver County PA IDA PCR VRDO (Duquesne Light Co.) 3.55% 12/4/96 LOC 15,000 15,000
Berks County PA Higher Educ. Auth. (PA Pooled Finance Program) 7.00% 9/1/97 (Prere.) 5,000 5,124
Berks County PA IDA CP (Citizens Utility Co.) 3.70% 12/10/96 4,200 4,200
Berks County PA TRAN 4.50% 12/31/96 10,850 10,854
Bucks County PA GO 7.15% 3/1/97 (Prere.) 2,000 2,017
Cumberland County PA Municipal Auth. PUT (Dickinson College) 4.25% 10/31/97 LOC 13,310 13,390
Dauphin County PA General Auth. Hosp. Rev. VRDO
(Reading Hosp. & Medical Center) 3.65% 12/4/96 10,400 10,400
Delaware County PA IDA Airport Fac. Rev. VRDO (United Parcel Service) 3.90% 12/3/96 67,700 67,700
Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 4.10% 12/3/96 4,700 4,700
Delaware County PA IDA PCR VRDO (PECO) 4.05% 12/3/96 LOC 4,925 4,925
Delaware County PA IDA PCR VRDO CP (PECO) 3.55% 4/10/97 (3) 4,200 4,200
Delaware County PA IDA PCR VRDO CP (PECO) 3.65% 12/10/96 (3) 5,000 5,000
Delaware County PA IDA PCR VRDO CP (PECO) 3.70% 12/16/96 (3) 1,150 1,150
Delaware County PA IDA PUT (Resource Recovery Project) 3.625% 12/1/97 LOC 23,000 23,000
Delaware County PA IDA Solid Waste Rev. VRDO (Scott Paper Co.) 3.55% 12/4/96 55,400 55,400
Downingtown PA School Dist. GO 4.00% 3/1/97 1,305 1,306
Emmaus PA General Auth. Local Govt. Rev. VRDO (Allentown City) 3.65% 12/4/96 LOC 8,000 8,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Altoona Area School Dist.) 3.65% 12/4/96 LOC 14,400 14,400
Emmaus PA General Auth. Local Govt. Rev. VRDO
(East Penn School Dist.) 3.65% 12/4/96 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Great Valley School Dist.) 3.70% 12/4/96 LOC 15,000 15,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Hatboro-Horsham School Dist.) 3.65% 12/4/96 LOC 17,100 17,100
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Highlands School Dist.) 3.65% 12/4/96 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Lower Dauphin School Dist.) 3.70% 12/4/96 LOC 5,000 5,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Owen J. Roberts School Dist.) 3.65% 12/4/96 LOC 7,900 7,900
Emmaus PA General Auth. Local Govt. Rev. VRDO (Pooled Program) 3.65% 12/4/96 29,800 29,800
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Red Lion Area School Dist.) 3.70% 12/4/96 LOC 3,500 3,500
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Southern York School Dist.) 3.65% 12/4/96 LOC 6,500 6,500
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Southmoreland School Dist.) 3.65% 12/4/96 LOC 5,200 5,200
Emmaus PA General Auth. Local Govt. Rev. VRDO
(West Chester Area School Dist.) 3.70% 12/4/96 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(West Shore School Dist.) 3.65% 12/4/96 LOC 10,000 10,000
Geisinger Health System Auth. of PA VRDO (Geisinger Health System) 4.00% 12/3/96 27,700 27,700
Lancaster PA Higher Educ. Auth. VRDO (Franklin & Marshall College) 3.65% 12/4/96 2,125 2,125
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lehigh County PA General Purpose Auth. CP (Hosp. Central Services) 3.85% 1/15/97 (1) $ 3,100 $ 3,100
Lehigh County PA IDA PCR TOB VRDO (Pennsylvania Power & Light) 3.55% 12/5/96 (1) 3,200 3,200
Montgomery County PA IDA PCR CP (PECO) 3.45% 2/18/97 LOC 4,350 4,350
Montgomery County PA IDA PCR CP (PECO) 3.50% 2/20/97 LOC 17,280 17,280
Montgomery County PA IDA PCR CP (PECO) 3.65% 12/13/96 LOC 7,490 7,490
Montgomery County PA Higher Educ. & Health Auth. (Bryn Mawr Hosp.) 9.375% 12/1/97 (Prere.) 5,000 5,369
Montgomery County PA VRDO 3.45% 12/4/96 2,500 2,500
Neshaminy PA School Dist. TRAN 4.50% 6/30/97 5,000 5,015
Northampton County PA IDA VRDO (Citizens Utility Co.) 3.50% 12/4/96 8,375 8,375
Northeastern PA Hosp. & Educ. Auth. VRDO
(Allhealth Pooled Finance Program) 3.70% 12/4/96 LOC 10,000 10,000
Northeastern PA Hosp. & Education Auth. VRDO
(Wyoming Valley Health Care Obligated Group) 3.55% 12/4/96 (2) 41,800 41,800
Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.60% 2/24/97 (1) 3,000 3,000
Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.70% 12/11/96 (1) 9,800 9,800
Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.70% 12/17/96 (1) 4,500 4,500
Pennsylvania GO 4.75% 6/15/97 6,760 6,796
Pennsylvania GO 5.00% 11/15/97 9,075 9,180
Pennsylvania GO TOB VRDO 3.65% 12/5/96 (2) 9,125 9,125
Pennsylvania Higher Educ. Assistance Agency Student Loan Rev. VRDO 3.60% 12/4/96 LOC 98,100 98,100
Pennsylvania Higher Educ. Fac. Auth. VRDO (Allegheny College) 3.55% 12/4/96 LOC 3,000 3,000
Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 4.10% 12/3/96 52,300 52,300
Pennsylvania Higher Educ. Fac. Auth. VRDO RAN (Temple Univ.) 4.00% 12/3/96 LOC 37,000 37,000
Pennsylvania Higher Educ. Fac. Auth. PUT (Thomas Jefferson Univ.) 3.70% 2/26/97 10,000 10,000
Pennsylvania Higher Educ. Fac. Auth. VRDO
(Univ. of Pennsylvania Health System Obligated Group) 3.60% 12/4/96 131,800 131,800
Pennsylvania Higher Educ. Univ. Funding RAN (Temple Univ.) 4.625% 5/20/97 17,000 17,071
Pennsylvania Intergovernmental Cooperative Auth. 5.00% 6/15/97 (3) 7,500 7,549
Pennsylvania State Univ. Notes 4.25% 4/4/97 3,250 3,258
Pennsylvania TAN 4.50% 6/30/97 56,150 56,396
Pennsylvania Turnpike Rev. 7.875% 12/1/96 (Prere.) 14,505 14,795
Pennsylvania Turnpike Rev. TOB VRDO 3.65% 12/5/96 12,000 12,000
Philadelphia PA Gas Works 7.875% 7/1/97 (Prere.) 8,300 8,668
Philadelphia PA Gas Works 7.875% 7/1/97 (5)(Prere.) 6,500 6,778
Philadelphia PA GO 8.125% 8/1/97 (Prere.) 7,000 7,335
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO
(Children's Hosp. of Philadelphia) 4.00% 12/3/96 18,700 18,700
Philadelphia PA Hosp. & Higher Educ. Fac. Auth.
(Children's Hosp. of Philadelphia) 7.00% 7/1/97 (Prere.) 3,175 3,233
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO
(Pennsylvania Hosp.) 3.50% 12/4/96 (3) 29,200 29,200
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. PUT
(Pennsylvania Hosp.) 3.85% 7/1/97 (3) 25,000 25,000
Philadelphia PA IDA VRDO (Fox Chase Institute for Cancer Research) 4.00% 12/3/96 LOC 4,400 4,400
Philadelphia PA Water & Waste Water Rev. 4.50% 6/15/97 (1) 5,000 5,020
Pittsburgh PA Public Parking Auth. 4.80% 12/1/97 (3) 1,800 1,818
St. Mary's Hosp. Auth. Langhorne PA VRDO (Franciscan Health System) 3.90% 12/3/96 LOC 21,230 21,230
Sayre PA Health Care Fac. Auth. VRDO (VHA of Pennsylvania
Pooled Capital Asset Financing Program) 3.60% 12/4/96 (2) 58,670 58,670
Univ. of Pittsburgh PA Higher Educ. VRDO 3.45% 12/5/96 LOC 34,900 34,900
York County PA IDA PCR VRDO (PECO) 4.05% 12/3/96 LOC 12,240 12,240
York County PA IDA PCR VRDO (Public Service Electric & Gas) 3.30% 12/4/96 (1) 5,200 5,200
OUTSIDE PENNSYLVANIA:
Puerto Rico Govt. Dev. Bank VRDO 3.20% 12/4/96 LOC 1,100 1,100
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $1,383,571) 1,383,571
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
MONEY MARKET PORTFOLIO (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-0.9%)
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 15,297
Liabilities (27,486)
-----------
(12,189)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------------------------------------------------
Applicable to 1,371,425,921 outstanding shares of beneficial interest
(unlimited authorization--no par value) $1,371,382
=================================================================================================================================
NET ASSET VALUE PER SHARE $1.00
=================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,371,425 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (43) --
Unrealized Appreciation -- --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,371,382 $1.00
=================================================================================================================================
</TABLE>
KEY TO ABBREVIATIONS
BAN--Bond Anticipation Note.
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
IDR--Industrial Development Revenue Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
RAN--Revenue Anticipation Note.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
TRAN--Tax Revenue Anticipation Note.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
+Security purchased on a when-issued or delayed delivery basis for which the
Portfolio has not taken delivery as of November 30, 1996.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association).
(2) AMBAC (AMBAC Indemnity Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
(5) BIGI (Bond Investors Guaranty Insurance).
(6) Connie Lee Inc.
(7) FHA (Federal Housing Authority).
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
20
<PAGE> 23
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. These
expenses directly reduce the amount of investment income available to pay to
shareholders as tax-exempt income dividends. This Statement also shows any Net
Gain (Loss) realized on the sale of investments, and the increase or decrease in
the Unrealized Appreciation (Depreciation) on investments during the period. If
a Portfolio invested in futures contracts during the period, the results of
these investments are shown separately.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1996
- -----------------------------------------------------------------------------------------
INSURED MONEY
LONG-TERM MARKET
PORTFOLIO PORTFOLIO
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest $89,760 $45,064
----------------------
Total Income 89,760 45,064
----------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 198 159
Management and Administrative 2,413 1,851
Marketing and Distribution 321 378
Insurance Expense 33 --
Custodian Fees 35 35
Auditing Fees 8 7
Shareholders' Reports 40 29
Annual Meeting and Proxy Costs 9 7
Trustees' Fees and Expenses 4 3
----------------------
Total Expenses 3,061 2,469
Expenses Paid Indirectly--Note C (35) (35)
----------------------
Net Expenses 3,026 2,434
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 86,734 42,630
- -----------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold 6,102 5
Futures Contracts 1,599 --
- -----------------------------------------------------------------------------------------
REALIZED NET GAIN 7,701 5
- -----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (5,506) --
Futures Contracts 1,918 --
- -----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (3,588) --
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $90,847 $42,635
=========================================================================================
</TABLE>
21
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes information
that is detailed in the Statement of Operations. Because the Portfolio
distributes its income to shareholders each day, the amounts of
Distributions--Net Investment Income generally equal the net income earned as
shown under the Operations section. The amounts of Distributions--Realized
Capital Gain may not match the capital gains shown in the Operations section,
because distributions are determined on a tax basis and may be made in a period
different from the one in which the gains were realized on the financial
statements. The Capital Share Transactions section shows the amount shareholders
invested in the Portfolio, either by purchasing shares or by reinvesting
distributions, and the amounts redeemed. The corresponding numbers of Shares
Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
INSURED LONG-TERM PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------------------------------
YEAR ENDED NOVEMBER 30,
- -------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income 86,734 81,331 42,630 41,411
Realized Net Gain (Loss) 7,701 3,960 5 (9)
Change in Unrealized Appreciation
(Depreciation) (3,588) 154,719 -- --
-------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 90,847 240,010 42,635 41,402
-------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (86,734) (81,331) (42,630) (41,411)
Realized Capital Gain (5,205) -- -- --
-------------------------------------------------------
Total Distributions (91,939) (81,331) (42,630) (41,411)
-------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 285,730 321,317 1,497,844 1,325,637
Issued in Lieu of Cash Distributions 64,214 56,112 39,116 38,465
Redeemed (266,653) (265,925) (1,365,267) (1,269,390)
-------------------------------------------------------
Net Increase from
Capital Share Transactions 83,291 111,504 171,693 94,712
- -------------------------------------------------------------------------------------------------------
Total Increase 82,199 270,183 171,698 94,703
- -------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,569,038 1,298,855 1,199,684 1,104,981
-------------------------------------------------------
End of Year $1,651,237 $1,569,038 $1,371,382 $1,199,684
=======================================================================================================
1Shares Issued (Redeemed)
Issued 25,792 29,723 1,497,844 1,325,637
Issued in Lieu of Cash Distributions 5,785 5,152 39,116 38,465
Redeemed (24,107) (24,765) (1,365,267) (1,269,390)
-------------------------------------------------------
Net Increase in Shares Outstanding 7,470 10,110 171,693 94,712
=======================================================================================================
</TABLE>
22
<PAGE> 25
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total Return
and shows net investment income and expenses as percentages of average net
assets. These data will help you assess: the variability of the Portfolio's net
income and total returns from year to year; the relative contributions of net
income and capital gains to the Portfolio's total return; how much it costs to
operate the Portfolio; and the extent to which the Portfolio tends to distribute
capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
Portfolio for one year. Money market portfolios do not show a Portfolio Turnover
Rate because securities purchased with less than one year to maturity are
excluded from the calculation of turnover rates.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
INSURED LONG-TERM PORTFOLIO
-------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.28 $10.07 $11.36 $10.96 $10.47
- ----------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .606 .612 .625 .631 .664
Net Realized and Unrealized Gain (Loss) on Investments .017 1.210 (1.211) .624 .520
-------------------------------------------------
Total from Investment Operations .623 1.822 (.586) 1.255 1.184
-------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.606) (.612) (.625) (.631) (.664)
Distributions from Realized Capital Gains (.037) -- (.079) (.224) (.030)
-------------------------------------------------
Total Distributions (.643) (.612) (.704) (.855) (.694)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.26 $11.28 $10.07 $11.36 $10.96
================================================================================================================
TOTAL RETURN 5.77% 18.48% -5.44% 11.90% 11.65%
================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,651 $1,569 $1,299 $1,496 $1,130
Ratio of Total Expenses to Average Net Assets 0.19% 0.20% 0.20% 0.20% 0.24%*
Ratio of Net Investment Income to Average Net Assets 5.47% 5.63% 5.76% 5.61% 6.17%
Portfolio Turnover Rate 13% 12% 16% 14% 17%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Insurance expense represents 0.01%.
23
<PAGE> 26
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED NOVEMBER 30,
------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .033 .036 .025 .024 .029
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
------------------------------------------------
Total from Investment Operations .033 .036 .025 .024 .029
------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.033) (.036) (.025) (.024) (.029)
Distributions from Realized Capital Gains -- -- -- -- --
------------------------------------------------
Total Distributions (.033) (.036) (.025) (.024) (.029)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================
TOTAL RETURN 3.36% 3.69% 2.57% 2.38% 2.96%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,371 $1,200 $1,105 $935 $782
Ratio of Total Expenses to Average Net Assets 0.19% 0.20% 0.20% 0.20% 0.24%
Ratio of Net Investment Income to Average Net Assets 3.30% 3.62% 2.55% 2.35% 2.93%
Portfolio Turnover Rate N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
Vanguard Pennsylvania Tax-Free Fund is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund, and comprises the
Insured Long-Term and Money Market Portfolios. Each Portfolio invests in debt
instruments of municipal issuers whose ability to meet their obligations may be
affected by economic and political developments in the Commonwealth of
Pennsylvania.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Money Market Portfolio: investment securities are
valued at amortized cost, which approximates market value. Insured Long-Term
Portfolio: Bonds, and temporary cash investments acquired more than 60 days to
maturity, are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and credit ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. FUTURES CONTRACTS: The Insured Long-Term Portfolio may use Municipal
Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with
the objectives of enhancing returns, managing interest-rate risk, maintaining
liquidity, diversifying credit risk and minimizing transaction costs. The
Portfolio may purchase or sell futures contracts instead of bonds to take
advantage of pricing differentials between the futures contracts and the
underlying bonds. The Portfolio may also seek to take advantage of price
differences among bond market sectors by simultaneously buying futures (or
bonds) of one market sector and selling futures (or bonds) of another sector.
Futures contracts may also be used to simulate a fully invested position in the
underlying bonds while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of bonds held by the Portfolio and the prices
of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
original issue discounts are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Trustees. At November 30, 1996, the Fund had contributed capital aggregating
$276,000 to Vanguard (included in Other Assets), representing 1.4% of Vanguard's
capitalization. The Fund's trustees and officers are also directors and officers
of Vanguard.
C. The Fund's custodian bank has agreed to reduce its fees when the Fund
maintains cash on deposit in the non-interest-bearing custody account. For the
year ended November 30, 1996, custodian fee offset arrangements reduced expenses
of each Portfolio by $35,000.
25
<PAGE> 28
D. During the year ended November 30, 1996, the Insured Long-Term Portfolio
purchased $200,033,000 of investment securities and sold $191,851,000 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. For federal income tax purposes, the
Portfolios had the following capital gains available for distribution at
November 30, 1996, or capital losses available to offset future capital gains:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CAPITAL LOSS
----------------------------
CAPITAL GAINS EXPIRATION
AVAILABLE FOR FISCAL YEAR(S)
DISTRIBUTION AMOUNT ENDING
PORTFOLIO (000) (000) NOV. 30
-----------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term $9,423 -- --
Money Market -- $(43) 1997-2003
-----------------------------------------------------------------------
</TABLE>
F. At November 30, 1996, unrealized appreciation of Insured Long-Term Portfolio
investment securities for financial reporting and federal income tax purposes
was $96,914,000, consisting entirely of unrealized gains on securities that had
risen in value since their purchase.
At November 30, 1996, the aggregate settlement value of open futures
contracts expiring in March 1997, and the related unrealized appreciation were:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
(000)
----------------------------
AGGREGATE
NUMBER OF SETTLEMENT UNREALIZED
PORTFOLIO/FUTURES CONTRACTS LONG CONTRACTS VALUE APPRECIATION
------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term/
U.S. Treasury Bond 300 $34,763 $260
------------------------------------------------------------------------
</TABLE>
Unrealized appreciation on open futures contracts is required to be treated
as realized gain for federal income tax purposes. The market value of securities
deposited as initial margin for open futures contracts by the Insured Long-Term
Portfolio was $4,000,000.
26
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Trustees of
Vanguard Pennsylvania Tax-Free Fund
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
Insured Long-Term Portfolio and Money Market Portfolio (constituting Vanguard
Pennsylvania Tax-Free Fund, hereafter referred to as the "Fund") at November 30,
1996, and the results of each of their operations, the changes in each of their
net assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's 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, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 31, 1996
27
<PAGE> 30
SPECIAL 1996 TAX INFORMATION (UNAUDITED)
VANGUARD PENNSYLVANIA TAX-FREE FUND
This information for the fiscal year ended November 30, 1996, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term Portfolio designates $6,896,000 as capital gain
dividends (from net long-term capital gains), which will be distributed
in December 1996.
Each Portfolio designates 100% of its income dividends as
exempt-interest dividends.
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
28
<PAGE> 31
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer Inc.;
Director of Sun Company, Inc. and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and
Massa-chusetts Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corp., Baker Fentress & Co., The Jeffrey Co., and Southern New England
Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich
Co., and The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co.
and President of New York University; Director of Pacific Gas and
Electric Co., Procter & Gamble Co., and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of
The Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Principal of The Vanguard Group, Inc.;
Treasurer of each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President, Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President, Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[THE VANGUARD GROUP LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
[email protected] http://www.vanguard.com
All Vanguard Funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses
may be obtained directly from The Vanguard Group.
(C) 1996 Vanguard Marketing Corporation, Distributor
<PAGE> 32
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity-International
Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q770-11/96
