<PAGE> 1
VANGUARD PENNSYLVANIA
TAX-EXEMPT FUNDS
VANGUARD PENNSYLVANIA TAX-EXEMPT
MONEY MARKET FUND
VANGUARD PENNSYLVANIA INSURED
LONG-TERM TAX-EXEMPT FUND
[PHOTO]
SEMIANNUAL
REPORT
MAY 31, 1999
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 9,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
Our report cover pays homage to three anniversaries, each of great significance
to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto--"Leading the way"--serves as a guiding principle
for our company.
- - The 100th birthday, on July 23, 1998, of Walter L. Morgan, founder of
Wellington Fund, the oldest member of what became The Vanguard Group. Mr.
Morgan was friend and mentor to Vanguard founder John C. Bogle, and helped to
shape the standards and business principles that Mr. Bogle laid down for
Vanguard at its beginning nearly 25 years ago: a stress on balanced,
diversified investments; insistence on fair dealing and candor with clients;
and a focus on long-term investing. To our great regret, Mr. Morgan died on
September 2, 1998.
- - The 70th anniversary, on December 28, 1998, of the incorporation of Vanguard
Wellington Fund. It is the nation's oldest balanced mutual fund, and one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
4
REPORT FROM
THE ADVISER
6
FUND PROFILES
8
PERFORMANCE SUMMARIES
11
FINANCIAL STATEMENTS
12
FOR AN UPDATE ON OUR YEAR 2000
PREPAREDNESS, SEE PAGE 28.
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
During the first half of the Vanguard Pennsylvania Tax-Exempt Funds' 1999
fiscal year, municipal bond prices dipped in the face of rising interest rates.
These lower prices offset most of the interest income earned by tax-exempt
securities during the six months ended May 31, 1999, and resulted in relatively
modest total returns on municipal bonds for the period.
In this environment, our Insured Long-Term Tax-Exempt Fund earned a
six-month total return (capital change plus reinvested dividends) of +0.6%, and
our Money Market Fund earned +1.5%. The adjacent table presents the half-year
returns for both funds, along with those of their average peers. As you can see,
the returns of our funds outpaced those of similar mutual funds.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
MAY 31, 1999
- ----------------------------------------------------------
<S> <C>
VANGUARD PENNSYLVANIA TAX-EXEMPT
MONEY MARKET FUND +1.5%
(SEC 7-Day Annualized Yield: 3.10%)
Average Pennsylvania Tax-Exempt
Money Market Fund +1.3
- ----------------------------------------------------------
VANGUARD PENNSYLVANIA INSURED
LONG-TERM TAX-EXEMPT FUND +0.6%
Average Pennsylvania Tax-Exempt
Bond Fund +0.3
- ----------------------------------------------------------
</TABLE>
The total return of the Insured Long-Term Tax-Exempt Fund is based on a
decrease in net asset value from $11.51 per share on November 30, 1998, to
$11.20 per share on May 31, 1999, and is adjusted for dividends totaling $0.291
per share paid from net investment income and a distribution of $0.092 per share
paid from net realized capital gains. The Tax-Exempt Money Market Fund's net
asset value remained at $1.00 per share, as is expected but not guaranteed. On
May 31, the Insured Long-Term Fund's yield stood at 4.50%, and the Money Market
Fund's yield was 3.10%.
For Pennsylvania residents, income earned by our funds is exempt from
federal and Pennsylvania state income taxes, but may be subject to local taxes
and the Alternative Minimum Tax.
THE PERIOD IN REVIEW
The U.S. economy steamed ahead during the half-year as consumers continued
spending at a breakneck pace and the manufacturing sector showed signs of
recovering from last fall's woes. Economic growth expanded at an annual rate of
4.3% during the first three months of 1999, while both unemployment and
inflation remained low. The Wilshire 5000 Equity Index, which tracks the entire
U.S. stock market, gained +13.2% for the six months.
While the strong growth pace was regarded enthusiastically by the stock
market, it was hardly welcome news in the bond market, where investors feared
that higher inflation would result from an overheated economy. These concerns
drove interest rates higher and bond prices lower. The yield of the benchmark
30-year U.S. Treasury bond climbed from its starting point of 5.06% on November
30, 1998, to 5.83% on May 31--a significant increase of 77 basis points. At the
shorter end of the bond spectrum, the yield of 3-month Treasury bills rose by 15
basis points to close the period at 4.63%.
1
<PAGE> 4
Though yields of municipal bonds also rose, the climb was not as steep as
for Treasuries. Yields on high-grade long-term municipal bonds ended the
half-year at 5.16%, up from 4.89% when the period began. Yields on top-grade
(MIG-1) 3-month notes rose on balance to 3.15% from 2.95% six months earlier.
Municipal bonds continue to offer excellent value relative to U.S.
Treasuries, although they are not quite as attractive as they were six months
ago. On May 31, the yield of a high-grade, long-term municipal bond was equal to
about 89% of the yield of the 30-year U.S. Treasury, whose interest is subject
to federal income tax. This proportion has historically been about 84%. Early in
the period, however, it was about 97%, largely because Treasury yields had been
driven lower by heavy buying from investors who fled riskier securities.
PERFORMANCE OVERVIEW
Our Tax-Exempt Money Market Fund's six-month return of +1.5% topped the +1.3%
return of the average Pennsylvania tax-exempt money market fund. Our margin over
our average peer can be explained by our much lower expenses.
The +0.6% total return achieved by the Insured Long-Term Tax-Exempt Fund
consisted of a +2.5% income return and a price decline of -1.9%, which reflected
the rise in interest rates. The fund's performance was slightly better than the
+0.3% return of the average Pennsylvania municipal bond fund but fell behind the
+0.8% return of the Lehman Municipal Bond Index. This national index, which
exists outside the "real world" of operating expenses and transaction costs, is
a tough standard for all state tax-exempt funds.
Of course, interest rate fluctuations--up and down--are to be expected.
In our letter to you six months ago, we explained that declining interest rates
gave a boost to bond prices, resulting in an excellent fiscal 1998 total return
of +7.6% for the Insured Long-Term Fund. Over time, however, the effects of rate
variations tend to be offsetting, leaving the rate of interest income as the
chief source of long-term bond returns.
A six-month period is too short to provide a complete picture of a bond
fund's return. This is because only half of the year's interest income is
accounted for, while the price changes engendered by shifts in interest rates
are fully reflected. Consequently, investors should consider a full year's
interest income as part of a semiannual review. During the twelve months ended
May 31, 1999, our Insured Long-Term Fund earned a total return of +4.3%,
consisting of an income return of +5.3% and a negative capital return of -1.0%.
Our low costs play a critical role in our success. Our funds have
annualized expense ratios (expenses as a percentage of average net assets) of
0.20%, compared with 1.11% charged by the average long-term Pennsylvania
tax-exempt fund and 0.59% for the average Pennsylvania tax-exempt money market
fund. Costs matter because they are deducted from the income earned by the fund.
Therefore, lower operating expenses mean that a higher percentage of the gross
interest income is passed along to shareholders.
Also instrumental in our long-term success is the skillful management of
Vanguard Fixed Income Group, which selects the securities for our funds. Our
Insured Long-Term Fund invests predominantly in bonds that carry private
insurance guaranteeing the payment of principal and interest in the event that a
bond issuer defaults on its debt obligations. Though these securities offer
slightly lower gross yields than noninsured bonds, our low costs historically
have made up the difference--and then some.
2
<PAGE> 5
This cost advantage has allowed our fund to provide net returns that are fully
competitive with those of uninsured--and thus, lower-quality--municipal bond
portfolios.
IN SUMMARY
The swift rise in interest rates over the past several months is not an
aberration but rather a normal, if unpleasant, part of the cyclicality of the
financial markets. The variable nature of both bond and stock markets is the
reason we continuously counsel shareholders to hold balanced portfolios suitable
to their goals, time horizon for investing, and tolerance for risk. Building
such a program and then sticking with it through good times and bad is a
prudent, and ultimately rewarding, method of confronting the ever-present
volatility of the financial markets.
We look forward to reporting to you on the full 1999 fiscal year six
months hence.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
June 14, 1999
3
<PAGE> 6
[PHOTO]
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED MAY 31, 1999
Sentiment shifted on the world's financial markets during the six months ended
May 31, 1999. The period began amid lingering anxiety over the state of the
world economy. Japan was in recession, economic growth was only sluggish in
Europe, and many developing nations were crisis-ridden. The United States was
just about the sole bright spot.
However, as the period progressed and reports showed rapid growth in U.S.
business activity, there was an evident reduction in anxiety. Midway through the
period, leadership in the U.S. stock market shifted away from a relatively
narrow group of large growth stocks regarded as relatively recession-proof and
toward cyclical stocks that had been depressed by fears of recession and by
falling demand from overseas markets. As confidence in global economic growth
grew, interest rates rose and bond prices declined in the United States due to
expectations that the Federal Reserve Board would raise interest rates to ward
off a potential surge in inflation. Internationally, however, a growing
conviction that the worst was over led to solid gains for stock markets in Japan
and several emerging markets.
U.S. STOCK MARKETS
Stock prices climbed during the half-year, reflecting the healthy domestic
economy and investors' confidence in future growth of corporate profits. The
overall market, as measured by the Wilshire 5000 Index, rose 13.2% during the
period, while the S&P 500 Index, a barometer for large-capitalization stocks,
gained 12.6%.
During the early part of the semiannual period, stock investors favored
large-cap growth stocks--a group perceived as less subject to harm during an
economic downturn. In the United States, the Federal Reserve had already cut
short-term rates by a total of 0.75 percentage point in the autumn. Foreign
central banks continued cutting rates into the new year to combat sluggish
economic conditions in Europe, Asia, and Latin America. Late in the semiannual
period, U.S. investors were rewarded for their earlier optimism with a series of
surprisingly strong gains in corporate earnings--a record percentage of
companies in the S&P 500 reported earnings that beat analysts' estimates.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1999
------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 12.6% 21.0% 25.9%
Russell 2000 Index 11.0 -2.7 13.6
Wilshire 5000 Index 13.2 17.7 23.8
MSCI EAFE Index 4.2 4.7 8.0
- -------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index -0.8% 4.4% 7.8%
Lehman 10 Year Municipal Bond Index 0.4 4.6 7.2
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.2 4.8 5.2
- -------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.3% 2.1% 2.4%
- -------------------------------------------------------------------------------
</TABLE>
*Annualized.
4
<PAGE> 7
Throughout the period, U.S. consumers provided support for the global economy:
Spending by consumers continued to set records, and American households on
average spent nearly every dollar of income they earned. The upbeat mood stemmed
from a bright employment picture (unemployment hovered near 30-year lows) and
rising incomes.
Improved prospects for global economic growth propelled several formerly
lackluster areas of the stock market, particularly commodity-related companies
and "cyclical" companies such as machinery, chemical, and paper manufacturers.
Higher oil prices, boosted by firmer demand and by agreement among oil-producing
nations to limit production, revived the "other energy" and integrated-oils
sectors, which gained about 36% and 16%, respectively. Technology stocks, up 26%
for the six months, were the market's leaders, but most of the sector's gains
came during the first three months of the period. Consumer-staples companies,
beset by tough price competition and hurt by the stronger U.S. dollar in Europe,
were the worst-performing group in the half-year, down about 7%.
U.S. BOND MARKETS
For bond investors, the powerful economic expansion evident during the half-year
was too much of a good thing. Although the inflation rate did not get out of
hand--consumer prices rose 1.3% during the six months and were up 2.1% for the
twelve months ended May 31--investors were worried that low unemployment (4.2%
of the labor force in May) would trigger an acceleration in wages and push up
prices.
Yields on U.S. Treasury bonds, which had fallen during the summer and
early fall of 1998 as investors flocked to what they regarded as a haven from
instability in other markets, rose by three-quarters of a percentage point or
more. The yield of the 30-year Treasury bond rose 77 basis points, to 5.83% on
May 31 from 5.06% on November 30, 1998. The yield of the 10-year Treasury rose
91 basis points, to 5.62% from 4.71%. Short-term rates didn't rise as far:
Yields on 3-month T-bills were up on balance by only 15 basis points, to 4.63%
on May 31. Bond prices, which move in the opposite direction from interest
rates, fell. The Lehman Aggregate Bond Index, a benchmark for investment-grade
taxable bonds, declined 0.8% on a total-return basis, as bond prices declined an
average of 3.8%, outweighing the 3.0% in interest income for the period.
Municipal bonds suffered only modest price declines and outperformed
Treasury securities during the period--a switch from the previous six months,
when Treasuries were the strongest segment of the bond market.
INTERNATIONAL STOCK MARKETS
Most overseas stock markets generated positive returns during the six months,
despite lingering economic weakness in Asia and sluggish growth in most of
Europe's developed economies. However, the strong rise in the value of the U.S.
dollar against European currencies negated most of the advances in that region
for U.S. investors. Emerging markets generally rebounded strongly, having
suffered steep losses in 1997 and 1998.
Overall, the developed markets outside the United States gained 4.2% in
U.S.-dollar terms, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index. The biggest increases were in the
Pacific region and in emerging markets, where investors saw hopeful signs of
economic recovery. The MSCI Pacific Index rose 14.2% in U.S.-dollar terms,
despite a continuing recession in Japan. The MSCI Select Emerging Markets Free
Index climbed 19.0%. European stocks were up a scant 0.3% in dollar terms, as
gains of about 8% in local currencies were diminished by the dollar's rise
against the euro--a common currency adopted by 11 nations--and other regional
currencies.
5
<PAGE> 8
[PHOTO]
REPORT FROM THE ADVISER
During the fiscal half-year ended May 31, 1999, interest rates rose as investors
became worried that the strong growth of the U.S. economy might lead to an
acceleration in the inflation rate. As the period progressed, the U.S. economy's
growth rate slowed, but remained strong.
On the inflation front, investors' fears seemed misplaced until May, when
the Consumer Price Index came in above expectations. Soon after, the Federal
Reserve Board announced that it had adopted a bias toward a tighter monetary
policy, meaning that it was more likely to raise interest rates in the coming
months than to lower them. A decision to raise short-term interest rates would,
if taken, be aimed at slowing growth and heading off increases in inflation. The
Fed's announcement marked the first time the agency had told the public
immediately about its adoption of a policy bias, rather than releasing the
information at a later date. As we reached the midpoint of our fiscal year,
interest rates were hovering around their highest levels of the period, and
market participants were waiting to see whether inflation and growth statistics
would prompt the Fed to act on its tightening bias.
Municipal bonds outperformed U.S. Treasury bonds with equivalent
maturities during the half-year. The benchmark 30-year U.S. Treasury bond's
yield increased by 77 basis points, from 5.06% on November 30, 1998, to 5.83% on
May 31, 1999. The yield of a 30-year AAA-rated general obligation municipal bond
increased 27 basis points, from 4.89% to 5.16%, over the same period. The
municipal bond market's strong relative performance can be explained by two
factors. First, municipal bond yields at the start of the 1999 fiscal year were
very attractive compared with Treasury yields. The global forces that had
compelled investors to seek the safety of Treasuries during summer 1998 did not
carry over to the municipal market, which consequently underperformed Treasuries
last fiscal year. This set the stage for municipals' superior performance in the
ensuing six months. Second, there was a 24% decline in the issuance of municipal
bonds during the first five months of calendar year 1999 compared with the same
period a year earlier.
THE INSURED LONG-TERM TAX-EXEMPT FUND
The supply of newly issued municipals varied widely by state. In many states,
new bond issuance declined by 37% compared with 1998. The supply of new bonds
declined for two reasons, both related to higher interest rates. First, as rates
rose, many issuers were no longer able to refinance older, higher-coupon bonds
by issuing new bonds at lower rates. Second, higher interest rates made
borrowing less attractive to bond issuers. However, Pennsylvania bucked the
national trend with a 10% increase in new bond issuance during the first five
months of 1999.
All in all, municipal bonds had a strong quarter compared with other
types of bonds. Even so, high-quality, long-term municipals continue to be
attractive
6
<PAGE> 9
investments, with yields as of May 31, 1999, equivalent to a relatively high 89%
of the yield on long-term U.S. Treasury bonds. Given that interest on municipal
bonds is generally exempt from federal income tax, while interest on Treasuries
and corporate bonds is not, municipals provide a better after-tax yield than any
taxable bond of similar credit quality.
Going forward, new municipal bond issuance is expected to remain low
through year-end. Also, as the outlook for growth and inflation becomes clearer,
the Fed should give more direction to the market. At the least, this should
reduce uncertainty and bring some comfort to the bond markets.
The Vanguard Pennsylvania Tax-Exempt Funds' low operating costs and high
credit quality should stand our shareholders in good stead during this year's
turbulent bond markets.
THE TAX-EXEMPT MONEY MARKET FUND
The economy's strength and the resulting threat of inflation were foremost in
investors' minds throughout the first half of the fiscal year. Consequently, the
yield on 1-year U.S. Treasury bills increased 47 basis points to finish the
half-year at 4.97%. Municipal securities with similar maturities experienced a
19-basis-point increase in yields, to 3.18% as of May 31, 1999. We believe the
strength of the U.S. economy is tempered by continued economic uncertainty
abroad, so our fund remains in a neutral position in terms of its average
maturity. In addition to fundamental economic forces, cash flows had a
significant impact on short-term municipal securities.
During the second quarter of the period, the annual onset of redemptions
by shareholders paying income tax liabilities contributed to the increase in
yields on short-term tax-exempt securities. In all, holders of state-specific
money market portfolios redeemed a net total of some $2.6 billion, or 4.4% of
assets, during the tax season, according to IBC Financial Data. As mutual funds
sold securities to meet these redemptions, the temporary oversupply of
short-term securities, coupled with a general rise in short-term interest rates
during late April and May, caused rates to rise significantly. Your management
used this opportunity to position the fund to benefit from the recent economic
trends, to further diversify its holdings, and to enhance its overall credit
quality.
Ian A. MacKinnon, Managing Director
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Christopher M. Ryon, Principal
Kathryn Allen, Principal
Vanguard Fixed Income Group
June 11, 1999
INVESTMENT PHILOSOPHY
The adviser believes that each fund, while operating within 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.
7
<PAGE> 10
FUND PROFILE
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
1999. Key elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------
<S> <C>
Yield 3.1%
Average Maturity 28 days
Average Quality MIG-1
Expense Ratio 0.20%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
MIG-1/SP-1+ 63.3%
A-1/P-1 32.2
AAA/AA 2.6
A 1.9
- -------------------------------------------------------
Total 100.0%
</TABLE>
8
<PAGE> 11
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investments.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days (7 days for money market funds) and is annualized, or projected
forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
9
<PAGE> 12
FUND PROFILE
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
PENNSYLVANIA INSURED LEHMAN
LONG-TERM INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 264 49,905
Yield 4.5% --
Yield to Maturity 4.7% --
Average Coupon 5.5% 5.5%
Average Maturity 10.6 years 13.2 years
Average Quality AAA AA+
Average Duration 7.0 years 7.2 years
Expense Ratio 0.20%** --
Cash Reserves 1.3% --
</TABLE>
*Lehman Municipal Bond Index.
**Annualized.
INVESTMENT FOCUS
- ---------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
PENNSYLVANIA INSURED LEHMAN
LONG-TERM INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.98 1.00
Beta 0.99 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
AAA 99.4%
AA 0.6
A 0.0
BBB 0.0
BB 0.0
B 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -------------------------------------------------------
<S> <C>
Under 1 Year 6.4%
1-5 Years 25.5
5-10 Years 26.4
10-20 Years 24.8
20-30 Years 15.8
Over 30 Years 1.1
- -------------------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the funds. Note, too, that income
returns can fluctuate widely, as can the share price of the Pennsylvania Insured
Long-Term Tax-Exempt Fund. An investment in a money market fund is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund.
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND
TOTAL INVESTMENT RETURNS: JUNE 13, 1988-MAY 31, 1999
- --------------------------------------------------------
PENNSYLVANIA TAX-EXEMPT AVERAGE
MONEY MARKET FUND 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
1998 0.0 3.3 3.3 3.0
1999** 0.0 1.5 1.5 1.3
- --------------------------------------------------------
SEC 7-Day Annualized Yield (5/31/1999): 3.10%
- --------------------------------------------------------
</TABLE>
*Average Pennsylvania Tax-Exempt Money Market Fund.
**Six months ended May 31, 1999.
See Financial Highlights table on page 24 for dividend
information for the past five years.
<TABLE>
<CAPTION>
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND
TOTAL INVESTMENT RETURNS: APRIL 7, 1986-MAY 31, 1999
- --------------------------------------------------------
PENNSYLVANIA INSURED LONG-TERM
TAX-EXEMPT FUND 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
1998 2.1 5.5 7.6 7.8
1999** -1.9 2.5 0.6 0.8
- --------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
**Six months ended May 31, 1999.
See Financial Highlights table on page 25 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1999*
- -----------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Tax-Exempt
Money Market Fund 6/13/1988 3.18% 3.33% 0.00% 3.74% 3.74%
Pennsylvania Insured Long-Term
Tax-Exempt Fund 4/7/1986 5.78 7.13 2.01 6.16 8.17
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
[PHOTO]
FINANCIAL STATEMENTS
MAY 31, 1999 (UNAUDITED)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's municipal bond holdings,
including each security's market value on the last day of the reporting period
and information on credit enhancements (insurance or letters of credit). Other
assets are added to, and liabilities are subtracted from, the value of Total
Municipal Bonds to calculate the fund's Net Assets. Finally, Net Assets are
divided by the outstanding shares of the fund to arrive at its share price, or
Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table
displaying the composition of the fund's net assets on both a dollar and
per-share basis. Undistributed Net Investment Income is usually zero because the
fund distributes its net income to shareholders as a dividend each day. Any
realized gains must be distributed annually, so the bulk of net assets consists
of Paid in Capital (money invested by shareholders). The balance shown for
Accumulated Net Realized Gains usually approximates the amount available to
distribute to shareholders as taxable capital gains as of the statement date,
but may differ because certain investments or transactions may be treated
differently for financial statement and tax purposes. Any Accumulated Net
Realized Losses, and any cumulative excess of distributions over net realized
gains, will appear as negative balances. Unrealized Appreciation (Depreciation)
is the difference between the value of the funds' investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.5%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allegheny County PA Higher Educ. Auth. VRDO
(Univ. of Pittsburgh) 3.15% 6/3/1999 LOC $ 21,620 $ 21,620
Allegheny County PA Higher Educ. Auth. VRDO
(Univ. of Pittsburgh) 3.25% 6/3/1999 LOC 5,110 5,110
Allegheny County PA Higher Educ. Building Auth. VRDO
(Carnegie Mellon Univ.) 3.35% 6/2/1999 39,700 39,700
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Children's Hosp.-Pittsburgh) 3.30% 6/3/1999 (1) 28,900 28,900
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Presbyterian Univ. Health System) 3.30% 6/3/1999 (1) 24,050 24,050
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Presbyterian Univ. Health System) 3.30% 6/3/1999 LOC 9,080 9,080
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Saint Francis Health System) 3.30% 6/3/1999 LOC 41,000 41,000
Allegheny County PA IDA PCR PUT (Duquesne Light Co.) 3.15% 7/8/1999 LOC 11,500 11,500
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.35% 6/10/1999 LOC 6,900 6,900
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.35% 6/21/1999 LOC 14,200 14,200
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.40% 6/10/1999 LOC 12,400 12,400
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.65% 6/7/1999 LOC 17,950 17,950
Beaver County PA IDA PCR PUT (Ohio Edison Co.) 3.10% 4/1/2000 LOC 22,000 22,000
Beaver County PA IDA PCR VRDO (Duquesne Light Co.) 3.25% 6/2/1999 LOC 14,700 14,700
Berks County PA IDA VRDO (Lutheran Health Care) 3.25% 6/3/1999 (2) 21,530 21,530
Bucks County PA TRAN 2.90% 12/15/1999 6,250 6,250
Chester County PA IDA VRDO (Archdiocese of Philadelphia) 3.35% 6/2/1999 LOC 24,800 24,800
Cumberland County PA Muni. Auth. Rev. PUT (Dickinson College) 2.95% 11/1/1999 LOC 11,385 11,385
Dallastown Area School Dist. York County PA GO VRDO 3.35% 6/3/1999 (3) 20,450 20,450
Dauphin County PA General Auth. Hosp. Rev. VRDO
(Reading Hosp. & Medical Center) 3.20% 6/2/1999 14,440 14,440
Delaware County PA Hosp. Auth. (Memorial Hosp.) 7.125% 8/15/1999 (Prere.) 5,160 5,307
Delaware County PA IDA Airport Fac. Rev. VRDO
(United Parcel Service) 3.20% 6/2/1999 47,800 47,800
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Delaware County PA IDA PCR CP (PECO) 3.00% 6/7/1999 (3) $ 7,000 $ 7,000
Delaware County PA IDA PCR CP (PECO) 3.05% 8/13/1999 (3) 9,500 9,500
Delaware County PA IDA PCR CP (PECO) 3.15% 8/25/1999 (3) 21,400 21,400
Delaware County PA IDA PCR CP (PECO) 3.20% 7/12/1999 (3) 10,000 10,000
Delaware County PA IDA PCR CP (PECO) 3.20% 8/26/1999 (3) 10,600 10,600
Delaware County PA IDA PCR CP (PECO) 3.30% 6/14/1999 (3) 11,300 11,300
Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 3.40% 6/2/1999 8,080 8,080
Delaware County PA IDA PCR VRDO (PECO) 3.30% 6/2/1999 LOC 1,225 1,225
Delaware County PA IDA Refunding Resource Recovery Fac. VRDO
(General Electric Capital Corp.) 3.20% 6/2/1999 30,100 30,100
Delaware County PA IDA Solid Waste Rev. VRDO (Scott Paper Co.) 3.35% 6/2/1999 76,305 76,305
Downingtown PA Area School Dist. TRAN 4.04% 6/30/1999 1,000 1,000
Emmaus PA General Auth. Local Govt. Rev. VRDO 3.45% 6/2/1999 44,000 44,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Altoona School Dist.) 3.45% 6/2/1999 LOC 15,000 15,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Avon Grove School Dist.) 3.45% 6/2/1999 LOC 19,800 19,800
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Big Spring School Dist.) 3.45% 6/2/1999 LOC 15,000 15,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Colonial School Dist.) 3.45% 6/2/1999 LOC 8,200 8,200
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Council Rock School Dist.) 3.45% 6/2/1999 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(East Pennsboro Area School Dist.) 3.45% 6/2/1999 LOC 5,600 5,600
Emmaus PA General Auth. Local Govt. Rev. VRDO
(East Stroudsburg School Dist.) 3.45% 6/2/1999 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Franklin Regional School Dist.) 3.45% 6/2/1999 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Kennett Consolidated School Dist.) 3.45% 6/2/1999 LOC 20,000 20,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Methacton School Dist.) 3.45% 6/2/1999 LOC 13,000 13,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Nazareth School Dist.) 3.45% 6/2/1999 LOC 8,700 8,700
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Northern York County School Dist.) 3.45% 6/2/1999 LOC 7,200 7,200
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Pennridge School Dist.) 3.45% 6/2/1999 LOC 9,600 9,600
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Pocono Mountain School Dist.) 3.45% 6/2/1999 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Pottsgrove School Dist.) 3.45% 6/2/1999 LOC 5,400 5,400
Emmaus PA General Auth. Local Govt. Rev. VRDO
(South York School Dist.) 3.45% 6/2/1999 LOC 9,800 9,800
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Upper Dublin School Dist.) 3.45% 6/2/1999 LOC 9,300 9,300
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Upper Merion School Dist.) 3.45% 6/2/1999 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(West Allegheny School Dist.) 3.45% 6/3/1999 LOC 5,000 5,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(West Chester Area School Dist.) 3.45% 6/2/1999 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(William Penn School Dist.) 3.45% 6/2/1999 LOC 10,000 10,000
Geisinger Health System Auth. of Pennsylvania VRDO
(Penn State Geisinger Health System) 3.35% 6/2/1999 38,325 38,325
Lehigh County PA General Purpose Hosp. Auth. Rev. VRDO
(Lehigh Valley Health Network) 3.25% 6/2/1999 (2) 20,110 20,110
Lehigh County PA IDA PCR TOB VRDO (Pennsylvania Power & Light) 3.32% 6/3/1999 (1) 6,350 6,350
Mercerburg Borough PA Auth. VRDO (Mercerburg College) 3.35% 6/2/1999 LOC 7,500 7,500
Montgomery County PA GO 2.95% 7/15/1999 14,000 14,000
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Montgomery County PA IDA PCR CP (PECO) 3.10% 7/14/1999 LOC $ 11,640 $ 11,640
Montgomery County PA IDA PCR CP (PECO) 3.15% 7/9/1999 LOC 12,200 12,200
Montgomery County PA VRDO 3.25% 6/2/1999 900 900
Northeastern Pennsylvania Hosp. & Educ. Auth. VRDO
(Valley Health Care Obligated Group) 3.20% 6/2/1999 (2) 49,100 49,100
Northeastern Pennsylvania Hosp. Auth. Rev. CP
(Hosp. Central Services Capital Asset Financing Program) 2.90% 6/11/1999 (1) 4,640 4,640
Northeastern Pennsylvania Hosp. Auth. Rev. CP
(Hosp. Central Services Capital Asset Financing Program) 3.05% 8/12/1999 (1) 10,300 10,300
Northeastern Pennsylvania Hosp. Auth. Rev. CP
(Hosp. Central Services Capital Asset Financing Program) 3.20% 7/14/1999 (1) 4,000 4,000
Pennsylvania CP 3.10% 8/24/1999 18,300 18,300
Pennsylvania GO 4.00% 12/1/1999 13,500 13,570
Pennsylvania GO 4.25% 8/1/1999 15,375 15,393
Pennsylvania GO 4.625% 5/1/2000 7,975 8,080
Pennsylvania GO 4.625% 5/1/2000 (1) 1,250 1,267
Pennsylvania GO 4.75% 6/15/1999 (1) 2,500 2,501
Pennsylvania GO 5.25% 11/15/1999 (3) 3,500 3,538
Pennsylvania GO 5.25% 5/15/2000 (3) 7,000 7,136
Pennsylvania Higher Educ. Assistance Agency
Student Loan Rev. VRDO 3.35% 6/2/1999 LOC 128,400 128,400
Pennsylvania Higher Educ. Assistance Agency
Student Loan Rev. VRDO 3.40% 6/2/1999 LOC 20,000 20,000
Pennsylvania Higher Educ. Fac. Auth. Rev. 4.50% 6/15/1999 (1) 1,120 1,120
Pennsylvania Higher Educ. Fac. Auth. Rev. PUT (St. Joseph's Univ.) 3.125% 4/1/2000 LOC 3,300 3,300
Pennsylvania Higher Educ. Fac. Auth. Rev. PUT (St. Joseph's Univ.) 4.00% 11/1/1999 LOC 12,000 12,047
Pennsylvania Higher Educ. Fac. Auth. Rev. VRDO
(Carnegie Mellon Univ.) 3.35% 6/2/1999 63,265 63,265
Pennsylvania Higher Educ. Fac. Auth. Rev. VRDO (Temple Univ.) 3.35% 6/2/1999 LOC 38,900 38,900
Pennsylvania IDA 6.60% 7/1/1999 10,355 10,385
Pennsylvania IDA 6.70% 1/1/2000 7,420 7,573
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.75% 6/15/1999 (3) 8,930 8,939
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.75% 6/15/1999 3,100 3,103
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 4.00% 12/1/1999 (1) 2,965 2,979
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. TOB VRDO 3.32% 6/3/1999 (2) 20,175 20,175
Pennsylvania Turnpike Comm. Rev. 7.50% 12/1/1999 (Prere.) 1,825 1,901
Pennsylvania Turnpike Comm. Rev. 7.625% 12/1/1999 (Prere.) 2,885 3,007
Pennsylvania Turnpike Comm. Rev. VRDO 3.35% 6/2/1999 19,800 19,800
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev. VRDO
(Children's Hosp. Project) 3.35% 6/2/1999 77,310 77,310
Philadelphia PA IDA VRDO (Cancer Research) 3.35% 6/2/1999 LOC 3,900 3,900
Philadelphia PA School Dist. GO 6.70% 7/1/1999 (2) 9,000 9,027
Philadelphia PA School Dist. TRAN 4.25% 6/30/1999 LOC 44,000 44,021
Philadelphia PA Water & Sewer Rev. 6.90% 10/1/1999 (Prere.) 9,300 9,600
Philadelphia PA Water & Waste Water Rev. 4.80% 8/1/1999 2,285 2,292
Philadelphia PA Water & Waste Water Rev. VRDO 3.15% 6/2/1999 (2) 53,400 53,400
Sayre PA Health Care Fac. Auth. VRDO
(VHA of Pennsylvania, Pooled Capital Asset Financial Program) 3.30% 6/2/1999 (2) 99,800 99,800
Scranton-Lackawanna PA Health & Welfare Auth. VRDO
(Mercy Health System) 3.20% 6/2/1999 6,400 6,400
South Fork PA Hosp. Auth. Rev. VRDO (Conemaugh Valley Hosp.) 3.25% 6/2/1999 (1) 23,800 23,800
St. Mary's Hosp. Auth. PA VRDO (Catholic Health Iniatives) 3.15% 6/2/1999 17,900 17,900
Temple Univ. PA Higher Educ. GO 3.15% 5/12/2000 36,000 36,000
Univ. of Pittsburgh PA Higher Educ. VRDO 3.15% 6/3/1999 LOC 37,000 37,000
Washington County PA Higher Educ. VRDO
(Pooled Equipment Lease Program) 3.25% 6/2/1999 LOC 17,200 17,200
York County PA IDA PCR VRDO (PECO) 3.30% 6/2/1999 LOC 6,340 6,340
OUTSIDE PENNSYLVANIA:
Puerto Rico Govt. Dev. Bank VRDO 3.00% 6/2/1999 (1) 4,475 4,475
Puerto Rico TRAN 3.50% 7/30/1999 18,000 18,019
- -------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,933,410) 1,933,410
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (0.5%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 24,780
Liabilities (14,654)
-----------
10,126
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 1,943,565,675 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,943,536
=========================================================================================================================
NET ASSET VALUE PER SHARE $1.00
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
For key to abbreviations and other references, see page 21.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,943,565 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (29) --
Unrealized Appreciation -- --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,943,536 $1.00
=========================================================================================================================
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.7%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (94.8%)
Allegheny County PA Airport Rev. (Pittsburgh International Airport) 5.00% 1/1/2017 (1) $ 12,205 $ 11,912
Allegheny County PA Airport Rev. (Pittsburgh International Airport) 5.00% 1/1/2019 (1) 15,750 15,252
Allegheny County PA GO 0.00% 5/1/2003 (2) 8,815 7,494
Allegheny County PA GO 6.00% 5/1/2010 (2) 3,030 3,234
Allegheny County PA GO 6.00% 5/1/2012 (2) 3,000 3,230
Allegheny County PA Hosp. Dev. Auth. Rev. (Catholic Health East) 5.25% 11/15/2013 (2) 1,000 1,011
Allegheny County PA Hosp. Dev. Auth. Rev.
(Magee Women's Hosp.) 6.00% 10/1/2010 (3) 4,235 4,726
Allegheny County PA Hosp. Dev. Auth. Rev.
(Presbyterian Univ. Health System) 7.125% 7/1/1999 (1)(Prere.) 6,835 6,994
Allegheny County PA Hosp. Dev. Auth. Rev.
(Presbyterian Univ. Health System) 6.00% 11/1/2002 (1)(Prere.) 3,000 3,200
Allegheny County PA Hosp. Dev. Auth. Rev. (Univ. of Pittsburgh) 5.125% 7/1/2022 (1) 5,960 5,737
Allegheny County PA Hosp. Dev. Auth. Rev. (Univ. of Pittsburgh) 5.60% 4/1/2017 (1) 2,000 2,067
Allegheny County PA Sanitation Auth. Sewer Rev. 5.50% 12/1/2013 (3) 19,000 19,810
Allegheny County PA Sanitation Auth. Sewer Rev. 5.50% 12/1/2016 (3) 23,665 24,286
Allegheny County PA Sanitation Auth. Sewer Rev. 6.00% 12/1/2019 (1) 20,000 21,366
Allegheny County PA Sanitation Auth. Sewer Rev. 6.25% 12/1/2014 (1) 9,660 10,678
Allegheny County PA Sanitation Auth. Sewer Rev. 6.50% 12/1/2011 (3) 8,000 8,469
Altoona PA Water Rev. Auth. 6.50% 11/1/2004 (3)(Prere.) 19,790 22,396
Altoona PA Water Rev. Auth. 6.50% 11/1/2019 (3) 210 234
Beaver County PA IDA PCR (Ohio Edison) 7.00% 6/1/2021 (3) 22,715 24,370
Beaver County PA IDA PCR (Ohio Edison) 7.10% 6/1/2018 (3) 5,000 5,259
Berks County PA GO 0.00% 11/15/2013 (3)(ETM) 7,250 3,485
Berks County PA GO 0.00% 11/15/2014 (3)(ETM) 8,615 3,907
Berks County PA GO 0.00% 11/15/2015 (3)(ETM) 6,250 2,671
Berks County PA GO 5.75% 11/15/2012 (3) 7,750 8,138
Berks County PA Hosp. Rev. (Reading Hosp.) 5.70% 10/1/2014 (1) 4,500 4,830
Berks County PA Hosp. Rev. (Reading Hosp.) 6.10% 10/1/2023 (1) 16,500 17,761
Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 5.00% 7/1/2022 (2) 5,315 5,043
Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 5.50% 7/1/2016 (2) 4,480 4,677
Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 6.50% 7/1/2002 (2)(Prere.) 8,500 9,288
Boyertown PA Area School Dist. GO 6.10% 9/1/2002 (2)(Prere.) 6,000 6,407
Butler County PA GO 6.00% 7/15/2012 (3) 5,185 5,462
Center City Philadelphia PA Business Improvement 5.50% 12/1/2015 (2) 6,955 7,179
Center Township PA Sewer Auth. Rev. 5.50% 4/15/2011 (1) 2,375 2,484
Central Dauphin PA School Dist. GO 0.00% 6/1/2004 (2) 4,800 3,877
Chester County PA Health & Educ. Fac. Auth. Rev.
(Chester County Hosp.) 5.875% 7/1/2016 (1) 7,870 8,293
Chester County PA Health & Educ. Fac. Auth. Rev.
(Jefferson Health System) 5.125% 5/15/2018 (2) 12,445 12,099
Chester County PA Health & Educ. Fac. Auth. Rev.
(Jefferson Health System) 5.25% 5/15/2022 (2) 35,555 34,584
Coatesville PA School Dist. GO 5.75% 4/1/2015 (4) 10,080 10,981
Cornwall Lebanon PA Suburban Joint School Dist. GO 5.875% 3/1/2004 (3)(Prere.) 5,635 5,978
Cornwall Lebanon PA Suburban Joint School Dist. GO 5.90% 3/1/2004 (3)(Prere.) 3,270 3,475
Corry PA Area School Dist. GO 5.50% 12/15/2010 (1) 4,000 4,179
Council Rock PA School Dist. GO 4.75% 11/15/2017 (3) 7,000 6,645
Dauphin County PA General Auth. Health System Rev.
(Pinnacle Health) 5.50% 8/15/2028 (1) 9,415 9,735
Dauphin County PA General Auth. Health System Rev.
(West Pennsylvania Hosp.) 5.50% 7/1/2013 (1) 5,000 5,193
Delaware County PA Auth. College Rev. (Haverford College) 5.40% 11/15/2013 (1) 1,750 1,811
Delaware County PA Auth. Rev. (Catholic Health East) 5.25% 11/15/2012 (2) 3,435 3,491
Delaware County PA Auth. Rev. (Catholic Health East) 5.25% 11/15/2013 (2) 4,665 4,717
Delaware County PA Auth. Rev. (Villanova Univ.) 5.00% 12/1/2028 (1) 26,885 25,688
Delaware County PA Hosp. Auth. Rev.
(Delaware County Memorial Hosp.) 5.50% 8/15/2013 (1) 12,000 12,399
Delaware County PA Hosp. Auth. Rev.
(Delaware County Memorial Hosp.) 7.20% 8/15/1999 (1)(Prere.) 8,000 8,223
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Delaware River Joint Toll Bridge Comm.
Pennsylvania & New Jersey Rev. 6.00% 7/1/2018 (3) $ 3,040 $ 3,192
Delaware River Port Auth. Pennsylvania & New Jersey Rev. 5.50% 1/1/2026 (3) 21,450 22,191
Delaware Valley PA Regional Finance Auth. Local Govt. Rev. 5.50% 8/1/2028 (2) 46,750 49,203
Dover Township PA Sewer Auth. Rev. 5.50% 11/1/2017 (1) 2,235 2,290
Dover Township PA Sewer Auth. Rev. 5.55% 11/1/2022 (1) 4,000 4,113
Erie County PA Hosp. Auth. Rev. (St. Vincent Health Care) 6.125% 7/1/2013 (1) 3,900 4,179
Erie PA School Dist. GO 0.00% 9/1/2010 (4) 5,665 3,274
Erie PA School Dist. GO 0.00% 9/1/2011 (4) 5,780 3,151
Erie PA School Dist. GO 0.00% 9/1/2013 (4) 2,780 1,350
Erie PA School Dist. GO 0.00% 9/1/2016 (4) 5,785 2,353
Fort LeBoeuf PA School Dist. GO 5.80% 1/1/2003 (1)(Prere.) 5,500 5,832
Garnet Valley PA School Dist. GO 5.70% 4/1/2011 (2) 3,000 3,121
Greensburg Salem PA School Dist. GO 6.45% 9/15/2018 (1) 7,500 8,028
Hazleton PA Area School Dist. GO 5.50% 3/1/2011 (3) 3,740 3,952
Hazleton PA Area School Dist. GO 5.75% 3/1/2012 (3) 3,945 4,260
Hazleton PA Area School Dist. GO 6.00% 3/1/2016 (3) 18,245 20,188
Lancaster PA Higher Educ. Auth. Rev. (Franklin & Marshall College) 6.60% 4/15/2010 (1) 4,940 5,261
Lancaster PA Higher Educ. Auth. Rev. (Franklin & Marshall College) 6.70% 4/15/2012 (1) 4,000 4,273
Lancaster PA School Dist. GO 5.375% 2/15/2017 (3) 5,590 5,662
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.00% 7/1/2028 (1) 15,905 14,998
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.625% 7/1/2005 (1)(Prere.) 800 870
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.625% 7/1/2025 (1) 9,200 9,455
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.70% 7/1/2010 (1) 3,905 4,117
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 7.00% 7/1/2016 (1) 4,415 5,358
Lehigh County PA General Purpose Hosp. Auth. Rev. VRDO
(Lehigh Valley Health Network) 3.25% 6/2/1999 (2) 3,400 3,400
Lehigh County PA GO 6.00% 10/15/1999 (2)(Prere.) 1,000 1,010
Lewisburg PA Area School Dist. GO 6.20% 6/1/2002 (1)(Prere.) 3,500 3,731
Lewisburg PA Area School Dist. GO 6.25% 6/1/2002 (1)(Prere.) 3,685 3,933
Ligonier Valley PA School Dist. GO 6.00% 3/1/2004 (1)(Prere.) 6,000 6,488
Manheim PA Central School Dist. GO 6.85% 3/1/2008 (3) 2,705 2,839
McKeesport PA Area School Dist. GO 0.00% 10/1/2004 (1) 1,040 828
McKeesport PA Area School Dist. GO 0.00% 10/1/2005 (1) 1,050 796
McKeesport PA Area School Dist. GO 0.00% 10/1/2006 (1) 2,015 1,451
McKeesport PA Area School Dist. GO 0.00% 10/1/2007 (1) 2,080 1,421
McKeesport PA Area School Dist. GO 0.00% 10/1/2008 (1) 2,270 1,467
McKeesport PA Area School Dist. GO 0.00% 10/1/2009 (1) 2,020 1,236
McKeesport PA Area School Dist. GO 0.00% 10/1/2010 (1) 1,840 1,059
McKeesport PA Area School Dist. GO 0.00% 10/1/2011 (1) 1,835 996
McKeesport PA Area School Dist. GO 0.00% 10/1/2014 (1) 2,040 931
McKeesport PA Area School Dist. GO 0.00% 10/1/2015 (1) 2,040 877
McKeesport PA Area School Dist. GO 0.00% 10/1/2016 (1) 4,655 1,885
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 5.00% 6/1/2028 (2) 8,660 8,167
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 6.00% 6/1/2003 (2)(Prere.) 8,140 8,870
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 6.00% 6/1/2022 (2) 2,020 2,145
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 6.10% 6/1/2012 (2) 5,000 5,419
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Pottstown Healthcare) 5.00% 1/1/2027 (4) 6,250 5,902
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Pottstown Healthcare) 5.375% 1/1/2012 (4) 5,085 5,219
Montgomery County PA IDA PCR (PECO) 6.70% 12/1/2021 (1) 12,000 12,911
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mount Lebanon PA Hosp. Dev. Auth. Rev.
(St. Clair Memorial Hosp.) 6.25% 7/1/2006 (3) $ 9,250 $ 10,270
Nazareth PA School Dist. GO 5.50% 11/15/2015 (2) 1,500 1,568
Neshaminy PA School Dist. GO 5.70% 2/15/2014 (3) 8,795 9,281
Neshaminy PA School Dist. GO 6.30% 8/15/2002 (3)(Prere.) 10,000 10,730
North Allegheny PA School Dist. GO 5.00% 5/1/2021 (3) 5,000 4,832
North Hills PA School Dist. GO 5.25% 11/15/2007 (3)(Prere.) 7,440 7,888
North Penn PA Water Auth. Rev. 6.125% 11/1/2010 (3) 5,140 5,500
North Wales PA Water Auth. Rev. 5.25% 11/1/2019 (3) 12,350 12,334
North Wales PA Water Auth. Rev. 6.125% 11/1/2002 (3)(Prere.) 11,300 12,113
Northampton County PA Higher Educ. Auth. Rev. (Lehigh Univ.) 7.10% 11/15/1999 (1)(Prere.) 6,035 6,260
Northampton County PA Higher Educ. Auth. Rev. (Lehigh Univ.) 7.10% 11/15/2009 (1) 1,000 1,037
Northampton County PA Hosp. Auth. Rev. (Easton Hosp.) 6.25% 1/1/2019 (1) 10,000 10,767
Northampton County PA Hosp. Auth. Rev. (Easton Hosp.) 7.875% 1/1/2019 (5) 285 292
Northampton County PA IDA PCR (Central Metro. Edison) 6.10% 7/15/2021 (1) 4,410 4,761
Northeastern PA Hosp. & Educ. Health Rev.
(Wyoming Valley Health) 5.25% 1/1/2016 (2) 6,560 6,524
Northeastern PA Hosp. & Educ. Health Rev.
(Wyoming Valley Health) 5.25% 1/1/2026 (2) 5,350 5,193
Owen J. Roberts School Dist. PA GO 5.375% 5/15/2018 (1) 4,565 4,628
Penn Hills PA GO 5.80% 12/1/2002 (2)(Prere.) 11,735 12,475
Penn Trafford PA School Dist. GO 5.85% 5/1/2004 (1)(Prere.) 2,435 2,623
Pennsylvania Convention Center Auth. Rev. 0.00% 9/1/2004 (3)(ETM) 5,000 3,998
Pennsylvania Convention Center Auth. Rev. 6.00% 9/1/2019 (3)(ETM) 12,600 14,064
Pennsylvania Convention Center Auth. Rev. 6.70% 9/1/2016 (3)(ETM) 19,150 22,736
Pennsylvania GO 5.125% 3/15/2017 (2) 7,990 7,948
Pennsylvania GO 5.375% 5/15/2010 (3) 13,800 14,489
Pennsylvania GO 5.375% 5/15/2012 (3) 16,570 17,173
Pennsylvania GO 5.375% 5/15/2014 (3) 14,000 14,413
Pennsylvania GO 5.375% 5/15/2016 (3) 5,000 5,098
Pennsylvania Higher Educ. Auth. Rev.
(Allegheny/Delaware Valley Obligated Group) 5.50% 11/15/2008 (1) 2,000 2,019
Pennsylvania Higher Educ. Auth. Rev.
(Allegheny/Delaware Valley Obligated Group) 5.875% 11/15/2016 (1) 20,000 20,180
Pennsylvania Higher Educ. Auth. Rev.
(Allegheny/Delaware Valley Obligated Group) 5.875% 11/15/2021 (1) 9,545 9,631
Pennsylvania Higher Educ. Auth. Rev. (Bryn Mawr College) 5.125% 12/1/2029 (2) ++ 5,000 4,861
Pennsylvania Higher Educ. Auth. Rev. (Bryn Mawr College) 5.625% 12/1/2014 (1) 2,200 2,323
Pennsylvania Higher Educ. Auth. Rev. (College & Univ.) 7.20% 1/1/2004 (2) 2,120 2,126
Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.00% 4/1/2029 (1) 8,700 8,310
Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.25% 4/1/2011 (1) 3,545 3,666
Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.25% 4/1/2012 (1) 1,040 1,069
Pennsylvania Higher Educ. Auth. Rev. (Temple Univ. ) 5.25% 4/1/2016 (1) 4,000 4,036
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.25% 6/15/2014 (3) 8,765 8,888
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.25% 6/15/2015 (3) 5,205 5,253
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.25% 6/15/2017 (3) 8,830 8,850
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.625% 6/15/2013 (3) 2,605 2,739
Pennsylvania Intergovernmental Cooperative Auth. Rev. 6.00% 6/15/2000 (3)(ETM) 2,000 2,055
Pennsylvania Intergovernmental Cooperative Auth. Rev. 7.00% 6/15/2005 (3)(Prere.) 2,250 2,581
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 5.00% 12/1/2023 (2) 24,325 23,427
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 5.125% 12/1/2016 (2) 4,735 4,721
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 6.00% 12/1/2004 (2)(Prere.) 7,450 8,245
Pennsylvania Turnpike Comm. Rev. 5.50% 12/1/2017 (3)+ 16,000 16,288
Pennsylvania Turnpike Comm. Rev. 5.75% 12/1/2012 (2) 10,000 10,650
Pennsylvania Turnpike Comm. Rev. 6.00% 6/1/2015 (1) 28,800 30,455
Pennsylvania Turnpike Comm. Rev. 6.25% 6/1/2011 (2) 14,390 15,270
Philadelphia PA Airport Rev. 5.00% 7/1/2023 (3) 8,950 8,436
Philadelphia PA Airport Rev. 5.125% 7/1/2028 (3) 12,650 12,124
Philadelphia PA Airport Rev. 5.75% 6/15/2010 (3) 4,440 4,766
Philadelphia PA Gas Works Rev. 5.00% 7/1/2028 (4) 5,000 4,779
Philadelphia PA Gas Works Rev. 5.25% 7/1/2011 (4) 3,965 4,048
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philadelphia PA Gas Works Rev. 5.375% 7/1/2012 (4) $ 4,000 $ 4,102
Philadelphia PA Gas Works Rev. 5.375% 7/1/2014 (4) 4,810 4,909
Philadelphia PA Gas Works Rev. 6.00% 5/15/2000 (2)(Prere.) 14,250 14,890
Philadelphia PA Gas Works Rev. 6.75% 1/1/2015 (2) 13,930 14,249
Philadelphia PA Gas Works Rev. 7.25% 1/1/2010 (2) 10,085 10,319
Philadelphia PA GO 5.00% 5/15/2020 (1) 12,650 12,219
Philadelphia PA GO 5.00% 3/15/2028 (4) 10,000 9,559
Philadelphia PA GO 5.25% 3/15/2014 (4) 2,000 2,032
Philadelphia PA GO 5.25% 3/15/2015 (4) 2,600 2,623
Philadelphia PA GO 6.00% 11/15/2004 (3)(Prere.) 6,880 7,625
Philadelphia PA GO 6.00% 11/15/2010 (3) 1,065 1,163
Philadelphia PA GO 6.00% 11/15/2011 (3) 1,145 1,250
Philadelphia PA GO 6.00% 11/15/2012 (3) 1,270 1,381
Philadelphia PA GO 6.00% 11/15/2013 (3) 715 777
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev.
(Jefferson Health System) 5.125% 5/15/2018 (2) 5,700 5,542
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2011 (2) 4,520 4,673
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2012 (2) 5,990 6,174
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2015 (2) 6,350 6,469
Philadelphia PA Parking Auth. Rev. 5.50% 9/1/2018 (2) 4,250 4,330
Philadelphia PA School Dist. GO 0.00% 7/1/2001 (2) 11,750 10,835
Philadelphia PA School Dist. GO 5.25% 4/1/2015 (1) 4,000 4,030
Philadelphia PA School Dist. GO 5.25% 4/1/2017 (1) 3,000 3,002
Philadelphia PA School Dist. GO 5.25% 4/1/2017 (2) 5,470 5,473
Philadelphia PA School Dist. GO 5.50% 9/1/2005 (2)(Prere.) 1,150 1,248
Philadelphia PA School Dist. GO 5.50% 9/1/2015 (2) 3,850 3,955
Philadelphia PA School Dist. GO 5.50% 9/1/2018 (2) 4,000 4,074
Philadelphia PA School Dist. GO 5.50% 9/1/2025 (2) 15,000 15,318
Philadelphia PA Water & Waste Water Rev. 5.50% 8/1/2014 (1) 12,900 13,310
Philadelphia PA Water & Waste Water Rev. 5.60% 8/1/2018 (1) 5,920 6,087
Philadelphia PA Water & Waste Water Rev. 6.25% 8/1/2011 (1) 3,750 4,239
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2010 (3) 33,865 40,323
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2011 (3) 35,685 42,658
Pine Richland School Dist. PA GO 5.50% 9/1/2019 (4) 3,430 3,502
Pittsburgh PA GO 5.125% 9/1/2014 (3) 10,435 10,462
Pittsburgh PA GO 5.125% 9/1/2015 (3) 7,795 7,782
Pittsburgh PA GO 5.25% 9/1/2017 (3) 4,980 4,990
Pittsburgh PA GO 5.25% 9/1/2018 (2) 5,500 5,514
Pittsburgh PA GO 5.50% 9/1/2014 (2) 10,500 11,113
Pittsburgh PA GO 6.25% 9/1/2001 (1)(Prere.) 11,030 11,836
Pittsburgh PA Public Parking Auth. Rev. 5.875% 12/1/2012 (3) 8,200 8,785
Pittsburgh PA School Dist. GO 0.00% 8/1/2009 (2) 4,000 2,466
Pittsburgh PA Water & Sewer System Rev. 5.00% 9/1/2019 (4) 5,170 5,028
Pittsburgh PA Water & Sewer System Rev. 5.25% 9/1/2022 (4) 2,495 2,475
Pittsburgh PA Water & Sewer System Rev. 7.25% 9/1/2014 (3)(ETM) 25,210 30,459
Pittsburgh PA Water & Sewer System Rev. 7.625% 9/1/2004 (3)(ETM) 5,370 6,092
Pocono Mountain PA School Dist. GO 5.75% 10/1/2009 (2) 6,000 6,258
Ridley PA School Dist. GO 5.00% 11/15/2029 (3) 16,655 15,904
Reading PA GO 5.875% 11/15/2002 (2)(Prere.) 4,175 4,440
Reading PA GO 5.875% 11/15/2012 (2) 13,825 14,573
Sayre PA Health Care Fac. Auth. Rev.
(Guthrie Health Care System) 7.00% 3/1/2011 (2) 2,000 2,133
Scranton-Lackawanna PA Health & Welfare Auth. Rev.
(Mercy Health System) 5.625% 1/1/2016 (1) 5,490 5,694
Scranton-Lackawanna PA Health & Welfare Auth. Rev.
(Mercy Health System) 5.70% 1/1/2023 (1) 9,205 9,543
Seneca Valley PA School Dist. GO 5.50% 7/1/2002 (3)(Prere.) 9,965 10,437
Seneca Valley PA School Dist. GO 5.75% 7/1/2002 (3)(Prere.) 4,000 4,218
South Fork PA Hosp. Auth. Rev. (Conemaugh Valley Hosp.) 5.625% 7/1/2010 (6)+ 2,300 2,458
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Fork PA Hosp. Auth. Rev. (Conemaugh Valley Hosp.) 5.75% 7/1/2018 (6) $ 7,000 $ 7,453
South Fork PA Hosp. Auth. Rev. VRDO (Conemaugh Valley Hosp.) 3.25% 6/2/1999 (1) 3,300 3,300
Southeastern PA Transp. Auth. Rev. 5.375% 3/1/2017 (3) 2,500 2,535
Southeastern PA Transp. Auth. Rev. 5.375% 3/1/2022 (3) 15,825 15,949
Southeastern PA Transp. Auth. Rev. 5.45% 3/1/2011 (3) 3,730 3,904
Southwestern PA School Dist. GO 6.40% 6/15/2002 (3)(Prere.) 3,825 4,170
St. Mary's Hosp. Auth. Langhorne PA Rev.
(Franciscan Health System) 7.00% 7/1/2009 (5) 1,000 1,023
St. Mary's Hosp. Auth. Langhorne PA Rev.
(Franciscan Health System) 7.00% 7/1/2013 (5) 5,050 5,166
St. Mary's Hosp. Auth. Langhorne PA Rev.
(Franciscan Health System) 7.00% 6/15/2015 (5) 1,770 1,810
Univ. of Pittsburgh PA 5.00% 6/1/2021 (1) 7,145 6,895
Univ. of Pittsburgh PA 5.25% 6/1/2017 (3) 6,995 7,033
Univ. of Pittsburgh PA 5.50% 6/1/2010 (1) 5,285 5,606
Univ. of Pittsburgh PA 5.50% 6/1/2014 (1) 12,620 13,132
Univ. of Pittsburgh PA 6.125% 6/1/2002 (1)(Prere.) 25,025 27,067
Univ. of Pittsburgh PA 6.125% 6/1/2021 (1) 13,545 14,538
Univ. of Pittsburgh PA 6.25% 6/1/2002 (1)(Prere.) 2,760 2,995
Univ. of Pittsburgh PA 6.25% 6/1/2012 (1) 1,490 1,604
Upper Darby PA School Dist. GO 5.00% 5/1/2019 (2) 5,970 5,808
Washington County PA Hosp. Auth. Rev. (Shadyside Hosp.) 5.875% 12/15/2009 (2) 22,000 23,810
Washington County PA Hosp. Auth. Rev. (Washington Hosp.) 6.75% 7/1/2012 (2) 10,000 10,501
West Allegheny PA School Dist. GO 6.25% 8/1/2002 (2)(Prere.) 6,155 6,533
West Jefferson Hills PA School Dist. GO 5.90% 8/1/2010 (3) 3,160 3,320
West Jefferson Hills PA School Dist. GO 5.95% 8/1/2014 (3) 7,180 7,556
West Mifflin PA School Dist. GO 5.35% 2/15/2009 (3) 1,555 1,616
West Mifflin PA School Dist. GO 5.625% 2/15/2015 (3) 7,000 7,346
Westmoreland County PA Auth. Rev. 6.125% 7/1/2017 (1)(ETM) 8,205 9,252
York County PA Hosp. Auth. Rev. (York Hosp.) 5.25% 7/1/2017 (2) 3,500 3,468
York County PA Hosp. Auth. Rev. (York Hosp.) 5.25% 7/1/2023 (2) 8,675 8,432
York County PA Solid Waste & Refuse Auth. Rev. 5.50% 12/1/2013 (3) 6,750 7,181
York County PA Solid Waste & Refuse Auth. Rev. 5.50% 12/1/2014 (3) 4,050 4,307
York PA City Sewer Auth. Rev. 0.00% 12/1/2012 (1) 3,235 1,643
OUTSIDE PENNSYLVANIA:
Puerto Rico Govt. Dev. Bank VRDO 3.00% 6/2/1999 (1) LOC 9,500 9,500
----------
1,868,321
----------
NONINSURED (3.9%)
Allegheny County PA Higher Educ. Auth. VRDO
(Univ. of Pittsburgh) 3.15% 6/3/1999 LOC 8,500 8,500
Allegheny County PA Higher Educ. Building Auth. VRDO
(Carnegie Mellon Univ.) 3.35% 6/2/1999 8,800 8,800
Delaware County PA IDA Airport Fac. Rev. VRDO
(United Parcel Service) 3.20% 6/2/1999 300 300
Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 3.40% 6/2/1999 620 620
Delaware County PA IDA PCR VRDO (PECO) 3.30% 6/2/1999 LOC 2,300 2,300
Geisinger Health System Auth. of Pennsylvania VRDO
(Penn State Geisinger Health System) 3.35% 6/2/1999 4,300 4,300
Lower Merion Township PA School Dist. GO 5.00% 5/15/2023 10,300 9,978
Montgomery County PA GO 5.375% 10/15/2025 7,930 7,975
Pennsylvania GO 5.40% 7/1/2000 4,000 4,089
Pennsylvania Higher Educ. Fac. Auth. Rev.
(Univ. of Pennsylvania Health System Obligated Group) 5.75% 1/1/2012 6,000 6,218
Pennsylvania Higher Educ. Fac. Auth. Rev.
(Univ. of Pennsylvania Health System Obligated Group) 5.875% 1/1/2015 1,800 1,859
Pennsylvania Higher Educ. Fac. Auth. Rev. VRDO
(Carnegie Mellon Univ.) 3.35% 6/2/1999 8,575 8,575
Pennsylvania Housing Single Family Mortgage
Finance Agency Rev. 6.90% 4/1/2017 4,880 5,145
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev. VRDO
(Children's Hosp. Project) 3.35% 6/2/1999 3,900 3,900
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
St. Mary's Hosp. Auth. Bucks County PA Rev.
(Catholic Health System) 5.375% 12/1/2011 $ 2,525 $ 2,603
St. Mary's Hosp. Auth. Bucks County PA Rev.
(Catholic Health System) 5.375% 12/1/2013 2,340 2,393
----------
77,555
----------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $1,855,570) 1,945,876
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.3%)
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 35,587
Liabilities (10,894)
----------
24,693
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------
Applicable to 176,019,792 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,970,569
=============================================================================================================================
NET ASSET VALUE PER SHARE $11.20
=============================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Securities with an aggregate value of $18,746,000 have been segregated as
initial margin for open futures contracts.
++Security purchased on a when-issued or delayed delivery basis for which the
fund has not taken delivery as of May 31, 1999.
For key to abbreviations and other references, see below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1999, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,881,291 $10.69
Undistributed Net Investment Income -- --
Overdistributed Net Realized Gains--Note E (1,377) (0.01)
Unrealized Appreciation--Notes E and F
Investment Securities 90,306 0.52
Futures Contracts 349 --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,970,569 $11.20
=========================================================================================================================
</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.
TOB--Tender Option Bond.
TRAN--Tax Revenue Anticipation Note.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association).
(2) AMBAC (Ambac Assurance Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
(5) BIGI (Bond Investors Guaranty Insurance).
(6) Connie Lee Inc.
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
21
<PAGE> 24
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to the fund. These expenses directly
reduce the amount of investment income available to pay to shareholders as
tax-exempt income dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period. If a
fund invested in futures contracts during the period, the results of these
investments are shown separately.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
PENNSYLVANIA INSURED
TAX-EXEMPT LONG-TERM
MONEY MARKET TAX-EXEMPT
FUND FUND
-------------------------------
SIX MONTHS ENDED MAY 31, 1999
-------------------------------
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest $29,894 $52,262
-----------------------------
Total Income 29,894 52,262
-----------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 115 118
Management and Administrative 1,546 1,684
Marketing and Distribution 254 176
Custodian Fees 10 10
Auditing Fees 4 4
Shareholders' Reports 9 12
Trustees' Fees and Expenses 1 1
-----------------------------
Total Expenses 1,939 2,005
Expenses Paid Indirectly--Note C (10) (10)
-----------------------------
Net Expenses 1,929 1,995
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 27,965 50,267
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold 7 2,571
Futures Contracts -- 2,554
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN 7 5,125
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- (44,724)
Futures Contracts -- 768
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- (43,956)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $27,972 $11,436
=========================================================================================================================
</TABLE>
22
<PAGE> 25
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund distributes its income
to shareholders each day, the amounts of Distributions--Net Investment Income
generally equal the net income earned as shown under the Operations section. The
amounts of Distributions--Realized Capital Gain may not match the capital gains
shown in the Operations section, because distributions are determined on a tax
basis and may be made in a period different from the one in which the gains were
realized on the financial statements. The Capital Share Transactions section
shows the amount shareholders invested in the fund, either by purchasing shares
or by reinvesting distributions, and the amounts redeemed. The corresponding
numbers of Shares Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA PENNSYLVANIA
TAX-EXEMPT INSURED LONG-TERM
MONEY MARKET FUND TAX-EXEMPT FUND
------------------------------- -------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAY 31, 1999 NOV. 30, 1998 MAY 31, 1999 NOV. 30, 1998
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 27,965 $ 55,938 $ 50,267 $ 96,651
Realized Net Gain (Loss) 7 51 5,125 14,452
Change in Unrealized Appreciation (Depreciation) -- -- (43,956) 23,435
--------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 27,972 55,989 11,436 134,538
--------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (27,965) (55,938) (50,267) (96,651)
Realized Capital Gain -- -- (15,574) --
--------------------------------------------------------------------
Total Distributions (27,965) (55,938) (65,841) (96,651)
--------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 1,118,718 2,017,947 239,237 379,935
Issued in Lieu of Cash Distributions 26,006 51,617 47,563 66,823
Redeemed (1,069,820) (1,798,948) (205,599) (287,190)
--------------------------------------------------------------------
Net Increase from Capital Share Transactions 74,904 270,616 81,201 159,568
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 74,911 270,667 26,796 197,455
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 1,868,625 1,597,958 1,943,773 1,746,318
--------------------------------------------------------------------
End of Period $1,943,536 $1,868,625 $1,970,569 $1,943,773
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 1,118,718 2,017,947 21,020 33,258
Issued in Lieu of Cash Distributions 26,006 51,617 4,185 5,846
Redeemed (1,069,820) (1,798,948) (18,062) (25,162)
--------------------------------------------------------------------
Net Increase in Shares Outstanding 74,904 270,616 7,143 13,942
=========================================================================================================================
</TABLE>
23
<PAGE> 26
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund's Total Return and
shows net investment income and expenses as percentages of average net assets.
These data will help you assess: the variability of the fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the fund;
and the extent to which the fund tends to distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
fund for one year. Money market funds are not required to report a Portfolio
Turnover Rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .014 .033 .034 .033 .036 .025
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
-------------------------------------------------------------------------
Total from Investment Operations .014 .033 .034 .033 .036 .025
-------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.014) (.033) (.034) (.033) (.036) (.025)
Distributions from Realized Capital Gains -- -- -- -- -- --
-------------------------------------------------------------------------
Total Distributions (.014) (.033) (.034) (.033) (.036) (.025
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 1.46% 3.33% 3.49% 3.36% 3.69% 2.57%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,944 $1,869 $1,598 $1,371 $1,200 $1,105
Ratio of Total Expenses to
Average Net Assets 0.20%* 0.20% 0.20% 0.19% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 2.90%* 3.27% 3.42% 3.30% 3.62% 2.55%
=========================================================================================================================
</TABLE>
*Annualized.
24
<PAGE> 27
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.51 $11.27 $11.26 $11.28 $10.07 $11.36
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .291 .597 .598 .606 .612 .625
Net Realized and Unrealized Gain (Loss)
on Investments (.218) .240 .074 .017 1.210 (1.211)
----------------------------------------------------------------------
Total from Investment Operations .073 .837 .672 .623 1.822 (.586)
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.291) (.597) (.598) (.606) (.612) (.625)
Distributions from Realized Capital Gains (.092) -- (.064) (.037) -- (.079)
----------------------------------------------------------------------
Total Distributions (.383) (.597) (.662) (.643) (.612) (.704)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.20 $11.51 $11.27 $11.26 $11.28 $10.07
========================================================================================================================
TOTAL RETURN 0.63% 7.60% 6.21% 5.77% 18.48% -5.44%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,971 $1,944 $1,746 $1,651 $1,569 $1,299
Ratio of Total Expenses to
Average Net Assets 0.20%* 0.20% 0.18% 0.19% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 5.12%* 5.23% 5.37% 5.47% 5.63% 5.76%
Portfolio Turnover Rate 7%* 19% 9% 13% 12% 16%
========================================================================================================================
</TABLE>
*Annualized.
25
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
Vanguard Pennsylvania Tax-Exempt Funds comprise the Pennsylvania Tax-Exempt
Money Market and Pennsylvania Insured Long-Term Tax-Exempt Funds, each of which
is registered under the Investment Company Act of 1940 as an open-end investment
company, or mutual fund. Each fund invests in debt instruments of municipal
issuers whose ability to meet their obligations may be affected by economic and
political developments in the Commonwealth of Pennsylvania.
A. The following significant accounting policies conform to generally
accepted accounting principles for mutual funds. The funds consistently follow
such policies in preparing their financial statements.
1. SECURITY VALUATION: Tax-Exempt Money Market Fund: Investment
securities are valued at amortized cost, which approximates market value.
Insured Long-Term Tax-Exempt Fund: Bonds, and temporary cash investments
acquired more than 60 days to maturity, are valued using the latest bid prices
or using valuations based on a matrix system (which considers such factors as
security prices, yields, maturities, and ratings), both as furnished by
independent pricing services. Other temporary cash investments are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available are valued by methods deemed by the Board
of Trustees to represent fair value.
2. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. FUTURES CONTRACTS: The Insured Long-Term Tax-Exempt Fund may use
Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures
contracts, with the objectives of enhancing returns, managing interest rate
risk, maintaining liquidity, diversifying credit risk, and minimizing
transaction costs. The fund may purchase or sell futures contracts instead of
bonds to take advantage of pricing differentials between the futures contracts
and the underlying bonds. The fund may also seek to take advantage of price
differences among bond market sectors by simultaneously buying futures (or
bonds) of one market sector and selling futures (or bonds) of another sector.
Futures contracts may also be used to simulate a fully invested position in the
underlying bonds while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of bonds held by the fund and the prices of
futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
original issue discounts are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the funds under methods approved by the Board of
Trustees. Each fund has committed to provide up to
26
<PAGE> 29
0.40% of its net assets in capital contributions to Vanguard. At May 31, 1999,
the funds had contributed capital to Vanguard (included in Other Assets) of:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF FUND OF VANGUARD'S
PENNSYLVANIA TAX-EXEMPT FUND (000) NET ASSETS CAPITALIZATION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $294 0.02% 0.4%
Insured Long-Term 308 0.02 0.4
- -----------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
C. The funds' custodian bank has agreed to reduce its fees when the funds
maintain cash on deposit in their non-interest-bearing custody accounts. For the
six months ended May 31, 1999, custodian fee offset arrangements reduced
expenses by:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
EXPENSE REDUCTION
PENNSYLVANIA TAX-EXEMPT FUND (000)
- ---------------------------------------------------------------------------------
<S> <C>
Money Market $10
Insured Long-Term 10
- ---------------------------------------------------------------------------------
</TABLE>
D. During the six months ended May 31, 1999, the Insured Long-Term
Tax-Exempt Fund purchased $118,431,000 of investment securities and sold
$66,747,000 of investment securities, other than temporary cash investments.
E. Capital gain distributions are determined on a tax basis and may differ
from realized capital gains for financial reporting purposes due to differences
in the timing of realization of gains. The Insured Long-Term Tax-Exempt Fund had
realized losses totaling $6,980,000 through November 30, 1998, which are
deferred for tax purposes and reduce the amount of unrealized appreciation on
investment securities for tax purposes (see Note F).
F. At May 31, 1999, net unrealized appreciation of Insured Long-Term
Tax-Exempt Fund investment securities for federal income tax purposes was
$83,326,000, consisting of unrealized gains of $91,787,000 on securities that
had risen in value since their purchase and $8,461,000 in unrealized losses on
securities that had fallen in value since their purchase.
At May 31, 1999, the aggregate settlement value of open futures contracts
expiring in June 1999 and the related unrealized appreciation were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(000)
--------------------------------------
PENNSYLVANIA AGGREGATE
TAX-EXEMPT FUND/ NUMBER OF SETTLEMENT UNREALIZED
FUTURES CONTRACTS SHORT CONTRACTS VALUE APPRECIATION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Long-Term/
U.S. Treasury Bond 125 $14,738 $349
- -----------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
NOTICE TO SHAREHOLDERS ABOUT Y2K
As is well known by now, the approaching calendar change to 2000 has posed a
challenge to many computer systems worldwide. Computers that are not modified
could interpret "00" as 1900 rather than 2000 and produce errors in
date-dependent calculations, including bond interest payments, stock trade
settlements, retirement benefits, and other financial transactions.
OUR APPROACH
Vanguard has taken this challenge seriously. We have had a Year 2000 Project
under way since 1996 to fulfill our responsibility to safeguard our business
relationships and the security of our investors' accounts.
Our internal systems are Year 2000-compliant. They have been renovated
and thoroughly tested and are ready for the date change. As for the external
systems that connect with ours, we have been working for many months with
clients, business partners, and providers of products and services to assess
their compliance. We have analyzed the external services we require and have
developed contingency plans--including provision for alternative providers
where appropriate.
On New Year's Day, our telephone centers will be staffed and ready for
shareholder calls. However, we expect the volume of inquiries over the New
Year's weekend to be high, and we encourage shareholders to check their accounts
via our website or automated telephone systems, which offer much greater service
capacity and efficiency. This will also help our live representatives to provide
a higher level of service to those with specific transaction or other
service-related needs.
WHAT YOU CAN DO
We assure you we will protect our shareholders' records, so account records will
not be lost. Nevertheless, keeping copies of current records is always
advisable. You should keep at least your third-quarter statement and any
confirmations you receive from us between October 1, 1999, and year-end.
If you are a registered user of Access Vanguard(TM) (www.vanguard.com),
you can retrieve this information through the secure "Your Accounts" section and
print copies for your files. If you are not registered for Access Vanguard and
wish to have this flexibility, you should register as soon as possible so that
you can receive your password and become familiar with this service before the
New Year's weekend. Likewise, you may need personal identification numbers to
use our automated telephone services: Vanguard Tele-Account(R) for individual
investors (1-800-662-6273) and The VOICE(TM) Network for participants in
employer-sponsored retirement plans (1-800-523-1188).
Our Year 2000 Project's primary goal from the start has been to prepare
our systems for business as usual on behalf of our shareholders into 2000 and
beyond. We remain confident we will meet that goal, and we look forward to
serving you in the years to come.
28
<PAGE> 31
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
JoANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & JohnsonoMerck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co., The Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co.,
NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY Secretary; Managing Director and Secretary of The Vanguard
Group, Inc.; Secretary of each of the investment companies in The Vanguard
Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DiSTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MacKINNON
Managing Director, Fixed Income Group.
F. WILLIAM McNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
<PAGE> 32
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q772-07/23/1999
(C) 1999 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.
