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VANGUARD
PENNSYLVANIA
TAX-FREE FUND
Annual Report - November 30, 1997
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 6,000 highly motivated
men and women--who form the cornerstone of our operations. As with any
cornerstone, we could not survive long--let alone prosper--without it. That's
why we chose this fiscal year's annual report to celebrate the spirit,
enthusiasm, and achievements of our crew. (We call those who work at Vanguard
crew members, not employees, because they operate as a team to accomplish our
mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more
than 300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving you
in the years ahead.
[PHOTO] [PHOTO]
John C. Bogle John J. Brennan
Chairman President
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CONTENTS
<S> <C>
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 . . . . . . . . . . . . . . . . 28
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
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FELLOW SHAREHOLDER,
During the twelve months ended November 30--Vanguard Pennsylvania
Tax-Free Fund's 1997 fiscal year--the prices of tax-exempt bonds edged higher,
reflecting a modest decline in long-term interest rates in the face of continued
mild inflation. Short-term interest rates, on the other hand, moved slightly
higher.
In this environment, the +3.5% return of our Money Market Portfolio
surpassed that of its competitive group and the +6.2% return of our Insured
Long-Term Portfolio fell short of that of its average peer. The table at right
presents each Portfolio's twelve-month return, as well as its income and capital
components.
<TABLE>
<CAPTION>
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COMPONENTS OF TOTAL RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1997
-------------------------------------
PORTFOLIO INCOME CAPITAL TOTAL
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<S> <C> <C> <C>
Money Market +3.5% 0.0% +3.5%
Insured Long-Term +5.5 +0.7 +6.2
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</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 $11.26
per share on November 30, 1996, to $11.27 per share on November 30, 1997,
adjusted for dividends totaling $0.598 per share from net investment income and
distributions totaling $0.064 per share from net realized capital gains. The
Money Market Portfolio's net asset value remained at $1 per share, as is
expected but not guaranteed. At the end of the fiscal year, the Insured
Long-Term Portfolio's yield stood at 4.80%, the Money Market Portfolio's yield
at 3.70%.
FISCAL 1997 PERFORMANCE OVERVIEW
Steady economic growth teamed with low inflation to create a near-perfect
environment for investors over the past twelve months. Interest rates began the
period heading higher, a climb that was punctuated in March when the Federal
Reserve Board raised its target for short-term rates by 25 basis points.
However, that small increase was the only Fed action of the year. After peaking
in mid-April, the yield on the benchmark U.S. Treasury long-term bond headed
down to end the twelve months at 6.05%, more than one full percentage point
below its apex of 7.17% on April 14. Yields on high-grade, long-term municipal
bonds ended the period at 5.36%, down from 5.66% at the end of November 1996.
Yields on top-grade short-term (MIG-1) notes rose on balance to 3.80% from 3.55%
a year earlier.
While the economic environment was kind to bonds, it truly worked
wonders for equities. Low inflation, continued strong growth in corporate
earnings, and a record level of consumer confidence combined to drive stocks
upward. Despite a severe shock in late October, the Standard & Poor's 500
Composite Stock Price Index posted a return of +28.5% for the fiscal year ended
November 30.
This year's generally placid interest-rate environment marked the second
straight year of relative tranquillity in the bond market. However, we need not
look far back for evidence that calm is by no means a constant in the bond
market. During fiscal 1995, bond prices soared as interest rates fell sharply.
Just the opposite was true during 1994, when the bond market suffered one of its
worst years ever. For bond fund investors, the important lesson is that
fluctuations in bond (and bond fund) prices, which can have a significant impact
on returns from year to year, tend to wash away over longer periods, leaving the
rate of interest income--the coupon--as the dominant source of long-term
returns.
The +6.2% annual total return for the Pennsylvania Insured Long-Term
Portfolio fell behind the +6.7% annual return for the average Pennsylvania
municipal bond fund.
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This shortfall versus our average peer was a result of the generally lower
credit quality (and therefore slightly higher yields) of bonds owned by many
other Pennsylvania long-term tax-free funds. For example, many of our
competitors own BBB-rated bonds--lower-quality securities that, by design, are
not included in our Portfolio. While our dedication to the highest quality can
be a detriment over short periods, we believe this approach is in the best
long-term interests of our shareholders.
Our return for the fiscal year also lagged the +7.2% return of the
Lehman Brothers Municipal Bond Index. This "all-state" Index, of course, is a
tough standard for any single state tax-free fund, existing as it does outside
the real world of operating expenses and transaction costs. Overall, the total
return of our Insured Long-Term Portfolio received a slight boost from the price
increase engendered by the decline in interest rates, while the lion's share of
our return during the twelve months came from interest income. Our Money Market
Portfolio's +3.5% return, all of which came from interest income, outpaced the
+3.2% return of its average peer.
For Pennsylvania residents, the income earned by our Portfolios is
exempt from state, local, and federal income taxes. Given these advantages,
investors in the Pennsylvania Insured Long-Term Portfolio who are taxed at the
highest combined federal-state marginal tax rate can earn 50% 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 yield of MIG-1
notes at the end of the fiscal year was 23% higher than the after-tax yield of
three-month U.S. Treasury bills. Put another way, a yield of 5.4% on a
tax-exempt long-term portfolio would be the equivalent of a 9.2% taxable yield
to Pennsylvania tax-payers subject to the highest tax rates. For a tax-exempt
short-term yield of 3.8%, the taxable equivalent would be 6.5%. These advantages
are truly remarkable, as reflected in the table above, which generally compares
the annual net income earned on tax-exempt and taxable securities as of November
30, 1997, assuming a $100,000 investment.
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ILLUSTRATION OF INCOME ON A
HYPOTHETICAL $100,000 INVESTMENT
---------------------------------
SHORT-TERM LONG-TERM
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<S> <C> <C>
Taxable gross income $ 5,200 $ 6,100
Less taxes (41.3%) (2,100) (2,500)
Net after-tax income 3,100 3,600
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Tax-exempt income $ 3,800 $ 5,400
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Tax-exempt income advantage $ 700 $ 1,800
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Percentage advantage 23% 50%
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</TABLE>
The illustration assumes current yields (as of November 30, 1997) of 6.1% for
long-term U.S. Treasury bonds, 5.2% for U.S. Treasury bills, 5.4% for long-term
municipals, and 3.8% for short-term municipals. The tax adjustment assumes a
typical itemized tax return based on a federal tax rate of 39.6% and the top
state tax rate of 2.8%; local taxes are not considered. The illustration is not
intended to represent future results.
We emphasize that these examples ignore two important differences in
credit quality between state-specific municipal bond funds and U.S. Treasury
bond funds: (1) Treasuries 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 assets in securities from a particular economic region.
For our Insured Long-Term Portfolio, the added credit risk is
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.
Because portfolio insurance is generally not available for short-term
securities, the task of preserving principal in our Money Market Portfolio falls
to our investment adviser, Vanguard Fixed Income Group. This Group carefully
scrutinizes the credit quality of
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our holdings, which on average have earned Moody's Investors Service's
highest quality rating for shorter-term securities. That said, we point out
that money market investments are not guaranteed by the Federal Deposit
Insurance Corporation, which insures bank accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
The accompanying table compares the longer-term performance of our Portfolios
with those of their average peers. It also illustrates our performance edge over
our competitors--a difference we call the "Vanguard Advantage."
Our expense-ratio advantage over our typical competitor plays a key role
in our performance advantage. Our Portfolios maintain expense ratios (annual
expenses as a percentage of average net assets) of about 0.20%, compared with
the 1.04% expense ratio of the average competitive long-term state tax-free
fund, and 0.60% for the average state tax-free money market fund. This cost
savings, which flows directly to our shareholders, has been available year after
year, and we expect it to continue to aid us in our goal of providing returns
that exceed those of our competitive norms. Vanguard Fixed Income Group plays a
key role too, managing the Portfolios ably and maintaining a level of investment
quality that we believe is without peer in the industry.
Over the past several years--indeed, on balance for more than 15
years--bond investors have benefited from returns that are above longer-term
averages. Because long-term yields are at lower levels today than for most of
the recent past, it is virtually certain that returns for the next decade will
not match those of the past decade.
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TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997*
------------------------------------------------------
AVERAGE FINAL VALUE OF A
ANNUAL RATE $10,000 INITIAL INVESTMENT**
------------------------------------------------------
AVERAGE AVERAGE
PORTFOLIO VANGUARD COMPETING VANGUARD COMPETING VANGUARD
(INCEPTION DATE) PORTFOLIO FUND PORTFOLIO FUND ADVANTAGE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market**
(6/13/1988) +4.0% +3.9% $14,487 $14,307 $180
Insured Long-Term+
(4/7/1986) +8.8 +8.4 23,249 22,367 882
- ----------------------------------------------------------------------------------
</TABLE>
*For Money Market Portfolio, annualized return since inception, for Insured
Long-Term Portfolio, annualized ten-year return.
**Assuming reinvestment of all income dividends and capital gains distributions.
IN SUMMARY
Bond investors have enjoyed a long period of generally declining interest rates,
while stock investors have experienced a stretch that is nothing short of
remarkable. But a sensible investor understands that the financial markets are
not a one-way street. Risk is an ever-present element of investing, even when
the markets are providing generous rewards.
That said, the greatest risk is not investing in the first place. We
believe that a sound method for dealing with risk is to construct a balanced
investment program of stock funds, bond funds, and reserves, one that is suited
to your objectives, financial situation, tolerance for risk, and time horizon.
If you have such a program in place, you should be prepared to "stay the course"
toward your investment goals, no matter what lies ahead.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
December 22, 1997
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<PAGE> 6
THE MARKETS IN PERSPECTIVE
Year Ended November 30, 1997
U.S. EQUITY MARKETS
The fiscal year ended November 30 tested investors' mettle on a number of
occasions, but most ended on a positive note. The increasingly global nature of
investing has rarely been more in evidence than it was over the period. Turmoil
in Southeast Asia raised serious questions about future growth in the region
and, significantly, called into question the earnings outlook for U.S. companies
with exposure there.
Over the 12 months, large-capitalization stocks continued their
advance, propelling the S&P 500 Index to a 28.5% gain. Small-cap stocks also
fared well, as illustrated by the 23.4% increase of the Russell 2000 Index.
These gains withstood a rocky October, when the sharp declines in Asian markets
led many investors to question their expectations regarding U.S. equities.
Although the domestic market dropped substantially--the Dow Jones Industrial
Average fell 554 points, or 7.2%, on October 27--it then rebounded smartly over
the next few days.
Among large-cap stocks, the financial services sector was again one of
the best performers, with an increase of 34.8% in fiscal 1997. Also noteworthy
was a November surge in utility stocks, which brought that sector's 12-month
return up to 34.5%. Utilities, those seemingly perennial cellar-dwellers, were
boosted by a drop in interest rates and by a general consensus that their
valuations at last adequately reflected the risks associated with the new
competitive landscape. In the final quarter of the fiscal year, utility stocks
jumped 23.6%, roughly three times the return generated by the S&P 500 Index
(6.7%). In sharp contrast were a number of market sectors that felt the brunt of
the disarray in Asian economies and--while showing positive gains for the
year--turned in negative fourth fiscal quarters. As the fiscal year ended, there
were growing indications from technology and manufacturing companies that the
economic distress in Southeast Asia would likely reduce their current and future
earnings.
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<CAPTION>
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AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1997
-----------------------------------
1 YEAR 3 YEARS 5 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 28.5% 31.1% 20.2%
Russell 2000 Index 23.4 22.7 16.8
MSCI EAFE Index -0.1 6.5 11.6
- --------------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 7.6% 10.3% 7.6%
Lehman 10-Year Municipal Bond Index 7.1 10.3 7.5
Salomon Brothers Three-Month
U.S. Treasury Bill Index 5.2 5.4 4.7
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.8% 2.6% 2.6%
- --------------------------------------------------------------------------------
</TABLE>
While small-company stocks failed to match the outsized advance of the
S&P 500 Index, their performance grew notably stronger in the second half of the
fiscal year. For the year, the Russell 2000 Index gained 23.4%. During the
second six months, the Russell 2000's 13.8% essentially matched the S&P 500's
13.6%. The improved performance of smaller companies cannot be attributed to any
single factor, but is, rather, due to a combination of attractive valuations and
good earnings.
4
<PAGE> 7
U.S. FIXED-INCOME MARKETS
Bonds were overshadowed by stocks for much of the year. Investors' returns from
bonds, however, were quite respectable. As the year progressed, investors grew
more confident that four seemingly strange bedfellows--strong economic growth,
reasonable inflation, low unemployment, and stable wage growth--would continue
to coexist peacefully. As a result, when interest rates dipped noticeably toward
the fiscal year's end, they fell furthest for issues with the longest
maturities. The yield on the 30-year U.S. Treasury bond closed the fiscal year
at 6.05%, compared to 6.35% on November 30, 1996. Falling rates flattened the
yield curve considerably: Only 0.85% separated the yield on Treasury bills from
the yield on the 30-year issue, down from a spread of 1.22% at the previous
fiscal year-end.
The positive effect of the yield drop on bond prices was apparent in
the 7.6% return of the Lehman Aggregate Bond Index, the broadest measure of
investment-grade issues. Investors in lower-quality securities fared even
better, as shown by the 12.6% gain of the Lehman High Yield Bond Index. The
strength of the economy, together with the lack of inflationary pressure,
produced an ideal environment for junk bonds.
INTERNATIONAL EQUITY MARKETS
Arguably, investors' greatest disappointments were in international
markets--and, of course, Asian markets in particular. During the fiscal year,
the Morgan Stanley Capital International (MSCI) Pacific Index declined by 26.3%
in U.S. dollar terms; the index fell 17.3% in the fourth quarter alone. Among
individual markets, the fiscal year saw sharp declines (in U.S. dollar terms) in
Japan, down 24.5%, including a 16.1% drop in the fourth quarter; Hong Kong, down
25%; Malaysia, down 68%; and Singapore, down 23%. The general slump in Asian
markets began in midsummer with currency devaluations by a number of countries.
Because the values of many of these currencies had been linked to the U.S.
dollar, their fall caused it to appreciate greatly--so much so that Asian
businesses soon found it difficult to purchase American-made products and to
repay dollar-denominated loans. This situation raised questions about how the
region's economic growth would be affected. Related worries focused on imprudent
aspects of various countries' financial systems and the probability of corporate
bankruptcies. In short, there was no place to hide.
By contrast, the European markets continued to provide U.S. investors
with solid returns, although they, too, stumbled in late October and recovered
in November. The MSCI Europe Index posted a gain of 21.8% for the 12 months. The
robust character of the European markets reflects strong corporate earnings and
optimism that the European Monetary Union will provide a solid framework for
future fiscal responsibility and economic growth.
5
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REPORT FROM THE ADVISER
Long-term tax-exempt bonds enjoyed a light tailwind in the 12-month period ended
November 30, 1997, the fiscal year for Vanguard Pennsylvania Tax-Free Fund. A
slight decline in bond yields raised the prices of existing bonds, augmenting
returns from interest income. Yields on short-term tax-exempt securities rose
slightly on balance over the year.
THE INSURED LONG-TERM PORTFOLIO
For the Insured Long-Term Portfolio, fiscal 1997 was another period of positive
performance. As in the previous fiscal year, most of our return represented
coupon income derived from Portfolio holdings. Because of Vanguard's
characteristically low expense ratio--0.18% of average net assets in fiscal
1997--the vast majority of the gross interest collected by the Portfolio flows
through to shareholders.
During the fiscal year, yields on 30-year high-quality municipal
securities fell 0.20 percentage point, from 5.45% to 5.25%. In comparison, the
yield on the 30-year U.S. Treasury bond declined 0.30 percentage point, from
6.35% to 6.05%. Despite the relatively narrow difference between yields at the
beginning and end of the year, the path was far from direct.
During the first half of the year, robust expansion of the U.S. economy
and steady job growth caused concern among fixed-income investors that inflation
would accelerate. Yields rose, and in April the yield on the 30-year Treasury
bond peaked at 7.17%. However, inflation remained in check, and investors came
to welcome the economy's steady growth as sustainable without upward price
pressure. This led to a rally in bond prices after midyear. Later, the bond
market got an additional boost from a dramatic meltdown in Asian currency and
equity markets. This instability triggered a "flight to quality" in which many
investors bought U.S. Treasury securities, pushing yields even lower. (A "flight
to quality" is a movement of capital to the safest investments as people seek to
protect themselves from loss during an unsettling period in a market.)
Two factors in the tax-exempt bond market have led to tightened yield
differentials between bond sectors. First, the current environment of low
interest rates has prompted many fixed-income investors to stretch for
additional yield by purchasing low-quality securities. This additional demand
has reduced the interest-rate premium that investors normally require before
they will buy bonds with poorer credit quality. Second, the increased use of
municipal bond insurance by issuers to boost the credit quality of their
securities reduced the availability of low-investment-grade securities. Today,
approximately 50% of all new municipal bond issues are insured and carry an AAA
rating.
The combination of increased demand for and diminished supply of
lower-quality securities has caused a dramatic decline in the yield spreads
between tax-exempt bonds of higher and lower credit quality. For example, at the
beginning of fiscal 1997, an investor could receive 0.75 percentage point of
additional income for purchasing the lowest-quality investment-grade municipal
bond rather
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than the highest-quality bond. By November 30, that spread had fallen to only
0.35 percentage point. We do not expect a continued tightening of quality
spreads, but we cannot predict when spreads might widen. In the meantime,
shareholders in the Insured Long-Term Portfolio are getting the highest credit
quality while giving up very little in incremental yield.
Vanguard's low-cost structure proved its value during the fiscal year as
investors tended to stretch further for yield and reduced their credit
protection. The powerful advantage of our low expense ratio--0.18% versus 1.04%
for the average long-term state tax-free fund--allows more tax-exempt investment
income to flow directly to shareholders without requiring us to incur higher
credit risk. Cost has been especially important in recent years when income, not
capital change, has accounted for the majority of return for fixed-income
investments. Over the long-term, low expenses correlate directly with superior
portfolio performance.
In summary, we think that the current environment bodes well for
tax-exempt investors. With moderate economic growth and subdued inflation,
fixed-income investments offer a consistent, durable return, which provides an
important anchor to windward in a diversified portfolio. In this realm, the
Insured Long-Term Portfolio offers the advantages of low expenses, high credit
quality, and income that is exempt from both state and federal taxes. It is a
combination difficult to surpass.
THE MONEY MARKET PORTFOLIO
Yields on one-year, tax-exempt money market instruments remained essentially
unchanged during the second half of the fiscal year, despite the onset of
summer's busy municipal borrowing season. The benchmark one-year MIG-1 note
closed the fiscal year with a yield of 3.80%, up 0.25 percentage point from the
yield at the start of the period. By way of comparison, we note that the yield
on one-year U.S. Treasury bills rose only 0.14 percentage point on balance over
the fiscal year, finishing with a yield of 5.49%. This increase was marginal
despite an increase of 0.25 percentage point in the federal funds rate
engineered in March by the Federal Reserve Board's Open Market Committee. The
net result of these market movements was a more favorable environment for
municipal money market investors, as the ratio of one-year MIG-1 note yields to
yields on one-year Treasuries rose from 66.4% at the start of the fiscal year to
69.2% at its end.
The Money Market Portfolio is positioned neutrally as we begin the new
fiscal year. This strategy affords the Portfolio maximum flexibility in the face
of uncertainty, as the financial markets weigh the strength demonstrated by the
U.S. economy against the potential impact of continued economic turmoil in Asia.
What is certain, however, is that Vanguard Pennsylvania Tax-Free Fund will
continue to be managed conservatively with an emphasis on high quality. This
will allow the consistency and durability of Vanguard's low expenses to work on
behalf of our shareholders.
Ian A. MacKinnon, Managing Director
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Christopher M. Ryon, Principal
Vanguard Fixed Income Group
December 19, 1997
INVESTMENT PHILOSOPHY
The adviser believes that each Portfolio, while operating with stated maturity
and stringent quality targets, can achieve a high level of current income that
is exempt from federal and Pennsylvania income taxes by investing in insured and
high-quality uninsured securities issued by Pennsylvania state, county, and
municipal governments.
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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 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 13, 1988-NOVEMBER 30, 1997
- ---------------------------------------------------------
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 5.9
1991 0.0 4.6 4.6 4.6
1992 0.0 3.0 3.0 2.9
1993 0.0 2.4 2.4 2.2
1994 0.0 2.6 2.6 2.4
1995 0.0 3.7 3.7 3.5
1996 0.0 3.4 3.4 3.1
1997 0.0 3.5 3.5 3.2
- ---------------------------------------------------------
</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: JUNE 13, 1988-NOVEMBER 30, 1997
- ----------------------------------------------------------------
MONEY MARKET AVERAGE PENNSYLVANIA TAX-EXEMPT
PORTFOLIO MONEY MARKET FUND
- ----------------------------------------------------------------
<S> <C> <C> <C>
Jun 13, 88 10000 10000
1988 08 10113 10107
1988 11 10254 10249
1989 02 10407 10392
1989 05 10582 10565
1989 08 10747 10741
1989 11 10909 10900
1990 02 11065 11044
1990 05 11229 11209
1990 08 11386 11382
1990 11 11548 11541
1991 02 11698 11679
1991 05 11832 11815
1991 08 11955 11949
1991 11 12079 12071
1992 02 12182 12155
1992 05 12278 12256
1992 08 12356 12345
1992 11 12437 12420
1993 02 12513 12473
1993 05 12588 12544
1993 08 12659 12623
1993 11 12734 12690
1994 02 12803 12737
1994 05 12879 12811
1994 08 12961 12904
1994 11 13062 12994
1995 02 13176 13085
1995 05 13305 13208
1995 08 13422 13338
1995 11 13543 13445
1996 02 13659 13535
1996 05 13773 13641
1996 08 13883 13763
1996 11 13998 13863
1997 02 14112 13949
1997 05 14235 14062
1997 08 14359 14197
1997 11 14487 14307
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</TABLE>
<TABLE>
<CAPTION>
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AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997
---------------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Portfolio 3.49% 3.10% 3.99% $14,487
Average Pennsylvania
Tax-Exempt Money Market Fund 3.20 2.87 3.86 14,307
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</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1997*
- -----------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 6/13/1988 3.45% 3.06% 0.00% 4.00% 4.00%
- -----------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
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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: APRIL 7, 1986-NOVEMBER 30, 1997
- ---------------------------------------------------------
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
1997 0.7 5.5 6.2 7.2
- ---------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 25 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1987-NOVEMBER 30, 1997
- -----------------------------------------------------------
INSURED AVERAGE LEHMAN
LONG-TERM PENNSYLVANIA MUNICPAL BOND
PORTFOLIO MUNICIPAL FUND INDEX
- -----------------------------------------------------------
<S> <C> <C> <C>
1987 11 10000 10000 10000
1988 02 10787 10761 10618
1988 05 10574 10615 10543
1988 08 10873 10946 10777
1988 11 11202 11292 11063
1989 02 11480 11540 11277
1989 05 12063 12013 11757
1989 08 12196 12232 11960
1989 11 12565 12530 12281
1990 02 12652 12606 12434
1990 05 12881 12746 12617
1990 08 12799 12829 12728
1990 11 13479 13330 13227
1991 02 13761 13594 13580
1991 05 14133 13917 13888
1991 08 14463 14313 14228
1991 11 14779 14658 14584
1992 02 15186 15013 14936
1992 05 15542 15299 15252
1992 08 16221 15972 15816
1992 11 16502 16163 16045
1993 02 17543 17141 16991
1993 05 17680 17177 17076
1993 08 18361 17975 17746
1993 11 18466 18062 17824
1994 02 18548 18118 17931
1994 05 18260 17500 17498
1994 08 18511 17797 17778
1994 11 17462 16766 16893
1995 02 19109 18237 18275
1995 05 19772 18956 19098
1995 08 19902 19120 19355
1995 11 20688 19949 20087
1996 02 20926 20079 20295
1996 05 20613 19690 19971
1996 08 21016 20076 20369
1996 11 21881 20957 21268
1997 02 22007 21019 21413
1997 05 22192 21173 21625
1997 08 22754 21806 22253
1997 11 23249 22367 22793
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1997
---------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured Long-Term Portfolio 6.21% 7.09% 8.80% $23,249
Average Pennsylvania Municipal Fund 6.73 6.71 8.38 22,367
Lehman Municipal Bond Index 7.17 7.27 8.59 22,793
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1997*
- -------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insured Long-Term Portfolio 4/7/1986 8.05% 7.18% 2.62% 6.49% 9.11%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
9
<PAGE> 12
PORTFOLIO PROFILE
Money Market Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
November 30, 1997. Key elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ------------------------------------------------
<S> <C>
Yield 3.7%
Average Maturity 43 days
Average Quality MIG-1
Expense Ratio 0.20%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------
<S> <C>
MIG-1/SP-1 51.8%
A-1/P-1 44.8
AAA/AA 2.4
A 1.0
- -----------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
AVERAGE COUPON. The average interest rate paid on the securities held by a
portfolio. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond portfolio's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the portfolio's 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 (or are called) 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
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. Quality is graded on a scale, with Aaa or AAA indicating the
most creditworthy bond issuers and SP-1 or MIG-1 indicating the most
creditworthy issuers of money market securities.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a 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%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a portfolio's securities by
credit rating can help in gauging the risk that returns could be affected by
defaults or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates.
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.
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 the portfolio's net asset value, is based on income earned over
the past 30 days (7 days for money market funds) and is annualized, or projected
forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
11
<PAGE> 14
PORTFOLIO PROFILE
Insured Long-Term Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
November 30, 1997, 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 247
Yield 4.8%
Yield to Maturity 4.9%
Average Coupon 5.8%
Average Maturity 8.9 years
Average Quality AAA
Average Duration 6.4 years
Expense Ratio 0.18%
Cash Reserves 0.0%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
INSURED LONG-TERM LEHMAN
PORTFOLIO INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.97 1.00
Beta 1.03 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 3.5%
1-5 Years 26.5
5-10 Years 36.1
10-20 Years 28.2
20-30 Years 5.7
Over 30 Years 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- -------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
AAA 98.4%
AA 1.6
A 0.0
BBB 0.0
BB 0.0
B 0.0
Not Rated 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
12
<PAGE> 15
FINANCIAL STATEMENTS
November 30, 1997
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's municipal bond
holdings, including each security's market value on the last day of the
reporting period and information on credit enhancements (insurance or letters of
credit). Securities are grouped and subtotaled according to their insured or
noninsured status. Other assets are added to, and liabilities are subtracted
from, the value of Total Municipal Bonds to calculate the Portfolio's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the
Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table
displaying the composition of the Portfolio's net assets on both a dollar and
per-share basis. Undistributed Net Investment Income is usually zero because the
Portfolio distributes its net income to shareholders as a dividend each day. Any
realized gains must be distributed annually, so the bulk of net assets consists
of Paid in Capital (money invested by shareholders). The balance shown for
Accumulated Net Realized Gains usually approximates the amount available to
distribute to shareholders as taxable capital gains as of the statement date,
but may differ because certain investments or transactions may be treated
differently for financial statement and tax purposes. Any Accumulated Net
Realized Losses, and any cumulative excess of distributions over net realized
gains, will appear as negative balances. Unrealized Appreciation (Depreciation)
is the difference between the value of the Portfolio's investments and their
cost, and reflects the gains (losses) that would be realized if the Portfolio
were to sell all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (100.4%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allegheny County PA GO VRDO 3.85% 12/4/1997 $ 4,775 $ 4,775
Allegheny County PA Higher Educ. Auth. VRDO
(Univ. of Pittsburgh) 3.75% 12/4/1997 LOC 24,920 24,920
Allegheny County PA Higher Educ. Auth. VRDO
(Univ. of Pittsburgh) 3.85% 12/4/1997 LOC 5,510 5,510
Allegheny County PA Hosp. Dev. Auth. CP (Health Center Dev.) 3.75% 2/23/1998 LOC 6,800 6,800
Allegheny County PA Hosp. Dev. Auth. VRDO
(Allegheny General Hosp.) 3.80% 12/3/1997 LOC 23,000 23,000
Allegheny County PA Hosp. Dev. Auth. VRDO
(Allegheny General Hosp.) 3.90% 12/3/1997 LOC 19,550 19,550
Allegheny County PA Hosp. Dev. Auth. VRDO
(Children's Hosp.-Pittsburgh) 3.80% 12/4/1997 (1) 2,000 2,000
Allegheny County PA Hosp. Dev. Auth. VRDO
(Children's Hosp.-Pittsburgh) 3.80% 12/4/1997 (1) 20,350 20,350
Allegheny County PA Hosp. Dev. Auth. VRDO
(Health & Educ. Research) 3.90% 12/3/1997 LOC 3,200 3,200
Allegheny County PA Hosp. Dev. Auth. VRDO
(Presbyterian Univ. Health System) 3.80% 12/1/1997 (1) 3,750 3,750
Allegheny County PA Hosp. Dev. Auth. VRDO
(Presbyterian Univ. Health System) 3.85% 12/4/1997 LOC 3,065 3,065
Allegheny County PA Hosp. Dev. Auth. VRDO
(South Hills Health System) 3.85% 12/3/1997 LOC 8,400 8,400
Allegheny County PA PCR CP (Duquesne Light Co.) 3.70% 2/5/1998 LOC 5,000 5,000
Beaver County PA IDA PCR VRDO (Duquesne Light Co.) 3.85% 12/3/1997 LOC 3,900 3,900
Beaver County PA PCR CP (Duquesne Light Co.) 3.80% 1/20/1998 LOC 13,400 13,400
Beaver County PA PCR CP (Duquesne Light Co.) 3.75% 2/19/1998 LOC 5,000 5,000
Beaver County PA PCR CP (Duquesne Light Co.) 3.75% 2/24/1998 LOC 17,950 17,950
Berks County PA IDA CP (Citizens Utility Co.) 3.80% 2/18/1998 4,200 4,200
Chester County PA IDA VRDO (Archdiocese of Philadelphia) 3.80% 12/1/1997 LOC 20,000 20,000
Cumberland County PA Municipal Auth. PUT (Dickinson College) 3.75% 11/2/1998 LOC 13,310 13,310
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dauphin County PA General Auth. Rev. VRDO
(Allhealth Pooled Finance Program) 4.00% 12/3/1997 (4) $50,000 $ 50,000
Dauphin County PA General Auth. Hosp. Rev. VRDO
(Reading Hosp. & Medical Center) 3.85% 12/3/1997 12,800 12,800
Delaware County PA IDA Airport Fac. Rev. VRDO
(United Parcel Service) 3.80% 12/2/1997 41,900 41,900
Delaware County PA IDA PCR VRDO (PECO) 3.75% 12/2/1997 LOC 5,800 5,800
Delaware County PA IDA Rev. VRDO (BP Exploration & Oil) 3.85% 12/2/1997 3,000 3,000
Delaware County PA IDA Rev. VRDO (Resource Recovery Fac.) 3.85% 12/3/1997 22,500 22,500
Delaware County PA IDA Solid Waste Rev. VRDO
(Scott Paper Co. Project) 3.80% 12/3/1997 72,105 72,105
Delaware County PA PCR CP (PECO) 3.75% 12/31/1997 (3) 5,000 5,000
Delaware County PA PCR CP (PECO) 3.75% 2/19/1998 (3) 6,300 6,300
Delaware County PA PCR CP (PECO) 3.75% 2/26/1998 (3) 4,900 4,900
Delaware County PA PCR CP (PECO) 3.80% 2/12/1998 (3) 9,300 9,300
Emmaus PA General Auth. Local Govt. Rev. VRDO 4.00% 12/3/1997 93,300 93,300
Emmaus PA General Auth. Local Govt. Rev. VRDO (Allentown City) 3.95% 12/3/1997 LOC 8,000 8,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Altoona Area School Dist.) 3.95% 12/3/1997 LOC 14,400 14,400
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Council Rock School Dist.) 3.95% 12/3/1997 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(East Penn School Dist.) 3.95% 12/3/1997 LOC 13,000 13,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Hatboro-Horsham School Dist.) 3.95% 12/3/1997 LOC 9,500 9,500
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Lower Merion School Dist.) 3.95% 12/3/1997 LOC 15,000 15,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Nazareth PA Area School Dist.) 3.95% 12/3/1997 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Oxford Area School Dist.) 3.95% 12/3/1997 LOC 7,900 7,900
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Pocono Mountain School Dist.) 3.95% 12/3/1997 LOC 7,900 7,900
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Red Lion Area School Dist.) 4.05% 12/3/1997 LOC 3,500 3,500
Emmaus PA General Auth. Local Govt. Rev. VRDO (Southern York) 3.95% 12/3/1997 LOC 3,250 3,250
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Southmoreland School Dist.) 3.95% 12/3/1997 LOC 5,200 5,200
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Upper Merion School Dist.) 3.95% 12/3/1997 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(West Shore School Dist.) 3.95% 12/3/1997 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Wissahickon School Dist.) 3.95% 12/3/1997 LOC 10,000 10,000
Geisinger Health System Auth. of PA VRDO (Geisinger Health System) 3.80% 12/2/1997 57,900 57,900
Greater Latrobe PA School Auth. Building Rev. PUT 4.10% 4/1/1998 (4) 1,295 1,295
Lehigh County PA Auth. Rev. VRDO (Lehigh Valley Hosp.) 3.80% 12/2/1997 (2) 10,700 10,700
Lehigh County PA IDA PCR TOB VRDO (Pennsylvania Power & Light) 3.95% 12/4/1997 (1) 3,200 3,200
Mercerburg Borough PA Auth. VRDO (Mercerburg College) 4.05% 12/3/1997 LOC 7,500 7,500
Montgomery County PA Higher Educ. & Health Auth
(Bryn Mawr Hosp.) 9.375% 12/1/1997 (Prere.) 5,000 5,100
Montgomery County PA IDA PCR CP (PECO) 3.75% 12/1/1997 LOC 24,980 24,980
Montgomery County PA IDA PCR CP (PECO) 3.75% 12/10/1997 LOC 4,350 4,350
Montgomery County PA IDA PCR CP (PECO) 3.75% 3/11/1998 LOC 7,000 7,000
Montgomery County PA VRDO 3.95% 12/3/1997 1,400 1,400
Northampton County PA IDA VRDO (Citizens Utility Co.) 3.95% 12/3/1997 8,375 8,375
Northeastern PA Hosp. & Educ. Auth. VRDO
(Allhealth Pooled Finance Program) 3.95% 12/3/1997 LOC 15,100 15,100
Northeastern PA Hosp. & Educ. Auth. VRDO
(Wyoming Valley Health Care Obligated Group) 3.85% 12/3/1997 (2) 41,800 41,800
Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.70% 12/12/1997 (1) 14,800 14,800
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.75% 2/20/1998 (1) 4,900 4,900
Northeastern PA Hosp. Auth. Pooled CP (Hosp. Central Services) 3.75% 2/24/1998 (1) 10,300 10,300
Pennsylvania GO 5.00% 10/15/1998 9,690 9,797
Pennsylvania GO CP 3.75% 12/9/1997 2,500 2,500
Pennsylvania GO CP 3.80% 1/22/1998 13,800 13,800
Pennsylvania GO CP 3.85% 1/22/1998 1,600 1,600
Pennsylvania Higher Educ. Assistance Agency
Student Loan Rev. VRDO 4.00% 12/3/1997 LOC 103,100 103,100
Pennsylvania Higher Educ. Assistance Agency
Student Loan Rev. VRDO 4.05% 12/5/1997 LOC 20,000 20,000
Pennsylvania Higher Educ. Fac. Auth. (Bryn Mawr College) 5.00% 12/1/1997 (1) 2,155 2,155
Pennsylvania Higher Educ. Fac. Auth. PUT (Bucknell Univ.) 4.75% 4/1/1998 LOC 2,600 2,618
Pennsylvania Higher Educ. Fac. Auth. PUT (Duquesne Univ.) 4.75% 4/1/1998 LOC 1,200 1,207
Pennsylvania Higher Educ. Fac. Auth. PUT (St. Joseph's Univ.) 4.75% 4/1/1998 LOC 1,800 1,813
Pennsylvania Higher Educ. Fac. Auth. PUT (Thomas Jefferson Univ.) 3.80% 2/17/1998 8,000 8,000
Pennsylvania Higher Educ. Fac. Auth. RAN VRDO (Temple Univ.) 3.90% 12/2/1997 LOC 40,300 40,300
Pennsylvania Higher Educ. Fac. Auth. VRDO (Allegheny College) 3.85% 12/3/1997 LOC 3,000 3,000
Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 3.80% 12/2/1997 12,400 12,400
Pennsylvania Higher Educ. Fac. Auth. VRDO (Univ. of Pennsylvania) 3.85% 12/3/1997 78,600 78,600
Pennsylvania Intergovernmental Cooperative Auth 5.00% 6/15/1998 (3) 9,550 9,609
Pennsylvania Intergovernmental Cooperative Auth 5.60% 6/15/1998 (3)(ETM) 1,000 1,009
Pennsylvania Refunding & Projects GO 10.00% 4/15/1998 16,000 16,366
Pennsylvania State Univ. Notes 4.25% 3/31/1998 2,500 2,504
Pennsylvania TAN 4.50% 6/30/1998 107,750 108,232
Pennsylvania Univ. Funding TAN (Temple Univ.) 4.75% 5/18/1998 11,500 11,544
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. PUT
(Pennsylvania Hosp.) 3.95% 7/1/1998 (3) 24,200 24,200
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO
(Children's Hosp. of Philadelphia) 3.80% 12/2/1997 200 200
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO
(Pennsylvania Hosp.) 4.00% 12/3/1997 (3) 28,400 28,400
Philadelphia PA IDA VRDO 3.80% 12/2/1997 LOC 4,200 4,200
Philadelphia PA School Dist 6.60% 7/1/1998 (1)(ETM) 4,815 4,893
Philadelphia PA Water & Waste Water Rev. PUT 3.82% 8/5/1998 (1) 37,000 37,000
Pittsburgh PA Public Parking Auth 4.80% 12/1/1997 (3) 1,800 1,800
St. Mary's Hosp. Auth. PA Rev. Refunding VRDO
(Franciscan Health System) 3.80% 12/2/1997 LOC 19,230 19,230
St. Mary's Hosp. PA VRDO (Catholic Health Initiatives) 4.00% 12/3/1997 23,100 23,100
Sayre PA Health Care Fac. Auth. VRDO 3.85% 12/3/1997 (2) 70,070 70,070
Scranton-Lackawanna PA Health & Welfare Auth. VRDO
(Mercy Health System) 3.85% 12/3/1997 6,700 6,700
Univ. of Pittsburgh PA Higher Educ. VRDO 3.75% 12/4/1997 LOC 34,900 34,900
Univ. of Pittsburgh PA Refunding Rev 4.50% 6/1/1998 (1) 2,400 2,408
York County PA IDA PCR VRDO (PECO) 3.75% 12/2/1997 LOC 640 640
York County PA IDA PCR VRDO (Public Service Electric & Gas) 3.65% 12/3/1997 (1) 5,200 5,200
- -------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,604,430) 1,604,430
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.4%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 15,242
Liabilities (21,714)
-----------
(6,472)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 1,598,046,349 outstanding shares of beneficial
interest (unlimited authorization--no par value) $ 1,597,958
=========================================================================================================================
NET ASSET VALUE PER SHARE $1.00
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
For explanations of abbreviations and other references, see page 21.
15
<PAGE> 18
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AMOUNT PER
MONEY MARKET PORTFOLIO (000) SHARE
- ----------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,598,045 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (87) --
Unrealized Appreciation -- --
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,597,958 $1.00
======================================================================================================================
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (102.8%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (97.4%)
Allegheny County PA GO 0.00% 5/1/2003 (2) $12,315 $ 9,679
Allegheny County PA GO 5.00% 10/1/2008 (3) 5,955 6,044
Allegheny County PA GO 5.10% 10/1/2009 (3) 1,760 1,786
Allegheny County PA GO 5.15% 10/1/2010 (3) 6,570 6,639
Allegheny County PA GO 6.00% 5/1/2010 (2) 3,030 3,214
Allegheny County PA GO 6.00% 5/1/2012 (2) 3,000 3,197
Allegheny County PA Hosp. Dev. Auth. (Magee Women's Hosp.) 6.00% 10/1/2010 (3) 4,235 4,696
Allegheny County PA Hosp. Dev. Auth. (Mercy Hosp.) 6.75% 4/1/2001 (2)(Prere.) 4,500 4,926
Allegheny County PA Hosp. Dev. Auth.
(Presbyterian Univ. Health System) 6.00% 11/1/2012 (1) 3,000 3,119
Allegheny County PA Hosp. Dev. Auth.
(Presbyterian Univ. Health System) 7.125% 7/1/1999 (1)(Prere.) 6,835 7,283
Allegheny County PA Hosp. Dev. Auth.
(Presbyterian Univ. Health System) 7.60% 3/1/1998 (1)(Prere.) 5,000 5,147
Allegheny County PA Hosp. Dev. Auth. (Univ. of Pittsburgh) 5.60% 4/1/2017 (1) 2,000 2,055
Allegheny County PA Hosp. Dev. Auth. VRDO
(Children's Hosp.-Pittsburgh) 3.80% 12/4/1997 (1) 1,300 1,300
Allegheny County PA Port Auth. 4.50% 3/1/1998 (2) 6,000 6,011
Allegheny County PA Sanitation Auth. 5.50% 12/1/2013 (3) 19,000 19,361
Allegheny County PA Sanitation Auth. 5.50% 12/1/2016 (3) 23,665 24,022
Allegheny County PA Sanitation Auth. 6.00% 12/1/2019 (1) 20,000 21,547
Allegheny County PA Sanitation Auth. 6.25% 12/1/2014 (1) 9,660 10,642
Allegheny County PA Sanitation Auth. 6.50% 12/1/2011 (3) 8,000 8,596
Altoona City PA Auth. 6.50% 11/1/2004 (3)(Prere.) 19,790 22,476
Altoona City PA Auth. 6.50% 11/1/2019 (3) 210 233
Beaver County PA IDA (Ohio Edison) 7.00% 6/1/2021 (3) 22,715 24,773
Beaver County PA IDA (Ohio Edison) 7.10% 6/1/2018 (3) 5,000 5,388
Berks County PA GO 0.00% 11/15/2013 (3)(ETM) 7,250 3,160
Berks County PA GO 0.00% 11/15/2014 (3)(ETM) 8,615 3,559
Berks County PA GO 0.00% 11/15/2015 (3)(ETM) 6,250 2,438
Berks County PA GO 5.75% 11/15/2012 (3) 7,750 7,979
Berks County PA Hosp. Rev. (Reading Hosp.) 5.70% 10/1/2014 (1) 4,500 4,792
Berks County PA Hosp. Rev. (Reading Hosp.) 6.10% 10/1/2023 (1) 16,500 17,540
Bethlehem PA School Dist. 5.375% 9/1/2009 (3) 5,855 6,087
Blair County PA Hosp. Auth. (Altoona Hosp.) 6.50% 7/1/2022 (2) 8,500 9,236
Boyertown PA Area School Dist. 6.10% 3/1/2015 (2) 6,000 6,240
Butler County PA GO 6.00% 7/15/2012 (3) 5,185 5,394
Center City Philadelphia PA Business Improvement 5.50% 12/1/2015 (2) 6,955 7,143
Center Township PA Sewer Auth. 5.50% 4/15/2011 (1) 2,375 2,443
Central Dauphin PA School Dist. GO 0.00% 6/1/2004 (2) 4,800 3,584
Central Greene PA School Dist. 6.50% 8/15/2004 (1)(Prere.) 5,500 6,188
Chester County PA Health & Educ. (Chester County Hosp.) 5.875% 7/1/2016 (1) 7,870 8,271
Chester County PA Health & Educ. (Jefferson Health System) 5.125% 5/15/2018 (2)++ 12,445 12,114
Chester County PA Health & Educ. (Jefferson Health System) 5.25% 5/15/2022 (2)++ 22,250 21,770
Coatesville PA School Dist. GO 5.75% 4/1/2015 (4) 10,080 10,546
Cornwall Lebanon PA Suburban Joint School Dist. 5.875% 3/1/2014 (3) 5,635 5,848
Cornwall Lebanon PA Suburban Joint School Dist. 5.90% 3/1/2011 (3) 3,270 3,442
Corry PA Area School Dist. GO 5.50% 12/15/2010 (1) 4,000 4,108
Dauphin County PA General Auth. (West Pennsylvania Hosp.) 5.50% 7/1/2013 (1) 5,000 5,087
Delaware County PA Auth. College Rev. (Haverford College) 5.40% 11/15/2013 (1) 1,750 1,777
Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 5.50% 8/15/2013 (1) 12,000 12,326
Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 7.125% 8/15/1999 (1)(Prere.) 5,160 5,515
Delaware County PA Hosp. Auth. (Delaware County Memorial Hosp.) 7.20% 8/15/1999 (1)(Prere.) 8,000 8,560
Delaware River Joint Toll Bridge Comm. PA & NJ 6.00% 7/1/2018 (3) 3,040 3,168
Delaware River Port Auth. PA & NJ 5.50% 1/1/2026 (3) 21,450 21,714
Delaware River Port Auth. PA & NJ 6.50% 1/1/2009 (2) 4,500 4,607
Delaware River Port Auth. PA & NJ 7.375% 1/1/2007 (2) 13,500 14,217
Dover Township PA Sewer Auth. 5.50% 11/1/2017 (1) 2,235 2,278
Dover Township PA Sewer Auth. 5.55% 11/1/2022 (1) 4,000 4,058
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Erie County PA Hosp. Auth. (St. Vincent Health Care) 6.125% 7/1/2013 (1) $ 3,900 $ 4,178
Fort LeBoeuf PA School Dist. GO 5.80% 1/1/2013 (1) 5,500 5,672
Garnet Valley PA School Dist. GO 5.70% 4/1/2011 (2) 3,000 3,088
Greensburg Salem PA School Dist. GO 6.45% 9/15/2018 (1) 7,500 8,097
Haverford Township PA School Dist. 6.25% 6/1/2004 (3)(Prere.) 11,500 12,659
Hazleton PA Area School Dist. 5.50% 3/1/2011 (3)++ 3,740 3,908
Hazleton PA Area School Dist. 5.75% 3/1/2012 (3)++ 3,945 4,210
Hazleton PA Area School Dist. 5.75% 3/1/2003 (3)(Prere.) 11,875 12,714
Hazleton PA Area School Dist. 6.00% 3/1/2016 (3)++ 18,245 19,905
Lancaster PA Higher Educ. Auth. (Franklin & Marshall College) 6.60% 4/15/2010 (1) 4,940 5,328
Lancaster PA Higher Educ. Auth. (Franklin & Marshall College) 6.70% 4/15/2012 (1) 4,000 4,330
Lancaster PA School Dist. GO 5.375% 2/15/2017 (3) 5,590 5,628
Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 5.625% 7/1/2025 (1) 10,000 10,144
Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 5.70% 7/1/2010 (1) 3,905 4,111
Lehigh County PA General Purpose Hosp. Auth. (Lehigh Valley Hosp.) 7.00% 7/1/2016 (1) 4,415 5,343
Lehigh County PA GO 6.00% 10/15/1999 (2)(Prere.) 1,000 1,035
Lewisburg PA Area School Dist. GO 6.20% 6/1/2002 (1)(Prere.) 3,500 3,770
Lewisburg PA Area School Dist. GO 6.25% 6/1/2002 (1)(Prere.) 3,685 3,977
Ligonier Valley PA School Dist. GO 6.00% 3/1/2019 (1) 6,000 6,299
Lycoming County PA College Auth. (PA College of Technology) 5.40% 11/1/2008 (2) 6,000 6,170
Manheim PA Central School Dist. GO 6.85% 3/1/2008 (3) 2,705 2,902
Mars PA Area School Dist. GO 6.25% 9/1/2004 (3)(Prere.) 4,000 4,416
McKeesport PA Area School Dist. GO 0.00% 10/1/2004 (1) 1,040 765
McKeesport PA Area School Dist. GO 0.00% 10/1/2005 (1) 1,050 733
McKeesport PA Area School Dist. GO 0.00% 10/1/2006 (1) 2,015 1,332
McKeesport PA Area School Dist. GO 0.00% 10/1/2007 (1) 2,080 1,302
McKeesport PA Area School Dist. GO 0.00% 10/1/2008 (1) 2,270 1,340
McKeesport PA Area School Dist. GO 0.00% 10/1/2009 (1) 2,020 1,123
McKeesport PA Area School Dist. GO 0.00% 10/1/2010 (1) 1,840 961
McKeesport PA Area School Dist. GO 0.00% 10/1/2011 (1) 1,835 905
Montgomery County PA Higher Educ. & Health Auth.
(Abington Memorial Hosp.) 6.00% 6/1/2022 (2) 10,160 10,660
Montgomery County PA Higher Educ. & Health Auth.
(Abington Memorial Hosp.) 6.10% 6/1/2012 (2) 5,000 5,319
Montgomery County PA IDA PCR (PECO) 6.70% 12/1/2021 (1) 12,000 13,090
Mount Lebanon PA Hosp. Dev. Auth. (St. Clair Memorial Hosp.) 6.25% 7/1/2006 (3) 9,250 10,337
Nazareth PA School Dist. 5.50% 11/15/2015 (2) 1,500 1,532
Neshaminy PA School Dist. GO 5.70% 2/15/2014 (3) 8,795 9,167
Neshaminy PA School Dist. GO 6.30% 8/15/2002 (3)(Prere.) 10,000 10,844
North Hills PA School Dist. GO 5.25% 11/15/2017 (3) 7,440 7,446
North Penn PA Water Auth. 6.125% 11/1/2010 (3) 5,140 5,456
North Wales PA Water Auth. 5.25% 11/1/2019 (3) 12,350 12,223
North Wales PA Water Auth. 6.125% 11/1/2012 (3) 3,000 3,146
North Wales PA Water Auth. 6.125% 11/1/2022 (3) 8,300 8,714
North Wales PA Water Auth. 6.25% 11/1/2014 (3) 2,300 2,503
Northampton County PA Higher Educ. Auth. (Lehigh Univ.) 7.10% 11/15/2009 (1) 7,035 7,525
Northampton County PA Hosp. Auth. (Easton Hosp.) 6.25% 1/1/2019 (1) 10,000 10,636
Northampton County PA Hosp. Auth. (Easton Hosp.) 7.875% 1/1/2019 (5) 285 301
Northampton County PA IDA PCR (Central Metro Edison) 6.10% 7/15/2021 (1) 4,410 4,739
Northeastern PA Hosp. & Educ. Health (Wyoming Valley Health) 5.25% 1/1/2016 (2) 6,560 6,544
Northeastern PA Hosp. & Educ. Health (Wyoming Valley Health) 5.25% 1/1/2026 (2) 5,350 5,227
Northumberland County PA Commonwealth Lease 6.25% 10/15/2001 (1)(Prere.) 13,600 14,573
Penn Hills PA GO 5.80% 12/1/2002 (2)(Prere.) 11,735 12,521
Penn Trafford PA School Dist. GO 5.85% 5/1/2014 (1) 2,435 2,525
Pennsylvania Convention Center Auth. 0.00% 9/1/2004 (3)(ETM) 5,000 3,677
Pennsylvania Convention Center Auth. 6.00% 9/1/2019 (3)(ETM) 12,600 13,816
Pennsylvania Convention Center Auth. 6.70% 9/1/2016 (3)(ETM) 19,150 22,335
Pennsylvania GO 5.125% 3/15/2017 (2) 7,990 7,906
Pennsylvania GO 5.25% 5/15/1998 (3) 8,200 8,255
Pennsylvania GO 5.375% 5/15/2010 (3) 13,800 14,339
Pennsylvania GO 5.375% 5/15/2012 (3) 16,570 17,033
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania GO 5.375% 5/15/2014 (3) $14,000 $ 14,238
Pennsylvania Higher Educ. Auth.
(Allegheny Delaware Valley Obligated Group) 5.50% 11/15/2008 (1) 2,000 2,108
Pennsylvania Higher Educ. Auth.
(Allegheny Delaware Valley Obligated Group) 5.875% 11/15/2016 (1) 20,000 21,074
Pennsylvania Higher Educ. Auth.
(Allegheny Delaware Valley Obligated Group) 5.875% 11/15/2021 (1) 9,545 10,013
Pennsylvania Higher Educ. Auth. (Bryn Mawr College) 5.625% 12/1/2014 (1) 2,200 2,292
Pennsylvania Higher Educ. Auth. (College and Univ. Rev.) 7.20% 1/1/2004 (2) 2,165 2,171
Pennsylvania Higher Educ. Auth. (Temple Univ.) 6.50% 4/1/2021 (1) 6,000 6,471
Pennsylvania Intergovernmental Cooperative Auth. 5.00% 6/15/1998 (3) 21,000 21,134
Pennsylvania Intergovernmental Cooperative Auth. 5.00% 6/15/2022 (1) 9,500 9,011
Pennsylvania Intergovernmental Cooperative Auth. 5.40% 6/15/2009 (3) 2,700 2,797
Pennsylvania Intergovernmental Cooperative Auth. 5.50% 6/15/2010 (3) 3,700 3,838
Pennsylvania Intergovernmental Cooperative Auth. 5.625% 6/15/2013 (3) 2,605 2,695
Pennsylvania Intergovernmental Cooperative Auth. 6.00% 6/15/2006 (3) 1,200 1,318
Pennsylvania Intergovernmental Cooperative Auth. 6.75% 6/15/2005 (3)(Prere.) 23,050 26,337
Pennsylvania Intergovernmental Cooperative Auth. 7.00% 6/15/2005 (3)(Prere.) 2,250 2,607
Pennsylvania Turnpike Comm. 5.50% 12/1/2017 (3)+ 16,000 16,204
Pennsylvania Turnpike Comm. 5.75% 12/1/2012 (2) 10,000 10,415
Pennsylvania Turnpike Comm. 6.00% 6/1/2015 (1) 28,800 30,101
Pennsylvania Turnpike Comm. 6.05% 6/1/1998 (1) 1,000 1,011
Pennsylvania Turnpike Comm. 6.25% 6/1/2011 (2) 14,390 15,445
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 6.00% 12/1/2019 (2) 7,450 7,941
Philadelphia PA Airport Rev. 5.75% 6/15/2010 (3) 4,440 4,741
Philadelphia PA Airport Rev. 6.00% 6/15/2004 (3) 6,815 7,405
Philadelphia PA Gas Works 6.00% 5/15/2012 (2) 14,250 15,015
Philadelphia PA Gas Works 6.75% 1/1/2015 (2) 13,930 14,564
Philadelphia PA Gas Works 7.25% 1/1/2010 (2) 10,085 10,596
Philadelphia PA GO 5.00% 5/15/2020 (1) 12,650 12,171
Philadelphia PA GO 6.00% 11/15/2010 (3) 2,810 2,990
Philadelphia PA GO 6.00% 11/15/2011 (3) 3,025 3,219
Philadelphia PA GO 6.00% 11/15/2012 (3) 3,355 3,570
Philadelphia PA GO 6.00% 11/15/2013 (3) 1,885 2,006
Philadelphia PA Muni. Auth. Lease Rev. 5.55% 11/15/2008 (3) 3,040 3,195
Philadelphia PA Muni. Auth. Lease Rev. 5.60% 11/15/2009 (3) 2,100 2,201
Philadelphia PA Muni. Auth. Lease Rev. 5.60% 11/15/2010 (3) 6,755 7,045
Philadelphia PA Muni. Auth. Lease Rev. 7.10% 11/15/2005 (1) 3,000 3,351
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2011 (2) 4,520 4,671
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2012 (2) 5,990 6,154
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2015 (2) 6,350 6,448
Philadelphia PA Parking Auth. Rev. 5.50% 9/1/2018 (2) 3,750 3,821
Philadelphia PA Parking Auth. Rev. 7.375% 9/1/1998 (2)(Prere.) 12,065 12,616
Philadelphia PA School Dist. GO 0.00% 7/1/2001 (2) 11,750 10,088
Philadelphia PA School Dist. GO 5.25% 4/1/2017 (2) 5,470 5,437
Philadelphia PA School Dist. GO 5.50% 9/1/2015 (2) 5,000 5,105
Philadelphia PA School Dist. GO 5.50% 9/1/2018 (2) 4,000 4,045
Philadelphia PA School Dist. GO 5.85% 7/1/2009 (1) 1,500 1,593
Philadelphia PA Water & Waste Water Rev. 5.25% 8/1/2010 (2) 5,660 5,784
Philadelphia PA Water & Waste Water Rev. 5.50% 8/1/2014 (1) 12,900 13,210
Philadelphia PA Water & Waste Water Rev. 5.60% 8/1/2018 (1) 5,920 6,030
Philadelphia PA Water & Waste Water Rev. 6.25% 8/1/2011 (1) 3,750 4,218
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2010 (3) 33,865 40,400
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2011 (3) 35,685 42,725
Pine Richland School Dist. PA 5.50% 9/1/2019 (4) 3,430 3,480
Pittsburgh PA GO 5.20% 9/1/2006 (2) 1,175 1,224
Pittsburgh PA GO 5.30% 9/1/2007 (2) 1,000 1,046
Pittsburgh PA GO 5.50% 9/1/2014 (2) 10,500 10,993
Pittsburgh PA GO 6.00% 3/1/2006 (1) 19,485 21,340
Pittsburgh PA GO 6.00% 3/1/2007 (1) 14,720 16,154
Pittsburgh PA GO 6.25% 9/1/2016 (1) 11,030 11,908
Pittsburgh PA Public Parking Auth. 5.875% 12/1/2012 (3) 8,200 8,593
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INSURED LONG-TERM PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pittsburgh PA Water & Sewer System 5.00% 9/1/2023 (3) $ 3,700 $ 3,515
Pittsburgh PA Water & Sewer System 5.60% 9/1/2018 (3) 5,000 5,096
Pittsburgh PA Water & Sewer System 7.25% 9/1/2014 (3)(ETM) 25,210 30,721
Pittsburgh PA Water & Sewer System 7.625% 9/1/2004 (3)(ETM) 5,370 6,240
Pocono Mountain PA School Dist. GO 5.75% 10/1/2009 (2) 6,000 6,220
Reading PA GO 5.875% 11/15/2012 (2) 18,000 18,664
St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 7/1/2009 (5) 1,000 1,057
St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 7/1/2013 (5) 5,050 5,336
St. Mary's Hosp. Auth. Langhorne PA (Franciscan Health System) 7.00% 6/15/2015 (5) 1,770 1,871
Sayre PA Health Care Fac. Auth. (Guthrie Health Care System) 7.00% 3/1/2011 (2) 2,000 2,175
Sayre PA Health Care Fac. Auth. VRDO
(VHA of Pennsylvania Pooled Capital Asset Finance Program) 3.85% 12/3/1997 (2) 14,700 14,700
Scranton-Lackawanna PA Health & Welfare Auth. (Mercy Health) 5.625% 1/1/2016 (1) 5,490 5,670
Scranton-Lackawanna PA Health & Welfare Auth. (Mercy Health) 5.70% 1/1/2023 (1) 9,205 9,490
Seneca PA Valley School Dist. GO 5.50% 7/1/2014 (3) 9,965 10,097
Seneca PA Valley School Dist. GO 5.75% 7/1/2010 (3) 4,000 4,140
South Fork PA Hosp. Auth. (Conemaugh Valley Hosp.) 5.625% 7/1/2010 (6)+ 2,300 2,451
South Fork PA Hosp. Auth. (Conemaugh Valley Hosp.) 5.75% 7/1/2018 (6) 7,000 7,373
Southeastern PA Transp. Auth. Rev. 5.45% 3/1/2011 (3) 3,730 3,870
Spring-Ford PA Area School Dist. GO 6.50% 2/1/2004 (2)(Prere.) 8,260 9,322
Univ. of Pittsburgh PA 5.25% 6/1/2017 (3) 6,995 7,001
Univ. of Pittsburgh PA 5.50% 6/1/2008 (1) 4,750 5,034
Univ. of Pittsburgh PA 5.50% 6/1/2009 (1) 5,010 5,290
Univ. of Pittsburgh PA 5.50% 6/1/2010 (1) 5,285 5,542
Univ. of Pittsburgh PA 5.50% 6/1/2014 (1) 12,620 13,011
Univ. of Pittsburgh PA 6.125% 6/1/2002 (1)(Prere.) 25,025 27,292
Univ. of Pittsburgh PA 6.125% 6/1/2021 (1) 13,545 14,427
Univ. of Pittsburgh PA 6.25% 6/1/2002 (1)(Prere.) 2,760 3,024
Univ. of Pittsburgh PA 6.25% 6/1/2012 (1) 1,490 1,613
Washington County PA Hosp. Auth. (Shadyside Hosp.) 5.875% 12/15/2009 (2) 22,000 23,218
Washington County PA Hosp. Auth. (Washington Hosp.) 6.75% 7/1/2012 (2) 10,000 10,722
West Allegheny PA School Dist. 6.25% 2/1/2014 (2) 6,155 6,567
West Jefferson Hills PA School Dist. GO 5.90% 8/1/2010 (3) 3,160 3,289
West Jefferson Hills PA School Dist. GO 5.95% 8/1/2014 (3) 7,180 7,416
West Mifflin PA School Dist. GO 5.35% 2/15/2009 (3) 1,555 1,603
West Mifflin PA School Dist. GO 5.625% 2/15/2015 (3) 7,000 7,209
Westmoreland County PA Auth. 6.125% 7/1/2017 (1)(ETM) 8,205 8,975
York County PA Solid Waste & Refuse Auth. 5.50% 12/1/2013 (3) 6,750 7,066
York County PA Solid Waste & Refuse Auth. 5.50% 12/1/2014 (3) 4,050 4,223
York County PA Southwestern School Dist. GO 6.40% 6/15/2002 (3)(Prere.) 3,825 4,216
York PA City Sewer Auth. 0.00% 12/1/2012 (1) 3,235 1,493
-----------
1,700,669
-----------
NONINSURED (5.4%)
Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.75% 12/4/1997 LOC 5,900 5,900
Allegheny County PA Hosp. Dev. Auth. VRDO (Allegheny General Hosp.) 3.80% 12/3/1997 LOC 200 200
Allegheny County PA Hosp. Dev. Auth. VRDO (Allegheny General Hosp.) 3.90% 12/3/1997 2,800 2,800
Allegheny County PA Hosp. Dev. Auth. VRDO
(Children's Hosp.-Pittsburgh) 3.80% 12/4/1997 400 400
Allegheny County PA Hosp. Dev. Auth. VRDO (Health & Educ. Research) 3.90% 12/3/1997 LOC 700 700
Allegheny County PA Hosp. Dev. Auth. VRDO (Presbyterian Univ. Health) 3.85% 12/4/1997 5,460 5,460
Beaver County PA IDA PCR VRDO (Duquesne Light Co.) 3.85% 12/3/1997 LOC 1,100 1,100
Delaware County PA Hosp. Auth. VRDO
(Crozier-Chester Medical Center) 4.08% 12/3/1997 LOC 2,000 2,000
Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 3.85% 12/2/1997 1,700 1,700
Delaware County PA IDA PCR VRDO (PECO) 3.75% 12/2/1997 LOC 1,525 1,525
Delaware County PA IDA VRDO (Scott Paper Co. Project) 3.80% 12/3/1997 800 800
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Hatboro-Horsham School Dist.) 3.95% 12/3/1997 LOC 100 100
Lancaster PA Higher Educ. Fac. Auth. VRDO
(Franklin & Marshall College) 4.10% 12/3/1997 4,000 4,000
Pennsylvania Higher Educ. Fac. Auth.
(Univ. of Pennsylvania Health System Obligated Group) 5.75% 1/1/2012 6,000 6,349
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania Higher Educ. Fac. Auth.
(Univ. of Pennsylvania Health System Obligated Group) 5.75% 1/1/2022 12,415 12,827
Pennsylvania Higher Educ. Fac. Auth.
(Univ. of Pennsylvania Health System Obligated Group) 5.875% 1/1/2015 1,800 1,890
Pennsylvania Higher Educ. Fac. Auth. VRDO (Carnegie Mellon Univ.) 3.80% 12/2/1997 8,000 8,000
Pennsylvania Higher Educ. Fac. Auth. VRDO
(Univ. of Pennsylvania Health System Obligated Group) 3.85% 12/3/1997 5,700 5,700
Pennsylvania Housing Single Family Mortgage Finance Agency 6.90% 4/1/2017 5,950 6,310
Pennsylvania Housing Single Family Mortgage Finance Agency 7.55% 4/1/2016 3,340 3,516
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. VRDO
(Children's Hosp. of Philadelphia) 3.80% 12/2/1997 LOC 1,100 1,100
Philadelphia PA Municipal Auth. Rev. 8.625% 11/15/2001 (Prere.) 15,500 18,213
Swarthmore Borough PA Auth. College Rev. 7.375% 9/15/2018 2,200 2,288
Univ. of Pittsburgh PA Higher Educ. VRDO 3.75% 12/4/1997 LOC 2,100 2,100
----------
94,978
----------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,684,380) 1,795,647
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.8%)
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 30,872
Payables for Securities Purchased (75,366)
Other Liabilities (4,835)
----------
(49,329)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------
Applicable to 154,934,393 outstanding shares of beneficial interest
(unlimited authorization--no par value) $1,746,318
=============================================================================================================================
NET ASSET VALUE PER SHARE $11.27
=============================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Securities with an aggregate value of $4,106,000 have been segregated as
initial margin for open futures contracts.
For explanations of abbreviations and other references, see below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1997, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,640,522 $10.59
Undistributed Net Investment Income -- --
Overdistributed Net Realized Gains--Note D (5,380) (.04)
Unrealized Appreciation (Depreciation)--Note E
Investment Securities 111,267 .72
Futures Contracts (91) --
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,746,318 $11.27
=============================================================================================================================
</TABLE>
KEY TO ABBREVIATIONS
CP--Commercial Paper.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
RAN--Revenue Anticipation Note.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
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, 1997.
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.
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.
21
<PAGE> 24
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>
- -------------------------------------------------------------------------------------------------------------------------
MONEY INSURED
MARKET LONG-TERM
PORTFOLIO PORTFOLIO
-------------------------------
YEAR ENDED NOVEMBER 30, 1997
-------------------------------
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest $53,058 $ 93,249
-------------------------------
Total Income 53,058 93,249
-------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 216 250
Management and Administrative 2,123 2,259
Marketing and Distribution 466 360
Custodian Fees 24 23
Auditing Fees 8 8
Shareholders' Reports 18 25
Annual Meeting and Proxy Costs 5 7
Trustees' Fees and Expenses 3 4
-------------------------------
Total Expenses 2,863 2,936
Expenses Paid Indirectly--Note C (24) (23)
-------------------------------
Net Expenses 2,839 2,913
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 50,219 90,336
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (44) 2,930
Futures Contracts -- (5,263)
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS (44) (2,333)
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- 14,353
Futures Contracts -- (351)
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- 14,002
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $50,175 $102,005
=========================================================================================================================
</TABLE>
22
<PAGE> 25
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>
- ---------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSURED LONG-TERM
PORTFOLIO PORTFOLIO
------------------------------- ---------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------
1997 1996 1997 1996
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 50,219 $ 42,630 $ 90,336 $ 86,734
Realized Net Gain (Loss) (44) 5 (2,333) 7,701
Change in Unrealized Appreciation (Depreciation) -- -- 14,002 (3,588)
---------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 50,175 42,635 102,005 90,847
---------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (50,219) (42,630) (90,336) (86,734)
Realized Capital Gain -- -- (9,435) (5,205)
---------------------------------------------------------------------
Total Distributions (50,219) (42,630) (99,771) (91,939)
---------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 1,721,948 1,497,844 307,829 285,730
Issued in Lieu of Cash Distributions 45,994 39,116 69,664 64,214
Redeemed (1,541,322) (1,365,267) (284,646) (266,653)
---------------------------------------------------------------------
Net Increase from Capital Share Transactions 226,620 171,693 92,847 83,291
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase 226,576 171,698 95,081 82,199
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,371,382 1,199,684 1,651,237 1,569,038
---------------------------------------------------------------------
End of Year $1,597,958 $1,371,382 $1,746,318 $1,651,237
===========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 1,721,948 1,497,844 27,683 25,792
Issued in Lieu of Cash Distributions 45,994 39,116 6,259 5,785
Redeemed (1,541,322) (1,365,267) (25,593) (24,107)
---------------------------------------------------------------------
Net Increase in Shares Outstanding 226,620 171,693 8,349 7,470
===========================================================================================================================
</TABLE>
23
<PAGE> 26
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 are not required to report a
Portfolio Turnover Rate.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<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 .034 .033 .036 .025 .024
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
------------------------------------------------------------
Total from Investment Operations .034 .033 .036 .025 .024
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.034) (.033) (.036) (.025) (.024)
Distributions from Realized Capital Gains -- -- -- -- --
------------------------------------------------------------
Total Distributions (.034) (.033) (.036) (.025) (.024)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================================================
TOTAL RETURN 3.49% 3.36% 3.69% 2.57% 2.38%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,598 $1,371 $1,200 $1,105 $935
Ratio of Total Expenses to Average Net Assets 0.20% 0.19% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to Average Net Assets 3.42% 3.30% 3.62% 2.55% 2.35%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
INSURED LONG-TERM PORTFOLIO
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.26 $11.28 $10.07 $11.36 $10.96
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .598 .606 .612 .625 .631
Net Realized and Unrealized Gain (Loss) on Investments .074 .017 1.210 (1.211) .624
--------------------------------------------------------------
Total from Investment Operations .672 .623 1.822 (.586) 1.255
--------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.598) (.606) (.612) (.625) (.631)
Distributions from Realized Capital Gains (.064) (.037) -- (.079) (.224)
--------------------------------------------------------------
Total Distributions (.662) (.643) (.612) (.704) (.855)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.27 $11.26 $11.28 $10.07 $11.36
==========================================================================================================================
TOTAL RETURN 6.21% 5.77% 18.48% -5.44% 11.90%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,746 $1,651 $1,569 $1,299 $1,496
Ratio of Total Expenses to Average Net Assets 0.18% 0.19% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to Average Net Assets 5.37% 5.47% 5.63% 5.76% 5.61%
Portfolio Turnover Rate 9% 13% 12% 16% 14%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
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
Money Market and Insured Long-Term 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, 1997, the Fund had contributed capital aggregating
$224,000 to Vanguard (included in Other Assets), representing 1.1% 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, 1997, custodian fee offset arrangements reduced expenses
of the Money Market and Insured Long-Term Portfolios by $24,000 and $23,000,
respectively.
26
<PAGE> 29
D. During the year ended November 30, 1997, the Insured Long-Term Portfolio
purchased $381,571,000 of investment securities and sold $148,969,000 of
investment securities, other than temporary cash investments.
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. At November 30, 1997, the Insured
Long-Term Portfolio had available a capital loss carryforward of $532,000 to
offset future net capital gains through November 30, 2005.
E. At November 30, 1997, net unrealized appreciation of Insured Long-Term
Portfolio investment securities for financial reporting and federal income tax
purposes was $111,267,000, consisting of unrealized gains of $111,308,000 on
securities that had risen in value since their purchase and $41,000 in
unrealized losses on securities that had fallen in value since their purchase.
At November 30, 1997, the aggregate settlement value of open futures
contracts expiring in March 1998 and the related unrealized depreciation were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(000)
-----------------------------------
AGGREGATE
NUMBER OF SETTLEMENT UNREALIZED
PORTFOLIO/FUTURES CONTRACTS SHORT CONTRACTS VALUE DEPRECIATION
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term/
U.S. Treasury Bond 350 $41,661 $(91)
----------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
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
Money Market Portfolio and Insured Long-Term Portfolio (constituting Vanguard
Pennsylvania Tax-Free Fund, hereafter referred to as the "Fund") at November 30,
1997, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the 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, 1997 by correspondence with the custodian and the application of
alternative auditing procedures where securities purchased had not been settled,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 1998
SPECIAL 1997 TAX INFORMATION (UNAUDITED) FOR VANGUARD PENNSYLVANIA TAX-FREE FUND
This information for the fiscal year ended November 30, 1997, is included
pursuant to provisions of the Internal Revenue Code.
Each Portfolio designates 100% of its income dividends as exempt-interest
dividends.
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.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions,
Inc., Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance
Co., and Ladies Professional Golf Association; Trustee Emerita of Wellesley
College.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co., 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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
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
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's 500," "S&P 500(R)," "Standard & Poor's(R)," "S&P(R)," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000"
are trademarks of Wilshire Associates.
<PAGE> 32
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
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Equity Income Fund
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500 Portfolio
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Growth Portfolio
Small Capitalization Stock
Portfolio
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Value Portfolio
Institutional Index Fund
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European Portfolio
Pacific Portfolio
International Growth Portfolio
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Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
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REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
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Portfolio
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BALANCED FUNDS
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Portfolio
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Portfolio
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(CA, FL, NJ, NY, OH, PA)
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Portfolio
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State Tax-Free Funds
(CA, NJ, NY, OH, PA)
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
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1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
Q770-11/97 - (C) 1998 Vanguard Marketing Corporation, Distributor
