[SHIP LOGO]
[MEMBERS OF THE VANGUARD GROUP(R) LOGO]
Vanguard(R) Pennsylvania Tax-Exempt Funds
Annual Report
November 30, 1999
- -----------------
Vanguard Pennsylvania
Tax-Exempt Money
Market Fund
Vanguard Pennsylvania
Insured Long-Term
Tax-Exempt Fund
<PAGE>
[PHOTO]
JOHN C. BOGLE
FELLOW SHAREHOLDERS:
Two roads diverged in a wood, and I--I took the one less traveled by, and
that has made all the difference.
I can think of no better words than those of Robert Frost to begin this special
letter to our shareholders, who have placed such extraordinary trust in me and
in Vanguard over the past quarter century. When the firm was founded 25 years
ago, we deliberately took a new road to managing a mutual fund enterprise.
Instead of having the funds controlled by an outside management company with its
own financial interests, the Vanguard funds--there were only 11 of them
then--would be controlled by their own shareholders and operate solely in their
financial interests. The outcome of our unprecedented decision was by no means
certain. We described it then as "The Vanguard Experiment."
Well, I guess it's fair to say it's an experiment no more. During the past 25
years, the assets we hold in stewardship for investors have grown from $1
billion to more than $500 billion, and I believe that our reputation for
integrity, fair-dealing, and sound investment principles is second to none in
this industry. Our staggering growth--which I never sought--has come in
important part as a result of the simple investment ideas and basic human values
that are the foundation of my personal philosophy. I have every confidence that
they will long endure at Vanguard, for they are the right ideas and right
values, unshakable and eternal.
While Emerson believed that "an institution is the lengthened shadow of one
man," Vanguard today is far greater than any individual. The Vanguard crew has
splendidly implemented and enthusiastically supported our founding ideas and
values, and deserves the credit for a vital role in forging our success over the
years. It is a dedicated crew of fine human beings, working together in an
organization that is well prepared to press on regardless long after I am gone.
Creating and leading this enterprise has been an exhilarating run. Through it
all, I've taken the kudos and the blows alike, enjoying every moment to the
fullest, and even getting a second chance at life with a heart transplant three
years ago. What more could a man ask?
While I shall no longer be serving on the Vanguard Board, I want to assure
you that I will remain vigorous and active in a newly created Vanguard unit,
researching the financial markets, writing, and speaking. I'll continue to focus
whatever intellectual power and ethical strength I possess on my mission to
assure that mutual fund investors everywhere receive a fair shake. In the spirit
of Robert Frost:
But I have promises to keep, and miles to go before I sleep, and miles to go
before I sleep.
You have given me your loyalty and friendship over these long years,
and I deeply appreciate your thousands of letters of support. For my part, I
will continue to keep an eagle eye on your interests, for you deserve no less.
May God bless you all, always.
/S/
JCB
- --------------------------------------------------------------------------------
CONTENTS
REPORT FROM THE CHAIRMAN ..........1 FUND PROFILES .........................12
THE MARKETS IN PERSPECTIVE ........6 FINANCIAL STATEMENTS ..................15
REPORT FROM THE ADVISER ...........8 REPORT OF INDEPENDENT ACCOUNTANTS .....30
PERFORMANCE SUMMARIES ............10
- --------------------------------------------------------------------------------
<PAGE>
[PHOTO]
JOHN J. BRENNAN
REPORT FROM THE CHAIRMAN
Concerns about higher inflation took hold of the bond market during the early
months of the Vanguard Pennsylvania Tax-Exempt Funds' 1999 fiscal year and never
loosened their grip. The resulting decline in prices made the 12 months ended
November 30 a difficult period for fixed-income investors. Our Insured Long-Term
Tax-Exempt Fund registered a total return of -1.7%, which was better than that
of its average peer, but behind that of its unmanaged benchmark index. Our
Tax-Exempt Money Market fund earned a total return of 3.1%, a bit ahead of the
2.7% return of the average Pennsylvania tax-exempt money market fund.
The table at right presents each fund's 12-month return along with those of
our average mutual fund competitors. The total return (capital change plus
reinvested dividends) of our 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
$10.65 per share on November 30, 1999, and is adjusted for dividends totaling
$0.578 per share paid from net investment income and a distribution of $0.092
per share paid from net realized capital gains. The Money Market Fund's net
asset value remained at $1 per share, as was expected but not guaranteed. At the
end of the fiscal year, the Insured Long-Term Fund's yield was 5.17%, up from
4.31% a year earlier; the Money Market Fund's yield was 3.57%, up from 3.04%.
- --------------------------------------------------------------------------------
TOTAL RETURNS
FISCAL YEAR ENDED
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
VANGUARD PENNSYLVANIA TAX-EXEMPT
MONEY MARKET FUND 3.1%
(SEC 7-Day Annualized Yield: 3.57%)
Average Pennsylvania Tax-Exempt
Money Market Fund* 2.7
- --------------------------------------------------------------------------------
VANGUARD PENNSYLVANIA INSURED
LONG-TERM TAX-EXEMPT FUND -1.7%
Average Pennsylvania Municipal
Debt Fund* -3.5
- --------------------------------------------------------------------------------
*Derived from data provided by Lipper Inc.
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 to the alternative minimum tax.
FINANCIAL MARKETS IN REVIEW
The 12 months ended November 30 featured plenty of positive economic news, as
well as a good deal of apprehension over how long the good times can last
without touching off higher inflation. The U.S. economy expanded at an
inflation-adjusted rate of 4.3% from the third quarter of 1998 to the third
quarter of 1999, the nation's unemployment rate hovered near record-low levels,
and inflation barely stirred.
However, the nagging concern that inflation would soon accelerate resulted
in a steady rise in interest rates during the fiscal year. The rate increase
merely restrained the stock market, which managed an impressive advance, but
dealt a heavy blow to bond prices, which suffered their worst year since 1994.
The Federal Reserve Board went along with the uptrend in interest rates, hiking
its target for short-term interest rates by 25 basis points on three separate
occasions in an attempt to head off inflation it believes could result from
strong growth and tight labor markets.
1
<PAGE>
Technology companies propelled the U.S. stock market higher, and the
Standard & Poor's 500 Index, which is dominated by large-capitalization stocks,
returned 20.9%--the index's fifth straight year of returns higher than 20%. The
broad market, as represented by the Wilshire 5000 Total Market Index, advanced
an even higher 22.4%, but a large portion of the gain was concentrated in a
relatively small number of stocks. Many value-oriented stocks were left far
behind.
The yield of the 30-year U.S. Treasury bond ended the fiscal year at 6.29%,
up 123 basis points (1.23 percentage points) from its starting point of 5.06% on
November 30, 1998. The yield of 3-month U.S. Treasury bills climbed to 5.30% on
balance, from 4.48%. Yields of high-quality, long-term municipal bonds climbed
nearly a full percentage point, from 4.89% when the period began to 5.87% on
November 30, 1999. Yields of top-grade (MIG-1) 3-month notes, which react more
quickly to changes in short-term interest rates, rose from 2.95% to 3.80%.
The Lehman Brothers 10 Year Municipal Bond Index, a good measure of the
long-term municipal market, recorded a return of -0.4% during our fiscal year.
Long-term bonds suffer more when interest rates are rising, just as they benefit
more from a decline in interest rates.
Municipal bonds performed well early in the 1999 fiscal year as new
issuance dropped off from 1998's near-record levels and yields remained high
relative to Treasuries. But their relative performance faltered later in the
period because many investors were attracted to corporate bonds.
At the end of the fiscal year, the spread between yields of long-term
Treasuries and long-term munis stood at just 42 basis points (0.42 percentage
point). This is an extremely narrow gap, given that the income from Treasuries
is subject to federal income taxes (but not state taxes), while income from a
state-specific municipal bond fund is fully exempt from federal and state taxes.
On November 30, the yield of a top-quality, long-term municipal bond was equal
to about 93% of the yield of the 30-year U.S. Treasury bond. Historically, the
ratio has been about 84%.
FISCAL 1999 PERFORMANCE OVERVIEW
The -1.7% return of Vanguard Pennsylvania Insured Long-Term Tax-Exempt Fund was
ahead of the -3.5% return of the average Pennsylvania municipal bond fund, which
has lower average credit quality than our fund but a similar average maturity.
Our return, however, was just behind the -1.1% return of the unmanaged Lehman
Municipal Bond Index. Though our fund earned an income return of 5.0%, a price
decline of -6.7% engendered by the rise in interest rates pulled our total
return into negative territory for the year. (The Performance Summary on page 11
presents a breakdown of the fund's returns into their income and capital
components dating to the fund's inception.) Our performance advantage over our
average peer was primarily the result of our lower costs. The Lehman Index,
which includes municipal bonds from across the country, is a notoriously tough
competitor because it does not incur the "real world" operating expenses and
transaction costs that all mutual funds must bear.
The Tax-Exempt Money Market Fund's total return of 3.1% outpaced the 2.7%
return of its average peer.
2
<PAGE>
Though the rise in interest rates during the past 12 months was to blame
for the poor bond returns, a slide in rates just one year ago provided a boost
to bond prices and returns. The simple lesson is that interest rates rise and
fall, sometimes gradually and sometimes sharply. All bond investors should know
that over long periods, the ups and downs in interest rates tend to offset each
other, leaving a bond fund's interest income as the chief source of return. And
considering that interest paid on munis today is considerably higher than a year
ago, it would seem that tax-exempt securities have become more attractive. At a
yield of about 5.2% compounded annually, money doubles in about 14 years, or
more than two years sooner than at 4.3%.
THE MUNICIPAL BOND TAX ADVANTAGE
For Pennsylvania residents, the income earned by our funds is exempt from
federal, state, and, in most cases, local taxes. At current yields, investors in
long-term municipal bonds who are taxed at the highest marginal tax rate (39.6%)
can earn an astounding 55% more after-tax income than they could in comparable
long-term U.S. Treasury bonds. Short-term municipal securities also offer an
advantage over taxable investments with similar maturities. On November 30, the
yield of MIG-1 notes was about 20% higher than the after-tax yield of 90-day
U.S. Treasury bills. For Pennsylvania taxpayers subject to the highest tax
rates, a yield of 5.9% on a tax-exempt long-term bond is the equivalent of a
9.8% taxable yield. For a tax-exempt short-term yield of 3.8%, the taxable
equivalent is 6.3%.
These remarkable advantages are illustrated in the table below, which
compares the annual net income earned on U.S. Treasury and tax-exempt securities
as of November 30, 1999, assuming a $100,000 investment.
- --------------------------------------------------------------------------------
ILLUSTRATION OF INCOME FROM
A HYPOTHETICAL $100,000 INVESTMENT
------------------------------------
SHORT-TERM LONG-TERM
- --------------------------------------------------------------------------------
Taxable gross income $5,300 $6,300
Less taxes (39.6%) (2,100) (2,500)
Net after-tax income 3,200 3,800
- --------------------------------------------------------------------------------
Tax-exempt income $3,800 $5,900
- --------------------------------------------------------------------------------
Tax-exempt income advantage $ 600 $2,100
- --------------------------------------------------------------------------------
Percentage advantage 19% 55%
- --------------------------------------------------------------------------------
This illustration assumes current yields (as of November 30, 1999) of 6.3% for
long-term U.S. Treasury bonds, 5.3% for U.S. Treasury bills, 5.9% for long-term
municipals, and 3.8% for short-term municipals. The tax adjustment assumes a
typical itemized tax return based on a federal tax rate of 39.6%. Income from
U.S. Treasuries is not subject to state taxes; local taxes are not considered.
The illustration is not intended to represent future results.
There is an important distinction between state-specific municipal bond
funds and U.S. Treasury bonds. Treasury securities are backed by the full faith
and credit of the U.S. government and therefore have unmatched credit quality.
Also, municipal bond funds that confine their investments to a single state lack
the diversification that comes from spreading investments among various states,
which may be subject to different economic conditions and different risks.
Private insurance on the bonds in our Long-Term Tax-Exempt Fund, however, helps
to reduce these additional credit risks. Though the insurance does not provide
protection against fluctuations in the fund's value, it guarantees full payment
of interest and principal for our bond holdings.
3
<PAGE>
This insurance, however, is not generally available for short-term
securities. As a result, our investment adviser, Vanguard's Fixed Income Group,
is responsible for preserving the principal value of the Tax-Exempt Money Market
Fund. Money market mutual funds are not guaranteed by the Federal Deposit
Insurance Corporation, which insures bank accounts and certificates of deposit.
LONG-TERM PERFORMANCE OVERVIEW
An annual review of any mutual fund should be accompanied by an examination of
the fund's longer-term record. The table below compares the performance of our
funds with those of their average peer mutual funds over the past ten years. It
also presents the current value of hypothetical $10,000 investments made a
decade ago. As you can see, the Vanguard Pennsylvania Tax-Exempt Funds have
established fine records versus their competitors during the past ten years. Our
advantage over this period has amounted, in the case of the Insured Long-Term
Fund, to $1,213, or about 12% of the original investment.
- --------------------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED NOVEMBER 30, 1999
--------------------------------------------------------
FINAL VALUE OF
AVERAGE A $10,000
ANNUAL RETURN INITIAL INVESTMENT*
------------------- -----------------------------------
AVERAGE AVERAGE
PENNSYLVANIA VANGUARD COMPETING VANGUARD COMPETING VANGUARD
TAX-EXEMPT FUND FUND FUND FUND FUND ADVANTAGE
- --------------------------------------------------------------------------------
Money Market 3.5% 3.3% $14,142 $13,893 $ 249
Insured Long-Term 6.9 6.3 19,558 18,345 1,213
- --------------------------------------------------------------------------------
*Assuming reinvestment of all income dividends and capital gains distributions.
A large part of our performance edge versus competitors over nearly a
decade can be explained by the same factor that explained our outperformance
during the 1999 fiscal year: cost. Our funds have expense ratios (annual
expenses as a percentage of average net assets) of 0.19%, a fraction of the
1.11% charged by the average Pennsylvania municipal fund and the 0.59% charged
by the average Pennsylvania tax-exempt money market fund. Because fund operating
costs are deducted directly from the income earned by a bond fund, our funds
have a significant edge in their quest to provide returns that are superior to
those of similar funds. The combination of our cost advantage and skillful
management by Vanguard's Fixed Income Group has benefited our shareholders over
the past decade, and we expect it to continue to do so in the future.
IN SUMMARY
During a period when the stock market seems invulnerable, it's easy to overlook
the merits of bonds. However, bond funds must not be judged by how well their
returns stack up against those of stock funds in a particular period, but by
what they can add to a balanced investment program, namely, current income and
relative stability. The Vanguard Pennsylvania Tax-Exempt Funds can provide a
high level of after-tax income, particularly for those in high income tax
brackets, and especially compared to the income available from the stock market,
whose average dividend yield is less than 1.5%. And because the performance of
bonds often differs from that of equities, a commitment to bonds is a useful
diversifier that can help smooth the sometimes-volatile returns of stocks.
4
<PAGE>
We advise investors to hold balanced portfolios of stock funds, bond funds,
and short-term reserves in proportions suitable to their own investment goals,
time horizon, and tolerance for risk. Once you have such a plan in place, we
advise you to stick with it through good times and bad.
/S/
John J. Brennan
Chairman and Chief Executive Officer
December 21, 1999
- --------------------------------------------------------------------------------
A NOTE OF THANKS TO OUR FOUNDER
- --------------------------------------------------------------------------------
As you may have read on the inside cover of our report, our founder, John C.
Bogle, is retiring December 31, 1999, as Senior Chairman of our Board after
nearly 25 years of devoted service to Vanguard and our shareholders. Vanguard
investors have Jack to thank for creating a truly mutual mutual fund company
that operates solely in the interest of its fund shareholders. And mutual fund
investors everywhere have benefited from his energetic efforts to improve this
industry. Finally, on a personal note, I am forever grateful to Jack for giving
me the opportunity to join this great company in 1982.
5
<PAGE>
THE MARKETS IN PERSPECTIVE
YEAR ENDED NOVEMBER 30, 1999
Strong economic expansion sent global stock markets charging higher but dealt a
blow to bond prices during the fiscal year ended November 30, 1999. The
powerhouse U.S. economy led the global growth parade, joined by Asian, European,
and Latin American economies that had slumped or stagnated in 1998.
Interest rates rose sharply as investors and monetary policymakers grew
increasingly worried that such strong economic growth would cause inflation to
surge. Although the rise in rates caused bond prices to fall, it only tempered
the stock market's advance.
U.S. STOCK MARKETS
Against the backdrop of a booming economy, U.S. companies reported solid
increases in earnings during the fiscal year. The nation's economic output
increased at an inflation-adjusted rate of 4.3%--a very rapid pace for such a
large, mature economy. Consumer spending, which accounts for roughly two-thirds
of economic activity, powered the expansion. Americans spent freely, encouraged
by rising wealth from a long bull market, a hot job market, and climbing
incomes.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
PERIODS ENDED NOVEMBER 30, 1999
----------------------------------
1 YEAR 3 YEARS 5 YEARS
- --------------------------------------------------------------------------------
STOCKS
S&P 500 Index 20.9% 24.3% 27.5%
Russell 2000 Index 15.7 10.1 14.8
Wilshire 5000 Index 22.4 22.6 25.6
MSCI EAFE Index 21.4 12.3 11.4
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 0.0% 5.6% 8.0%
Lehman 10 Year Municipal Bond Index -0.4 4.8 7.6
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.7 5.0 5.2
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 2.6% 2.0% 2.4%
- --------------------------------------------------------------------------------
The stock market, as measured by the Wilshire 5000 Index, gained 22.4%
overall. For a change, mid-capitalization and small-cap stocks outpaced their
large-cap brethren. The large-cap S&P 500 Index, which accounts for more than
75% of the U.S. stock market's total value, gained 20.9% during the year; the
rest of the market (as measured by the Wilshire 4500 Index) gained 29.0%.
Increasingly optimistic expectations for future corporate earnings more
than offset the negative effects of rising interest rates during fiscal 1999.
Higher rates often hurt stock prices because many investors use current rates to
discount the value of a stock's projected earnings and dividends. The higher the
interest rate, the more future earnings are discounted, and the less investors
will pay for the stock now.
Because of a remarkable surge in prices for technology stocks, growth
stocks again outperformed value stocks during the past year. Within the S&P 500
Index, growth stocks--characterized by high prices in relation to earnings, book
value, and dividends--recorded a 28.5% return, 16 percentage points above the
12.5% return for value stocks. The disparity was even greater in the small-cap
segment of the market; growth stocks within the small-cap Russell 2000 Index
gained 32.7%, while value stocks posted a -1.4% return.
Technology stocks within the S&P 500 Index gained 66%. QUALCOMM posted an
eye-popping 1,200% return, and a number of computer-related stocks doubled or
tripled
6
<PAGE>
in price, including Sun Microsystems (+257%), Apple Computer (+206%), Oracle
(+197%), Gateway (+172%), Texas Instruments (+152%), and Cisco Systems (+136%).
Big gains for wireless telecommunications and cable-TV stocks powered the
utilities category to an overall gain of nearly 28%. The producer-durables
group, which includes some technology-related manufacturers as well as aircraft
and equipment makers, gained 27%. Oil exploration and service firms in the
"other energy" category posted a 26% return, assisted by a jump in prices for
oil and natural gas.
The year's worst-performing sector was consumer staples (down nearly -12%).
This group suffered as severe price competition and a stronger dollar in Europe
crimped profits for many food and beverage makers, and the specter of litigation
costs caused tobacco stocks to slump. The auto & transportation group declined
- -2% overall, with airline stocks hurt by rising prices for jet fuel.
U.S. BOND MARKETS
Stock investors may cheer a fast-growing economy, but rapid growth tends to
worry bond investors. Early in the fiscal year, inflation seemed
dormant--plunging oil prices had taken commodity price indexes to the lowest
point in a quarter-century. But as the world economy began hitting on all
cylinders, the bond market feared that a minuscule U.S. unemployment rate,
rising commodity prices, and capacity constraints would cause inflation to
accelerate. Although oil prices were up nearly 150% during the fiscal year, the
overall price level, as measured by the Consumer Price Index, increased by a
moderate 2.6%.
The Federal Reserve Board, anticipating price pressures, abandoned its bias
toward easier monetary policy, and by mid-year was boosting interest rates to
try to throttle back the economic engines. The bond market was ahead of the
Fed--interest rates began rising sharply in February. By fiscal year-end, the
yield of 30-year U.S. Treasury bonds had risen 1.23 percentage points (123 basis
points) to 6.29%. The 10-year Treasury note's yield rose 148 basis points, from
4.71% to 6.19%. The rise in short-term rates was more restrained; 3-month
Treasury bill yields were up 82 basis points to 5.30% at fiscal year-end.
Bond prices fall when interest rates rise, and long-term bond prices are
most sensitive to changing rates. Long-term Treasury bond prices fell by more
than -13%, resulting in total returns of -8%. The Lehman Aggregate Bond Index, a
measure of the overall taxable bond market, which has an intermediate-term
structure on average, broke even on the year, as interest income of 6.2% was
offset by price declines. The damage to municipal bond prices was not as severe
as for Treasuries, and the intermediate-term Lehman 7 Year Municipal Bond Index
recorded a price decline of -3.7% and a total return of 0.5%.
INTERNATIONAL STOCK MARKETS
International markets had a strong year, with European stocks gaining 21.9% in
local-currency terms and Pacific-region stocks advancing 30.2%. However,
currency effects significantly altered the returns to U.S.-based investors. The
U.S. dollar rose in value against most European currencies but fell sharply
against the Japanese yen. As a result, returns from Europe plunged to 9.8% in
dollar terms while returns from the Pacific soared to 51.0%.
Overall, U.S. investors earned 21.4% in the major developed international
markets, as measured by the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index. The bull markets in most nations stemmed
from renewed optimism that economic growth would continue to accelerate. Japan
and the rest of Asia, which were hit hardest by currency and economic crises in
1997 and 1998, saw the biggest stock gains.
Emerging markets, as measured by the Select Emerging Markets Free Index,
gained 37.1% in U.S.-dollar terms, as investors regained an appetite for the
considerable risks of smaller markets.
7
<PAGE>
REPORT FROM THE ADVISER
Interest rates rose during the 12 months ended November 30, 1999, the fiscal
year for the Vanguard Pennsylvania Tax-Exempt Funds. The rise was principally
due to investors' fears about the impact of the strong economy and the low
unemployment rate on inflation. In the past, these factors have caused inflation
to increase, and many investors expect that history will repeat itself at some
point. So far, employment costs and consumer price indexes have not risen
substantially, but each number is being closely watched for any upsurge. A
desire to head off inflation and concerns about the booming stock market led the
Federal Reserve Board to increase interest rates three times during the fiscal
year, raising the federal funds rate by a total of 0.75 percentage point.
As you might expect, yields of insured long-term municipal bonds rose along
with yields on U.S. Treasury bonds during fiscal 1999. During the first half of
the year, long-term insured municipals performed better than Treasury
securities; municipal yields increased by less than half as much as those for
long-term Treasuries. But the relative performance flip-flopped during the
second half, when yields on long-term municipals increased almost 11/2 times as
much as those on long Treasuries. Over the full fiscal year, the yield on the
benchmark 30-year U.S. Treasury bond rose by 1.23 percentage points (from 5.06%
to 6.29%), while the yield of a similar AAA-rated municipal bond rose by almost
1 percentage point (from 4.89% to 5.87%).
Two factors account for the first-half outperformance of insured municipal
bonds and for their later underperformance. First, as the fiscal year began in
December 1998, insured municipal bonds were especially attractive to investors,
because the AAA-rated insured municipal's tax-exempt yield of almost 4.9% was
equal to 97% of the yield of a 30-year Treasury. For an investor in the top
marginal tax bracket of 39.6%, that 4.9% yield was equivalent to an 8.1% yield
on a taxable bond. By May 31, the middle of our fiscal year, the long-term
insured municipal's yield was about 89% as high as the 30-year Treasury's yield,
making insured municipal bonds somewhat less alluring. The second factor was
that in the second half of the fiscal year, corporate bond yields had become
quite attractive, providing stiff competition for the bond investor's dollar.
During this period the corporate bond market encountered the same type of supply
imbalance that the municipal market had seen in fiscal 1998, as corporations
rushed bond issues to market to complete their financing before the end of the
century. The result was attractively high yields on corporate debt, which
enticed some large institutional buyers away from the municipal market. At
year-end, yields on long-term insured municipal bonds had risen in relation to
those on Treasuries, and 30-year munis offered yields equal to 94% of yields on
30-year Treasuries.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
The municipal market was aided by the fact that the supply of new issues
was lower during 1999 than in 1998. Through November, issuance of municipal
securities in 1999 amounted to $207 billion, down more than 20% from the same
period in 1998. The main reason for the decline was a 53% decrease in the
issuance of refunding bonds, whose proceeds are used
8
<PAGE>
to pay off older, higher-coupon bonds. Because of the rise in interest rates,
refunding issues generally did not make fiscal sense during 1999. As the economy
continued to expand, the supply of bonds issued for new projects was unchanged
from 1998.
THE INSURED LONG-TERM TAX-EXEMPT FUND
Long-term bonds typically are hurt most by rising interest rates. As a result,
the Pennsylvania Insured Long-Term Tax-Exempt Fund suffered a price decline of
- -6.7% and posted a total return of -1.7%. Although negative returns are never
good news, this result was considerably better than the -3.5% total return for
the average Pennsylvania municipal bond fund.
Across all bond maturities, we seek to find the best values for each level
of interest rate risk. This strategy helped in a year of rising interest rates.
Our focus on keeping expenses low is helpful at all times and is critical in
delivering above-average tax-exempt income, since expenses are deducted directly
from a bond fund's interest income. Our emphasis on keeping the funds invested
in high-quality securities benefits our shareholders by reducing credit risk.
The overall effect of combining low costs and high quality is to provide both
superior yields and low credit risk.
THE TAX-EXEMPT MONEY MARKET FUND
The Tax-Exempt Money Market Fund logged a 3.1% return during fiscal 1999, ahead
of the 2.7% return for the average Pennsylvania tax-exempt money fund. The rise
in interest rates during the period was slightly less pronounced for tax-exempt
money market instruments than for long-term bonds. After rising 19 basis points
during the first half of the fiscal year, yields on 1-year municipals rose 69
basis points during the second half, which is traditionally a time of heavy
borrowing by municipalities. The benchmark 1-year MIG-1 note closed the fiscal
year with a yield of 3.87%, up 88 basis points from the 2.99% yield a year
earlier. Yields on the 1-year U.S. Treasury bill, meanwhile, rose by 118 basis
points for the year to 5.68%, after a second-half jump of 71 basis points. On
balance, short-term tax-exempt securities became slightly more attractive
relative to Treasury securities: The ratio of the yield on 1-year MIG-1 notes to
that on 1-year Treasury bills rose from 66.4% to 68.1% during the year.
As we begin fiscal year 2000, the Tax-Exempt Money Market Fund is
positioned to take advantage of its dual strengths of conservative,
quality-oriented management and low operating expenses. We believe these
strengths will continue to generate superior risk-adjusted returns for our
shareholders.
Ian A. MacKinnon, Managing Director
Christopher M. Ryon, Principal
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Vanguard Fixed Income Group
December 13, 1999
9
<PAGE>
PERFORMANCE SUMMARY
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note that returns can
fluctuate widely. 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.
TOTAL INVESTMENT RETURNS: JUNE 13, 1988-NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
PENNSYLVANIA TAX-EXEMPT AVERAGE
MONEY MARKET FUND FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1988 0.0% 2.5% 2.5% 2.5%
1989 0.0 6.4 6.4 6.4
1990 0.0 5.9 5.9 5.9
1991 0.0 4.6 4.6 4.6
1992 0.0 3.0 3.0 2.9
1993 0.0 2.4 2.4 2.2
- --------------------------------------------------------------------------------
PENNSYLVANIA TAX-EXEMPT AVERAGE
MONEY MARKET FUND FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
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 3.1 3.1 2.7
- --------------------------------------------------------------------------------
SEC 7-Day Annualized Yield (11/30/1999): 3.57%
- --------------------------------------------------------------------------------
*Average Pennsylvania Tax-Exempt Money Market Fund.
See Financial Highlights table on page 26 for
dividend information for the past five years.
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1989-NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
[CHART]
PA Tax-Exempt Avg. PA Tax-Exempt
Money Market Fund Money Market Fund
198911 10000 10000
199002 10144 10144
199005 10293 10291
199008 10437 10436
199011 10586 10588
199102 10723 10726
199105 10846 10848
199108 10959 10956
199111 11073 11074
199202 11167 11163
199205 11255 11253
199208 11326 11318
199211 11401 11394
199302 11471 11455
199305 11539 11517
199308 11605 11573
199311 11673 11641
199402 11736 11698
199405 11806 11762
199408 11881 11831
199411 11974 11921
199502 12079 12017
199505 12196 12127
199508 12304 12229
199511 12415 12334
199602 12521 12430
199605 12626 12525
199608 12727 12619
199611 12832 12718
199702 12937 12811
199705 13049 12911
199708 13163 13016
199711 13280 13125
199802 13389 13222
199805 13506 13322
199808 13615 13425
199811 13722 13524
199902 13818 13607
199905 13922 13694
199908 14027 13789
199911 14142 13893
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1999
------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- --------------------------------------------------------------------------------
==Pennsylvania Tax-Exempt
Money Market Fund 3.06% 3.38% 3.53% $14,142
- --Average Pennsylvania Tax-Exempt
Money Market Fund* 2.73 3.11 3.34 13,893
- --------------------------------------------------------------------------------
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999*
- --------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Pennsylvania Tax-Exempt
Money Market Fund 6/13/1988 3.02% 3.38% 0.00% 3.57% 3.57%
- --------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
10
<PAGE>
PERFORMANCE SUMMARY
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: APRIL 7, 1986-NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
PENNSYLVANIA INSURED LONG-TERM
TAX-EXEMPT FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1986 3.0% 4.7% 7.7% 8.1%
1987 -9.9 6.6 -3.3 -0.2
1988 4.5 7.5 12.0 10.6
1989 4.7 7.5 12.2 11.0
1990 0.3 7.0 7.3 7.7
1991 2.8 6.9 9.7 10.3
1992 5.0 6.7 11.7 10.0
1993 5.8% 6.1% 11.9% 11.1%
1994 -10.7 5.3 -5.4 -5.2
1995 12.0 6.5 18.5 18.9
1996 0.2 5.6 5.8 5.9
1997 0.7 5.5 6.2 7.2
1998 2.1 5.5 7.6 7.8
1999 -6.7 5.0 -1.7 -1.1
- --------------------------------------------------------------------------------
*Lehman Municipal Bond Index.
See Financial Highlights table on page 27 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1989-NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
[CHART] Average Lehaman
PA Ins LT PA Municipal Municipal
Tax-Exempt Fund Fund Bond Index
198911 10000 10000 10000
199002 10070 10085 10124
199005 10252 10222 10273
199008 10187 10242 10363
199011 10727 10639 10770
199102 10952 10873 11057
199105 11248 11162 11308
199108 11511 11427 11585
199111 11763 11699 11875
199202 12086 12008 12161
199205 12369 12270 12418
199208 12910 12752 12878
199211 13133 12900 13065
199302 13962 13709 13835
199305 14071 13777 13904
199308 14613 14351 14449
199311 14697 14416 14513
199402 14762 14491 14600
199405 14533 14036 14248
199408 14732 14209 14475
199411 13898 13381 13755
199502 15209 14586 14881
199505 15736 15204 15551
199508 15840 15265 15759
199511 16465 15922 16356
199602 16655 16059 16525
199605 16406 15792 16261
199608 16726 16028 16585
199611 17415 16726 17317
199702 17515 16811 17435
199705 17662 16981 17608
199708 18110 17409 18119
199711 18497 17852 18559
199802 18988 18295 19029
199805 19210 18494 19259
199808 19634 18769 19687
199811 19902 19012 19999
199902 20105 19141 20199
199905 20028 19091 20159
199908 19605 18508 19785
199911 19558 18345 19785
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1999
------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- --------------------------------------------------------------------------------
==Pennsylvania Insured Long-Term
Tax-ExemptFund -1.74% 7.07% 6.94% $19,558
- --Average Pennsylvania Municipal
Fund* -3.51 6.51 6.26 18,345
__Lehman Municipal Bond Index -1.07 7.54 7.06 19,785
- --------------------------------------------------------------------------------
*Derived from data provided by Lipper Inc.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999*
- --------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Pennsylvania Insured Long-Term
Tax-Exempt Fund 4/7/1986 -1.64% 6.21% 1.25% 6.03% 7.28%
- --------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE>
FUND PROFILE
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1999. Key elements of this Profile are defined on page 13.
FINANCIAL ATTRIBUTES
- ----------------------------------
Yield 3.6%
Average Maturity 44 days
Average Quality MIG-1
Expense Ratio 0.19%
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- -----------------------------------
MIG-1/SP-1+ 59.8%
A-1/P-1 34.6
AAA/AA 3.7
A 1.9
- -----------------------------------
Total 100.0%
12
<PAGE>
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
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days (7 days for money market funds) and is annualized, or projected
forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
13
<PAGE>
FUND PROFILE
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 13.
FINANCIAL ATTRIBUTES
- --------------------------------------------
PENNSYLVANIA INSURED LEHMAN
LONG-TERM INDEX*
- --------------------------------------------
Number of Issues 256 52,144
Yield 5.2% --
Yield to Maturity 5.3% --
Average Coupon 5.5% 5.5%
Average Maturity 11.9 years 13.0 years
Average Quality AAA AA+
Average Duration 7.6 years 7.5 years
Expense Ratio 0.19% --
Cash Reserves 1.8% --
*Lehman Municipal Bond Index.
INVESTMENT FOCUS
- --------------------------------------------
[GRID]
AVERAGE MATURITY LONG
CREDIT QUALITY HIGH
VOLATILITY MEASURES
- --------------------------------------------
PENNSYLVANIA INSURED LEHMAN
LONG-TERM INDEX*
- --------------------------------------------
R-Squared 0.98 1.00
Beta 1.01 1.00
*Lehman Municipal Bond Index.
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- --------------------------------------------
AAA 99.1%
AA 0.9
A 0.0
BBB 0.0
BB 0.0
B 0.0
- --------------------------------------------
Total 100.0%
DISTRIBUTION BY MATURITY
(% OF PORTFOLIO)
- --------------------------------------------
Under 1 Year 7.7%
1-5 Years 23.2
5-10 Years 10.6
10-20 Years 41.6
20-30 Years 16.7
Over 30 Years 0.2
- --------------------------------------------
Total 100.0%
14
<PAGE>
FINANCIAL STATEMENTS
NOVEMBER 30, 1999
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>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.9%)
- ------------------------------------------------------------------------------------------------------------------------------------
Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.75% 12/2/1999 LOC 30,230 30,230
Allegheny County PA Higher Educ. Building Auth. VRDO
(Carnegie Mellon Univ.) 3.70% 12/2/1999 44,700 44,700
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Children's Hosp.-Pittsburgh) 4.00% 12/2/1999 (1) 28,800 28,800
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Presbyterian Univ. Health System) 4.00% 12/2/1999 (1) 51,325 51,325
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Presbyterian Univ. Health System) 4.00% 12/2/1999 LOC 9,080 9,080
Allegheny County PA Hosp. Dev. Auth. Rev. VRDO
(Saint Francis Health System) 3.85% 12/2/1999 LOC 41,000 41,000
Allegheny County PA IDA PCR PUT (Duquesne Light Co.) 3.90% 1/12/2000 (2) 37,925 37,925
Beaver County PA IDA PCR (Duquesne Light Co.) 3.90% 1/12/2000 (2) 12,000 12,000
Beaver County PA IDA PCR CP (Duquesne Light Co.) 3.90% 1/26/2000 (2) 24,000 24,000
Beaver County PA IDA PCR PUT (Duquesne Light Co.) 3.95% 1/12/2000 (2) 12,500 12,500
Beaver County PA IDA PCR PUT (Ohio Edison Co.) 3.10% 4/1/2000 LOC 22,000 22,000
Berks County PA IDA VRDO (Lutheran Health Care) 3.90% 12/8/1999 (2) 21,245 21,245
Bucks County PA TRAN 2.90% 12/15/1999 6,250 6,250
Chester County PA IDA VRDO (Archdiocese of Philadelphia) 3.70% 12/2/1999 LOC 24,400 24,400
Cumberland County PA Muni. Auth. College Rev. PUT
(Dickinson College) 3.80% 11/1/2000 LOC 19,880 19,880
Dallastown Area School Dist. York County PA GO VRDO 3.95% 12/2/1999 (3) 20,450 20,450
Dauphin County PA General Auth. Hosp. Rev. VRDO
(Reading Hosp. & Medical Center) 3.90% 12/8/1999 13,865 13,865
Delaware County PA IDA Airport Fac. Rev. VRDO
(United Parcel Service) 3.60% 12/2/1999 53,200 53,200
Delaware County PA IDA PCR CP (PECO) 3.70% 12/8/1999 (3) 21,400 21,400
Delaware County PA IDA PCR CP (PECO) 3.70% 3/10/2000 (3) 9,500 9,500
Delaware County PA IDA PCR CP (PECO) 3.70% 3/14/2000 (3) 18,300 18,300
Delaware County PA IDA PCR CP (PECO) 3.70% 4/12/2000 (3) 6,000 6,000
Delaware County PA IDA PCR CP (PECO) 3.75% 12/9/1999 (3) 10,600 10,600
Delaware County PA IDA PCR CP (PECO) 3.75% 4/12/2000 (3) 10,000 10,000
15
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware County PA IDA PCR VRDO (BP Exploration & Oil) 3.80% 12/2/1999 8,700 8,700
Delaware County PA IDA Refunding Resource Recovery Fac. VRDO
(General Electric Capital Corp.) 3.75% 12/8/1999 35,800 35,800
Delaware County PA IDA Solid Waste Rev. VRDO (Scott Paper Co.) 3.90% 12/8/1999 76,305 76,305
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Avon Grove School Dist.) 3.90% 12/8/1999 LOC 19,800 19,800
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Big Spring School Dist.) 3.95% 12/8/1999 LOC 15,000 15,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Council Rock School Dist.) 3.95% 12/8/1999 LOC 10,000 10,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Kennett Consolidated School Dist.) 3.90% 12/8/1999 LOC 20,000 20,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Methacton School Dist.) 3.95% 12/8/1999 LOC 13,000 13,000
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Nazareth School Dist.) 3.95% 12/8/1999 LOC 8,700 8,700
Emmaus PA General Auth. Local Govt. Rev. VRDO
(Upper Dublin School Dist.) 3.95% 12/8/1999 LOC 9,300 9,300
Emmaus PA General Auth. Local Govt. Rev. VRDO
(West Chester Area School Dist.) 3.95% 12/8/1999 LOC 10,000 10,000
Geisinger Health System Auth. of Pennsylvania VRDO
(Penn State Geisinger Health System) 3.80% 12/2/1999 40,075 40,075
Lehigh County PA Health Network VRDO
(Lehigh Valley Health System) 3.65% 12/2/1999 (1) 3,000 3,000
Lehigh County PA IDA PCR TOB VRDO (Pennsylvania Power & Light) 3.98% 12/2/1999 (1) + 6,350 6,350
Mercerburg Borough PA Auth. VRDO (Mercerburg College) 3.95% 12/8/1999 LOC 7,500 7,500
Montgomery County PA GO 6.10% 10/15/2000 (Prere.) 3,000 3,057
Montgomery County PA IDA PCR CP (PECO) 3.40% 12/15/1999 LOC 11,640 11,640
Montgomery County PA IDA PCR CP (PECO) 3.45% 12/10/1999 LOC 12,200 12,200
Montgomery County PA IDA PCR CP (PECO) 3.75% 3/10/2000 LOC 4,800 4,800
Montgomery County PA VRDO 3.90% 12/8/1999 400 400
Northeastern Pennsylvania Hosp. Auth. Rev.
(Hosp. Central Services Capital Asset Financing Program) 3.70% 4/11/2000 (1) 14,120 14,120
Northeastern Pennsylvania Hosp. & Educ. Auth. VRDO
(Wyoming Valley Health Care Obligated Group) 3.90% 12/8/1999 (2) 49,200 49,200
Pennsylvania CP 3.65% 12/7/1999 18,300 18,300
Pennsylvania CP 3.80% 1/27/2000 10,100 10,100
Pennsylvania GO 4.00% 12/1/1999 13,500 13,500
Pennsylvania GO 4.50% 10/1/2000 19,850 19,982
Pennsylvania GO 4.625% 5/1/2000 7,975 8,023
Pennsylvania GO 4.625% 5/1/2000 (1) 1,250 1,258
Pennsylvania GO 5.25% 5/15/2000 (3) 7,000 7,065
Pennsylvania GO 5.40% 7/1/2000 2,000 2,025
Pennsylvania Higher Educ. Assistance Agency Student Loan Rev. 4.625% 12/1/2000 LOC 5,000 5,035
Pennsylvania Higher Educ. Assistance Agency
Student Loan Rev. VRDO 3.85% 12/8/1999 (2) 17,800 17,800
Pennsylvania Higher Educ. Assistance Agency
Student Loan Rev. VRDO 3.95% 12/8/1999 LOC 134,400 134,400
Pennsylvania Higher Educ. Assistance Agency
Student Loan Rev. VRDO 4.00% 12/8/1999 LOC 20,000 20,000
Pennsylvania Higher Educ. Fac. Auth. Rev. 4.50% 11/1/2000 LOC 20,700 20,831
Pennsylvania Higher Educ. Fac. Auth. Rev. 5.00% 6/15/2000 (4) 1,290 1,299
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.) 3.80% 11/1/2000 LOC 17,800 17,800
Pennsylvania Higher Educ. Fac. Auth. Rev. VRDO
(Carnegie Mellon Univ.) 3.70% 12/2/1999 74,400 74,400
Pennsylvania Higher Educ. Fac. Auth. Rev. VRDO (Temple Univ.) 3.70% 12/2/1999 LOC 36,800 36,800
Pennsylvania Higher Educ. Fac. Auth. Rev. VRDO
(Univ. of Pennsylvania) 3.85% 12/8/1999 12,480 12,480
Pennsylvania IDA 6.70% 1/1/2000 (ETM) 7,420 7,442
Pennsylvania Intergovernmental Cooperation Auth. Rev. 5.75% 6/15/2000 (3) 4,695 4,745
16
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Intergovernmental Cooperative Auth. Rev. 6.00% 6/15/2000 (ETM) 3,670 3,718
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 4.00% 12/1/1999 (2) 2,965 2,965
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. TOB VRDO 3.92% 12/2/1999 (2)+ 16,045 16,045
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. TOB VRDO 3.98% 12/2/1999 (2)+ 4,130 4,130
Pennsylvania Turnpike Comm. Rev. 7.50% 12/1/1999 (Prere.) 1,825 1,861
Pennsylvania Turnpike Comm. Rev. 7.625% 12/1/1999 (Prere.) 2,885 2,943
Pennsylvania Turnpike Comm. Rev. VRDO 3.70% 12/2/1999 19,800 19,800
Philadelphia PA Gas Works Rev. CP 3.45% 1/27/2000 LOC 20,000 20,000
Philadelphia PA Gas Works Rev. CP 3.50% 3/9/2000 LOC 10,000 10,000
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev. VRDO
(Children's Hosp. Project) 3.75% 12/2/1999 98,310 98,310
Philadelphia PA School Dist. GO TOB VRDO 3.98% 12/2/1999 (2)+ 3,080 3,080
Philadelphia PA School Dist. TRAN 4.00% 6/30/2000 LOC 42,500 42,632
Philadelphia PA Water & Waste Water Rev. VRDO 3.75% 12/8/1999 (2) 56,300 56,300
Sayre PA Health Care Fac. Auth. VRDO
(VHA of Pennsylvania, Pooled Capital Asset Financial Program) 3.90% 12/8/1999 (2) 61,000 61,000
Scranton-Lackawanna PA Health & Welfare Auth. VRDO
(Mercy Health System) 3.90% 12/8/1999 6,300 6,300
Somerset County PA General Auth. 6.45% 10/15/2000 (ETM) 2,000 2,044
South Fork PA Hosp. Auth. Rev. VRDO (Conemaugh Valley Hosp.) 3.65% 12/2/1999 (1) 33,100 33,100
St. Mary's Hosp. Auth. PA VRDO (Catholic Health Initiatives) 3.90% 12/8/1999 18,600 18,600
Temple Univ. PA Higher Educ. GO 3.15% 5/12/2000 36,000 36,000
Univ. of Pittsburgh PA Higher Educ. RAN 4.00% 6/30/2000 19,000 19,064
Univ. of Pittsburgh PA Higher Educ. VRDO 3.75% 12/2/1999 LOC 37,000 37,000
Washington County PA Higher Educ. VRDO
(Pooled Equipment Lease Program) 3.90% 12/8/1999 LOC 30,635 30,635
York County PA IDA PCR VRDO (PECO) 3.65% 12/2/1999 LOC 10,940 10,940
Outside Pennsylvania:
Puerto Rico Govt. Dev. Bank CP 3.55% 12/9/1999 10,066 10,066
Puerto Rico Govt. Dev. Bank CP 3.75% 12/14/1999 10,353 10,353
Puerto Rico Govt. Dev. Bank VRDO 3.60% 12/8/1999 (1) 20,525 20,525
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,941,593) 1,941,593
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 28,156
Liabilities (6,297)
-----------
21,859
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------------------------------------------
Applicable to 1,963,492,207 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,963,452
====================================================================================================================================
NET ASSET VALUE PER SHARE $1.00
====================================================================================================================================
*See Note A in Notes to Financial Statements.
+Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions
exempt from registration, normally to qualified institutional buyers. At November 30, 1999, the aggregate value of these
securities was $29,605,000, representing 1.5% of net assets.
For key to abbreviations and other references, see page 23.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
AT NOVEMBER 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
Paid in Capital $1,963,491 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (39) --
Unrealized Appreciation -- --
- --------------------------------------------------------------------------------
NET ASSETS $1,963,452 $1.00
================================================================================
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.2%)
- ------------------------------------------------------------------------------------------------------------------------------------
Issuer Insured (92.8%)
Allegheny County PA Airport Rev. (Pittsburgh International Airport) 5.00% 1/1/2017(1) 12,205 11,032
Allegheny County PA Airport Rev. (Pittsburgh International Airport) 5.00% 1/1/2019(1) 15,750 13,990
Allegheny County PA GO 0.00% 5/1/2003(2) 8,815 7,490
Allegheny County PA GO 6.00% 5/1/2010(2) 3,030 3,151
Allegheny County PA GO 6.00% 5/1/2012(2) 3,000 3,163
Allegheny County PA Hosp. Dev. Auth. Rev. (Catholic Health East) 5.25% 11/15/2013(2) 1,000 962
Allegheny County PA Hosp. Dev. Auth. Rev. (Magee Women's Hosp.) 6.00% 10/1/2010(3) 4,235 4,549
Allegheny County PA Hosp. Dev. Auth. Rev.
(Presbyterian Univ. Health System) 6.00% 11/1/2002(1)(Prere) 3,000 3,127
Allegheny County PA Hosp. Dev. Auth. Rev. (Univ. of Pittsburgh) 5.125% 7/1/2022(1) 5,960 5,226
Allegheny County PA Hosp. Dev. Auth. Rev. (Univ. of Pittsburgh) 5.60% 4/1/2017(1) 2,000 1,926
Allegheny County PA Port. Auth. Special Rev. 6.00% 3/1/2011(1) 1,840 1,948
Allegheny County PA Port. Auth. Special Rev. 6.00% 3/1/2012(1) 4,310 4,532
Allegheny County PA Port. Auth. Special Rev. 6.00% 3/1/2016(1) 2,565 2,674
Allegheny County PA Port. Auth. Special Rev. 6.00% 3/1/2024(1) 16,000 16,059
Allegheny County PA Port. Auth. Special Rev. 6.25% 3/1/2016(1) 3,740 3,898
Allegheny County PA Port. Auth. Special Rev. 6.25% 3/1/2017(1) 2,000 2,073
Allegheny County PA Sanitation Auth. Sewer Rev. 5.50% 12/1/2013(3) 19,000 18,963
Allegheny County PA Sanitation Auth. Sewer Rev. 5.50% 12/1/2016(3) 33,665 32,512
Allegheny County PA Sanitation Auth. Sewer Rev. 6.00% 12/1/2019(1) 54,630 55,162
Allegheny County PA Sanitation Auth. Sewer Rev. 6.25% 12/1/2014(1) 9,660 10,286
Allegheny County PA Sanitation Auth. Sewer Rev. 6.50% 12/1/2011(3) 8,000 8,291
Altoona PA Water Rev. Auth. 6.50% 11/1/2004(3)(Prere)19,790 21,726
Altoona PA Water Rev. Auth. 6.50% 11/1/2019(3) 210 218
Beaver County PA IDA PCR (Ohio Edison) 7.00% 6/1/2021(3) 22,715 23,864
Beaver County PA IDA PCR (Ohio Edison) 7.10% 6/1/2018(3) 5,000 5,161
Berks County PA GO 0.00% 11/15/2013(3)(ETM) 7,250 3,286
Berks County PA GO 0.00% 11/15/2014(3)(ETM) 8,615 3,636
Berks County PA GO 0.00% 11/15/2015(3)(ETM) 6,250 2,452
Berks County PA GO 5.75% 11/15/2012(3) 7,750 7,825
Berks County PA Hosp. Rev. (Reading Hosp.) 5.70% 10/1/2014(1) 4,500 4,597
Berks County PA Hosp. Rev. (Reading Hosp.) 6.10% 10/1/2023(1) 16,500 16,507
Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 5.00% 7/1/2022(2) 5,315 4,568
Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 5.50% 7/1/2016(2) 4,480 4,324
Blair County PA Hosp. Auth. Rev. (Altoona Hosp.) 6.50% 7/1/2002(2)(Prere) 8,500 9,077
Boyertown PA Area School Dist. GO 6.10% 9/1/2002(2)(Prere) 6,000 6,261
Butler County PA GO 6.00% 7/15/2012(3) 5,185 5,308
Center City Philadelphia PA Business Improvement 5.50% 12/1/2015(2) 6,955 6,832
Center Township PA Sewer Auth. Rev. 5.50% 4/15/2011(1) 2,375 2,391
Central Dauphin PA School Dist. GO 0.00% 6/1/2004(2) 4,800 3,853
Chester County PA Health & Educ. Fac. Auth. Rev.
(Chester County Hosp.) 5.875% 7/1/2016(1) 7,870 7,865
Chester County PA Health & Educ. Fac. Auth. Rev.
(Jefferson Health System) 5.125% 5/15/2018(2) 12,445 11,150
Chester County PA Health & Educ. Fac. Auth. Rev.
(Jefferson Health System) 5.25% 5/15/2022(2) 36,580 32,763
Coatesville PA School Dist. GO 5.75% 4/1/2015(4) 10,080 10,615
Cornwall Lebanon PA Suburban Joint School Dist. GO 5.875% 3/1/2004(3)(Prere) 5,635 5,692
Cornwall Lebanon PA Suburban Joint School Dist. GO 5.90% 3/1/2004(3)(Prere) 3,270 3,377
Corry PA Area School Dist. GO 5.50% 12/15/2010(1) 4,000 4,035
Council Rock PA School Dist. GO 4.75% 11/15/2017(3) 7,000 6,067
Dauphin County PA General Auth. Health System Rev.
(West Pennsylvania Hosp.) 5.50% 7/1/2013(1) 5,000 4,990
Delaware County PA Auth. Rev. (Catholic Health East) 5.25% 11/15/2012(2) 3,435 3,344
Delaware County PA Auth. Rev. (Catholic Health East) 5.25% 11/15/2013(2) 4,665 4,486
Delaware County PA Auth. Rev. (Villanova Univ.) 5.00% 12/1/2028(1) 26,885 23,015
18
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware County PA Hosp. Auth. Rev.
(Delaware County Memorial Hosp.) 5.50% 8/15/2013(1) 12,000 11,862
Delaware River Joint Toll Bridge Comm.
Pennsylvania & New Jersey Rev. 6.00% 7/1/2018(3) 3,040 3,056
Delaware River Port Auth. Pennsylvania & New Jersey Rev. 5.50% 1/1/2026(3) 13,025 12,351
Dover Township PA Sewer Auth. Rev. 5.55% 11/1/2022(1) 4,000 3,801
Erie County PA Hosp. Auth. Rev. (St. Vincent Health Care) 6.125% 7/1/2013(1) 3,900 4,058
Erie PA School Dist. GO 0.00% 9/1/2010(4) 5,665 3,145
Erie PA School Dist. GO 0.00% 9/1/2011(4) 5,780 3,037
Erie PA School Dist. GO 0.00% 9/1/2013(4) 2,780 1,275
Erie PA School Dist. GO 0.00% 9/1/2016(4) 5,785 2,138
Fort LeBoeuf PA School Dist. GO 5.80% 1/1/2003(1)(Prere) 5,500 5,700
Garnet Valley PA School Dist. GO 5.70% 4/1/2011(2) 3,000 3,059
Greensburg Salem PA School Dist. GO 6.45% 9/15/2018(1) 7,500 7,753
Hazelton PA Area School Dist. GO 0.00% 3/1/2017(3) 4,425 1,575
Hazleton PA Area School Dist. GO 5.50% 3/1/2011(3) 3,740 3,822
Hazleton PA Area School Dist. GO 6.00% 3/1/2016(3) 18,245 18,916
Lancaster PA Higher Educ. Auth. Rev. (Franklin & Marshall College) 6.60% 4/15/2010(1) 4,940 5,145
Lancaster PA Higher Educ. Auth. Rev. (Franklin & Marshall College) 6.70% 4/15/2012(1) 4,000 4,171
Lancaster PA School Dist. GO 5.375% 2/15/2017(3) 5,590 5,333
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.00% 7/1/2028(1) 15,905 13,406
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.625% 7/1/2005(1)(Prere) 800 845
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.625% 7/1/2025(1) 9,200 8,626
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 5.70% 7/1/2010(1) 3,905 3,993
Lehigh County PA General Purpose Hosp. Auth. Rev.
(Lehigh Valley Health Network) 7.00% 7/1/2016(1) 4,415 5,015
Lewisburg PA Area School Dist. GO 6.20% 6/1/2002(1)(Prere) 3,500 3,648
Lewisburg PA Area School Dist. GO 6.25% 6/1/2002(1)(Prere) 3,685 3,845
Ligonier Valley PA School Dist. GO 6.00% 3/1/2004(1)(Prere) 6,000 6,316
Manheim PA Central School Dist. GO 6.85% 3/1/2008(3) 2,705 2,783
McKeesport PA Area School Dist. GO 0.00% 10/1/2004(1) 1,040 821
McKeesport PA Area School Dist. GO 0.00% 10/1/2005(1) 1,050 785
McKeesport PA Area School Dist. GO 0.00% 10/1/2006(1) 2,015 1,424
McKeesport PA Area School Dist. GO 0.00% 10/1/2007(1) 2,080 1,387
McKeesport PA Area School Dist. GO 0.00% 10/1/2008(1) 2,270 1,426
McKeesport PA Area School Dist. GO 0.00% 10/1/2009(1) 2,020 1,196
McKeesport PA Area School Dist. GO 0.00% 10/1/2010(1) 1,840 1,024
McKeesport PA Area School Dist. GO 0.00% 10/1/2011(1) 1,835 960
McKeesport PA Area School Dist. GO 0.00% 10/1/2014(1) 2,040 867
McKeesport PA Area School Dist. GO 0.00% 10/1/2015(1) 2,040 806
McKeesport PA Area School Dist. GO 0.00% 10/1/2016(1) 4,655 1,712
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 5.00% 6/1/2028(2) 8,660 7,301
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 6.00% 6/1/2003(2)(Prere) 8,140 8,655
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 6.00% 6/1/2022(2) 2,020 2,003
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Abington Memorial Hosp.) 6.10% 6/1/2012(2) 5,000 5,215
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Pottstown Healthcare) 5.00% 1/1/2027(4) 6,250 5,293
Montgomery County PA Higher Educ. & Health Auth. Rev.
(Pottstown Healthcare) 5.375% 1/1/2012(4) 5,085 5,016
Mount Lebanon PA Hosp. Dev. Auth. Rev. (St. Clair Memorial Hosp.) 6.25% 7/1/2006(3) 9,250 9,940
Nazareth PA School Dist. GO 5.50% 11/15/2015(2) 1,500 1,555
19
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
Neshaminy PA School Dist. GO 5.70% 2/15/2014(3) 8,795 8,868
Neshaminy PA School Dist. GO 6.30% 8/15/2002(3)(Prere)10,000 10,479
North Hills PA School Dist. GO 5.25% 11/15/2007(3)(Prere) 7,440 7,620
North Penn PA Water Auth. Rev. 6.125% 11/1/2010(3) 5,140 5,377
North Wales PA Water Auth. Rev. 6.125% 11/1/2002(3)(Prere)11,300 11,828
Northampton County PA Hosp. Auth. Rev. (Easton Hosp.) 6.25% 1/1/2019(1) 10,000 10,110
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 4,458
Northeastern PA Hosp. & Educ. Health Rev. (Wyoming Valley Health) 5.25% 1/1/2016(2) 6,560 6,121
Northeastern PA Hosp. & Educ. Health Rev. (Wyoming Valley Health) 5.25% 1/1/2026(2) 5,350 4,722
Owen J. Roberts School Dist. PA GO 5.375% 5/15/2018(1) 4,565 4,322
Penn Hills PA GO 5.80% 12/1/2002(2)(Prere)11,735 12,192
Penn Trafford PA School Dist. GO 5.85% 5/1/2004(1)(Prere) 2,435 2,553
Pennsylvania Convention Center Auth. Rev. 0.00% 9/1/2004(3)(ETM) 5,000 3,972
Pennsylvania Convention Center Auth. Rev. 6.00% 9/1/2019(3)(ETM) 12,600 12,908
Pennsylvania Convention Center Auth. Rev. 6.70% 9/1/2016(3)(ETM) 19,150 21,505
Pennsylvania GO 5.125% 3/15/2017(2) 7,990 7,382
Pennsylvania GO 5.375% 5/15/2010(3) 13,800 13,991
Pennsylvania GO 5.375% 5/15/2012(3) 16,570 16,575
Pennsylvania GO 5.375% 5/15/2014(3) 14,000 13,731
Pennsylvania GO 5.375% 5/15/2016(3) 5,000 4,812
Pennsylvania GO 5.75% 10/1/2015(3) 19,850 20,018
Pennsylvania Higher Educ. Auth. Rev.
(Allegheny/Delaware Valley Obligated Group) 5.875% 11/15/2016(1) 20,000 19,989
Pennsylvania Higher Educ. Auth. Rev.
(Allegheny/Delaware Valley Obligated Group) 5.875% 11/15/2021(1) 9,545 9,494
Pennsylvania Higher Educ. Auth. Rev. (Bryn Mawr College) 5.125% 12/1/2029(2) 5,000 4,358
Pennsylvania Higher Educ. Auth. Rev. (Bryn Mawr College) 5.625% 12/1/2014(1) 2,200 2,209
Pennsylvania Higher Educ. Auth. Rev. (College & Univ.) 7.20% 1/1/2004(2) 2,120 2,125
Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.00% 4/1/2029(1) 8,700 7,442
Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.25% 4/1/2011(1) 3,545 3,518
Pennsylvania Higher Educ. Auth. Rev. (Temple Univ.) 5.25% 4/1/2016(1) 4,000 3,769
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.25% 6/15/2014(3) 10,765 10,342
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.25% 6/15/2015(3) 5,205 4,945
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.25% 6/15/2017(3) 8,830 8,244
Pennsylvania Intergovernmental Cooperative Auth. Rev. 5.625% 6/15/2013(3) 2,605 2,620
Pennsylvania Intergovernmental Cooperative Auth. Rev. 6.00% 6/15/2000(3)(ETM) 2,000 2,022
Pennsylvania Intergovernmental Cooperative Auth. Rev. 7.00% 6/15/2005(3)(Prere) 2,250 2,494
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 5.00% 12/1/2023(2) 24,325 21,196
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 5.125% 12/1/2016(2) 4,735 4,407
Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 6.00% 12/1/2004(2)(Prere) 7,450 8,009
Pennsylvania Turnpike Comm. Rev. 5.50% 12/1/2017(3) 16,000 15,485
Pennsylvania Turnpike Comm. Rev. 5.75% 12/1/2012(2) 10,000 10,178
Pennsylvania Turnpike Comm. Rev. 6.00% 6/1/2015(1) 28,800 29,492
Pennsylvania Turnpike Comm. Rev. 6.25% 6/1/2011(2) 14,390 15,006
Philadelphia PA Airport Rev. 5.00% 7/1/2023(3) 8,950 7,657
Philadelphia PA Airport Rev. 5.125% 7/1/2028(3) 13,250 11,358
Philadelphia PA Airport Rev. 5.75% 6/15/2010(3) 4,440 4,608
Philadelphia PA Gas Works Rev. 5.00% 7/1/2028(4) 5,000 4,244
Philadelphia PA Gas Works Rev. 5.25% 7/1/2011(4) 3,965 3,931
Philadelphia PA Gas Works Rev. 5.375% 7/1/2012(4) 4,000 3,976
Philadelphia PA Gas Works Rev. 5.375% 7/1/2014(4) 4,810 4,680
Philadelphia PA Gas Works Rev. 6.00% 5/15/2000(2)(Prere)14,250 14,664
Philadelphia PA GO 5.00% 5/15/2020(1) 8,000 7,099
Philadelphia PA GO 5.00% 3/15/2028(4) 10,000 8,518
Philadelphia PA GO 5.25% 3/15/2014(4) 2,000 1,918
Philadelphia PA GO 5.25% 3/15/2015(4) 2,600 2,466
Philadelphia PA GO 6.00% 11/15/2004(3)(Prere) 6,880 7,405
20
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
Philadelphia PA GO 6.00% 11/15/2010(3) 1,065 1,117
Philadelphia PA GO 6.00% 11/15/2011(3) 1,145 1,201
Philadelphia PA GO 6.00% 11/15/2012(3) 1,270 1,316
Philadelphia PA GO 6.00% 11/15/2013(3) 715 741
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev.
(Jefferson Health System) 5.125% 5/15/2018(2) 5,700 5,107
Philadelphia PA Parking Auth. Rev. 5.25% 9/1/2029(4) 3,530 3,120
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2011(2) 4,520 4,541
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2012(2) 5,990 5,969
Philadelphia PA Parking Auth. Rev. 5.40% 9/1/2015(2) 6,350 6,129
Philadelphia PA Parking Auth. Rev. 5.50% 9/1/2018(2) 4,250 4,054
Philadelphia PA School Dist. GO 0.00% 7/1/2001(2) 11,750 10,944
Philadelphia PA School Dist. GO 5.25% 4/1/2015(1) 4,000 3,802
Philadelphia PA School Dist. GO 5.25% 4/1/2017(1) 3,000 2,802
Philadelphia PA School DIst. GO 5.50% 9/1/2005(2)(Prere) 1,150 1,212
Philadelphia PA School Dist. GO 5.50% 9/1/2015(2) 3,850 3,762
Philadelphia PA School Dist. GO 5.50% 9/1/2018(2) 4,000 3,820
Philadelphia PA School Dist. GO 5.50% 9/1/2025(2) 15,000 14,096
Philadelphia PA Water & Waste Water Rev. 5.50% 8/1/2014(1) 12,900 12,733
Philadelphia PA Water & Waste Water Rev. 5.60% 8/1/2018(1) 5,920 5,714
Philadelphia PA Water & Waste Water Rev. 6.25% 8/1/2011(1) 3,750 4,077
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2010(3) 33,865 38,763
Philadelphia PA Water & Waste Water Rev. 7.00% 6/15/2011(3) 35,685 40,971
Pine Richland School Dist. PA GO 5.50% 9/1/2019(4) 3,430 3,271
Pittsburgh PA GO 5.125% 9/1/2014(3) 10,435 9,881
Pittsburgh PA GO 5.125% 9/1/2015(3) 7,795 7,287
Pittsburgh PA GO 5.25% 9/1/2017(3) 4,980 4,647
Pittsburgh PA GO 5.50% 9/1/2014(2) 10,500 10,457
Pittsburgh PA GO 6.25% 9/1/2001(1)(Prere)11,030 11,603
Pittsburgh PA GO 5.75% 9/1/2016(3)+ 4,505 4,515
Pittsburgh PA GO 6.00% 9/1/2018(3)+ 4,450 4,502
Pittsburgh PA Public Parking Auth. Rev. 5.875% 12/1/2012(3) 8,200 8,390
Pittsburgh PA School Dist. GO 0.00% 8/1/2009(2) 4,000 2,389
Pittsburgh PA Water & Sewer System Rev. 5.00% 9/1/2019(4) 5,170 4,609
Pittsburgh PA Water & Sewer System Rev. 5.25% 9/1/2022(4) 2,495 2,270
Pittsburgh PA Water & Sewer System Rev. 7.25% 9/1/2014(3)(ETM) 25,210 28,948
Pittsburgh PA Water & Sewer System Rev. 7.625% 9/1/2004(3)(ETM) 5,370 5,907
Pocono Mountain PA School Dist. GO 5.75% 10/1/2009(2) 6,000 6,127
Reading PA GO 5.875% 11/15/2002(2)(Prere) 4,175 4,340
Reading PA GO 5.875% 11/15/2012(2) 13,825 14,006
Ridley PA School Dist. GO 5.00% 11/15/2029(3) 16,655 14,228
Sayre PA Health Care Fac. Auth. Rev. (Guthrie Health Care System) 7.00% 3/1/2011(2) 2,000 2,093
Scranton-Lackawanna PA Health & Welfare Auth. Rev.
(Mercy Health System) 5.625% 1/1/2016(1) 5,490 5,340
Scranton-Lackawanna PA Health & Welfare Auth. Rev.
(Mercy Health System) 5.70% 1/1/2023(1) 9,205 8,763
Seneca Valley PA School Dist. GO 5.50% 7/1/2002(3)(Prere) 9,965 10,230
Seneca Valley PA School Dist. GO 5.75% 7/1/2002(3)(Prere) 4,000 4,130
South Fork PA Hosp. Auth. Rev. (Conemaugh Valley Hosp.) 5.625% 7/1/2010(6) 2,300 2,357
South Fork PA Hosp. Auth. Rev. (Conemaugh Valley Hosp.) 5.75% 7/1/2018(6) 7,000 6,937
Southeastern PA Transp. Auth. Rev. 5.375% 3/1/2017(3) 2,500 2,385
Southeastern PA Transp. Auth. Rev. 5.375% 3/1/2022(3) 15,825 14,746
Southeastern PA Transp. Auth. Rev. 5.45% 3/1/2011(3) 3,730 3,772
Southwestern PA School Dist. GO 6.40% 6/15/2002(3)(Prere) 3,825 4,075
St. Mary's Hosp. Auth. Langhorne PA Rev.
(Franciscan Health System) 7.00% 7/1/2009(5) 1,000 1,022
St. Mary's Hosp. Auth. Langhorne PA Rev.
(Franciscan Health System) 7.00% 7/1/2013(5) 5,050 5,162
21
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
St. Mary's Hosp. Auth. Langhorne PA Rev.
(Franciscan Health System) 7.00% 6/15/2015(5) 1,770 1,809
Univ. of Pittsburgh PA 5.00% 6/1/2021(1) 7,145 6,296
Univ. of Pittsburgh PA 5.125% 6/1/2027(3) 4,700 4,132
Univ. of Pittsburgh PA 5.25% 6/1/2017(3) 6,995 6,568
Univ. of Pittsburgh PA 5.50% 6/1/2010(1) 5,285 5,411
Univ. of Pittsburgh PA 5.50% 6/1/2014(1) 12,620 12,533
Univ. of Pittsburgh PA 6.125% 6/1/2002(1)(Prere)25,025 26,486
Univ. of Pittsburgh PA 6.125% 6/1/2021(1) 13,545 13,653
Univ. of Pittsburgh PA 6.25% 6/1/2002(1)(Prere) 2,760 2,929
Univ. of Pittsburgh PA 6.25% 6/1/2012(1) 1,490 1,556
Upper Darby PA School Dist. GO 5.00% 5/1/2019(2) 5,970 5,328
Washington County PA Hosp. Auth. Rev. (Shadyside Hosp.) 5.875% 12/15/2009(2) 22,000 23,280
Washington County PA Hosp. Auth. Rev. (Washington Hosp.) 6.75% 7/1/2012(2) 10,000 10,326
West Allegheny PA School Dist. GO 6.25% 8/1/2002(2)(Prere) 6,155 6,357
West Jefferson Hills PA School Dist. GO 5.90% 8/1/2010(3) 3,160 3,247
West Jefferson Hills PA School Dist. GO 5.95% 8/1/2014(3) 7,180 7,241
West Mifflin PA School Dist. GO 5.35% 2/15/2009(3) 1,555 1,574
West Mifflin PA School Dist. GO 5.625% 2/15/2015(3) 7,000 7,310
Westmoreland County PA Auth. Rev. 6.125% 7/1/2017(1)(ETM) 8,205 8,706
York County PA Hosp. Auth. Rev. (York Hosp.) 5.25% 7/1/2017(2) 3,500 3,231
York County PA Hosp. Auth. Rev. (York Hosp.) 5.25% 7/1/2023(2) 8,675 7,719
York County PA Solid Waste & Refuse Auth. Rev. 5.50% 12/1/2013(3) 6,750 6,816
York County PA Solid Waste & Refuse Auth. Rev. 5.50% 12/1/2014(3) 4,050 4,050
York PA City Sewer Auth. Rev. 0.00% 12/1/2012(1) 3,235 1,568
Outside Pennsylvania:
Puerto Rico Govt. Dev. Bank VRDO 3.60% 12/8/1999(1) 22,410 22,410
-----------
1,734,979
-----------
Noninsured (5.4%)
Allegheny County PA Higher Educ. Auth. VRDO (Univ. of Pittsburgh) 3.75% 12/2/1999 LOC 700 700
Allegheny County PA Higher Educ. Building Auth. VRDO
(Carnegie Mellon Univ.) 3.70% 12/2/1999 7,800 7,800
Delaware County PA IDA Airport Fac. Rev. VRDO
(United Parcel Service) 3.60% 12/2/1999 2,000 2,000
Delaware County PA IDA PCR VRDO (PECO) 3.65% 12/2/1999 LOC 4,500 4,500
Geisinger Health System Auth. of Pennsylvania VRDO
(Penn State Geisinger Health System) 3.80% 12/2/1999 5,400 5,400
Lower Merion Township PA School Dist. GO 5.00% 5/15/2023 10,300 9,083
Montgomery County PA GO 5.00% 7/15/2019 8,800 7,934
Montgomery County PA GO 5.00% 7/15/2024 8,905 7,746
Montgomery County PA GO 5.375% 10/15/2025 7,930 7,302
Montgomery County PA GO 5.40% 9/15/2019 2,360 2,245
Pennsylvania GO 5.40% 7/1/2000 4,000 4,034
Pennsylvania Higher Educ. Fac. Auth. Rev. VRDO
(Carnegie Mellon Univ.) 3.70% 12/2/1999 7,900 7,900
Pennsylvania Housing Single Family Mortgage Finance Agency Rev. 5.40% 10/1/2024 7,250 7,209
Pennsylvania Housing Single Family Mortgage Finance Agency Rev. 6.90% 4/1/2017 4,265 4,386
Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev. VRDO
(Children's Hosp. Project) 3.75% 12/2/1999 10,050 10,050
St. Mary's Hosp. Auth. Bucks County PA Rev.
(Catholic Health System) 5.375% 12/1/2011 2,525 2,482
St. Mary's Hosp. Auth. Bucks County PA Rev.
(Catholic Health System) 5.375% 12/1/2013 2,340 2,250
Outside Pennsylvania:
Puerto Rico Govt. Dev. Bank CP 3.55% 12/9/1999 8,800 8,792
-----------
101,813
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,838,910) 1,836,792
- ------------------------------------------------------------------------------------------------------------------------------------
22
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 78,896
Liabilities (45,815)
-----------
33,081
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------------------------------------------
Applicable to 175,641,020 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,869,873
====================================================================================================================================
NET ASSET VALUE PER SHARE $10.65
====================================================================================================================================
*See Note A in Notes to Financial Statements.
+Security purchased on a when-issued or delayed delivery basis for which the fund has not taken delivery as of November 30, 1999.
For key to abbreviations and other references, see below.
</TABLE>
- --------------------------------------------------------------------------------
AT NOVEMBER 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
Paid in Capital $1,878,007 $10.69
Undistributed Net Investment Income -- --
Overdistributed Net Realized Gains--Note E (6,016) (.03)
Unrealized Depreciation--Note F (2,118) (.01)
- --------------------------------------------------------------------------------
NET ASSETS $1,869,873 $10.65
================================================================================
KEY TO ABBREVIATIONS
CP--Commercial Paper.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
RAN--Revenue Anticipation Note.
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.
23
<PAGE>
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>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
PENNSYLVANIA INSURED
TAX-EXEMPT LONG-TERM
MONEY MARKET TAX-EXEMPT
FUND FUND
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest $62,230 $104,778
--------------------------------------------
Total Income 62,230 104,778
--------------------------------------------
Expenses
The Vanguard Group--Note B
Investment Advisory Services 241 245
Management and Administrative 3,040 3,143
Marketing and Distribution 446 309
Custodian Fees 19 18
Auditing Fees 8 8
Shareholders' Reports 18 23
Trustees' Fees and Expenses 2 3
--------------------------------------------
Total Expenses 3,774 3,749
Expenses Paid Indirectly--Note C (19) (24)
--------------------------------------------
Net Expenses 3,755 3,725
- ------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 58,475 101,053
REALIZED NET GAIN (LOSS)
Investment Securities Sold (3) (2,575)
Futures Contracts -- 3,120
- ------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (3) 545
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- (137,148)
Futures Contracts -- 419
- ------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- (136,729)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $58,472 $ (35,131)
==================================================================================================================
</TABLE>
24
<PAGE>
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>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA TAX-EXEMPT PENNSYLVANIA INSURED LONG-TERM
MONEY MARKET FUND TAX-EXEMPT FUND
-------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net Investment Income $ 58,475 $ 55,938 $ 101,053 $ 96,651
Realized Net Gain (Loss) (3) 51 545 14,452
Change in Unrealized Appreciation (Depreciation) -- -- (136,729) 23,435
------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 58,472 55,989 (35,131) 134,538
Distributions
Net Investment Income (58,475) (55,938) (101,053) (96,651)
Realized Capital Gain -- -- (15,574) --
------------------------------------------------------------
Total Distributions (58,475) (55,938) (116,627) (96,651)
Capital Share Transactions1
Issued 2,103,064 2,017,947 405,695 379,935
Issued in Lieu of Cash Distributions 53,903 51,617 82,424 66,823
Redeemed (2,062,137) (1,798,948) (410,261) (287,190)
------------------------------------------------------------
Net Increase from Capital Share Transactions 94,830 270,616 77,858 159,568
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 94,827 270,667 (73,900) 197,455
- -------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of Year 1,868,625 1,597,958 1,943,773 1,746,318
------------------------------------------------------------
End of Year $1,963,452 $1,868,625 $1,869,873 $1,943,773
=========================================================================================================================
1Shares Issued (Redeemed)
Issued 2,103,064 2,017,947 36,340 33,258
Issued in Lieu of Cash Distributions 53,903 51,617 7,416 5,846
Redeemed (2,062,137) (1,798,948) (36,992) (25,162)
------------------------------------------------------------
Net Increase in Shares Outstanding 94,830 270,616 6,764 13,942
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
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>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
PENNSYLVANIA TAX-EXEMPT MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
-------------------------------------------------
For a Share Outstanding Throughout Each Year 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .030 .033 .034 .033 .036
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-------------------------------------------------
Total from Investment Operations .030 .033 .034 .033 .036
-------------------------------------------------
Distributions
Dividends from Net Investment Income (.030) (.033) (.034) (.033) (.036)
Distributions from Realized Capital Gains -- -- -- -- --
-------------------------------------------------
Total Distributions (.030) (.033) (.034) (.033) (.036)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00
==============================================================================================================
Total Return 3.06% 3.33% 3.49% 3.36% 3.69%
==============================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Millions) $1,963 $1,869 $1,598 $1,371 $1,200
Ratio of Total Expenses to Average Net Assets 0.19% 0.20% 0.20% 0.19% 0.20%
Ratio of Net Investment Income to Average Net Assets 3.01% 3.27% 3.42% 3.30% 3.62%
==============================================================================================================
26
<PAGE>
- --------------------------------------------------------------------------------------------------------------
PENNSYLVANIA INSURED LONG-TERM TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
------------------------------------------------
For a Share Outstanding Throughout Each Year 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.51 $11.27 $11.26 $11.28 $10.07
- --------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .578 .597 .598 .606 .612
Net Realized and Unrealized Gain (Loss) on Investments (.768) .240 .074 .017 1.210
------------------------------------------------
Total from Investment Operations (.190) .837 .672 .623 1.822
------------------------------------------------
Distributions
Dividends from Net Investment Income (.578) (.597) (.598) (.606) (.612)
Distributions from Realized Capital Gains (.092) -- (.064) (.037) --
------------------------------------------------
Total Distributions (.670) (.597) (.662) (.643) (.612)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $10.65 $11.51 $11.27 $11.26 $11.28
==============================================================================================================
Total Return -1.74% 7.60% 6.21% 5.77% 18.48%
==============================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Millions) $1,870 $1,944 $1,746 $1,651 $1,569
Ratio of Total Expenses to Average Net Assets 0.19% 0.20% 0.18% 0.19% 0.20%
Ratio of Net Investment Income to Average Net Assets 5.20% 5.23% 5.37% 5.47% 5.63%
Portfolio Turnover Rate 13% 19% 9% 13% 12%
==============================================================================================================
</TABLE>
27
<PAGE>
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 each fund under methods approved by the Board of
Trustees. Each fund has committed to provide up to
28
<PAGE>
0.40% of its net assets in capital contributions to Vanguard. At November 30,
1999, the funds had contributed capital to Vanguard (included in Other Assets)
of:
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF FUND OF VANGUARD'S
PENNSYLVANIA TAX-EXEMPT FUND (000) NET ASSETS CAPITALIZATION
- --------------------------------------------------------------------------------
Money Market $407 0.02% 0.4%
Insured Long-Term 392 0.02 0.4
- --------------------------------------------------------------------------------
The funds' Trustees and officers are also Directors and officers of Vanguard.
C. The funds' investment adviser may direct new issue purchases, subject to
obtaining the best price and execution, to underwriters who have agreed to
rebate or credit to the funds part of the underwriting fees generated. Such
rebates or credits are used solely to reduce the funds' management and
administrative expenses. The funds' custodian bank has also agreed to reduce its
fees when the funds maintain cash on deposit in their non-interest-bearing
custody accounts. For the year ended November 30, 1999, these arrangements
reduced expenses by:
- --------------------------------------------------------------------------------
EXPENSE REDUCTION
(000)
- --------------------------------------------------------------------------------
Management and Custodian
Pennsylvania Tax-Exempt Fund Administrative Fees
- --------------------------------------------------------------------------------
Money Market -- $19
Insured Long-Term $6 18
- --------------------------------------------------------------------------------
D. During the year ended November 30, 1999, the Insured Long-Term Tax-Exempt
Fund purchased $263,103,000 of investment securities and sold $240,494,000 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 $3,592,000 through November 30, 1999, which are
deferred for tax purposes and increase the amount of net unrealized depreciation
on investment securities for tax purposes (see Note F). At November 30, 1999,
the fund had available capital losses of $2,424,000 to offset future net capital
gains through November 30, 2007.
F. At November 30, 1999, net unrealized depreciation of Insured Long-Term
Tax-Exempt Fund investment securities for federal income tax purposes was
$5,710,000, consisting of unrealized gains of $46,646,000 on securities that had
risen in value since their purchase and $52,356,000 in unrealized losses on
securities that had fallen in value since their purchase. (See Note E.)
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Vanguard Pennsylvania Tax-Exempt Funds
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard Pennsylvania Tax-Exempt Money Market Fund and Vanguard Pennsylvania
Insured Long-Term Tax-Exempt Fund (constituting Vanguard Pennsylvania Tax-Exempt
Funds, hereafter referred to as the "Funds") at November 30, 1999, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 10, 2000
30
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL 1999 TAX INFORMATION (UNAUDITED) FOR
VANGUARD PENNSYLVANIA TAX-EXEMPT FUNDS
This information for the fiscal year ended November 30, 1999, is included
pursuant to provisions of the Internal Revenue Code.
The Pennsylvania Insured Long-Term Tax-Exempt Fund distributed $14,274,000
as capital gain dividends (from net long-term capital gains) to shareholders in
December 1998, all of which is designated as a 20% rate gain distribution.
Each fund designates 100% of its income dividends as exempt-interest
dividends.
- --------------------------------------------------------------------------------
31
<PAGE>
THE VANGUARD FAMILY OF FUNDS
STOCK FUNDS
- --------------------------------------------------------------------------------
500 Index Fund
Aggressive Growth Fund
Capital Opportunity Fund
Convertible Securities Fund
Emerging Markets Stock Index Fund
Energy Fund
Equity Income Fund
European Stock Index Fund
Explorer Fund
Extended Market Index Fund*
Global Equity Fund
Gold and Precious Metals Fund
Growth and Income Fund
Growth Index Fund*
Health Care Fund
Institutional Index Fund*
International Growth Fund
International Value Fund
Mid-Cap Index Fund*
Morgan Growth Fund
Pacific Stock Index Fund
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund*
Small-Cap Index Fund*
Small-Cap Value Index Fund*
Tax-Managed Capital Appreciation Fund*
Tax-Managed Growth and Income Fund*
Tax-Managed International Fund*
Tax-Managed Small-Cap Fund*
Total International Stock Index Fund
Total Stock Market Index Fund*
U.S. Growth Fund
Utilities Income Fund
Value Index Fund*
Windsor Fund
Windsor II Fund
BALANCED FUNDS
- --------------------------------------------------------------------------------
Asset Allocation Fund
Balanced Index Fund
Global Asset Allocation Fund
LifeStrategy Conservative Growth Fund
LifeStrategy Growth Fund
LifeStrategy Income Fund
LifeStrategy Moderate Growth Fund
STAR Fund
Tax-Managed Balanced Fund
Wellesley Income Fund
Wellington Fund
BOND FUNDS
- --------------------------------------------------------------------------------
Admiral Intermediate-Term Treasury Fund
Admiral Long-Term Treasury Fund
Admiral Short-Term Treasury Fund
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Insured Long-Term Tax-Exempt Fund
Intermediate-Term Bond Index Fund
Intermediate-Term Corporate Fund
Intermediate-Term Tax-Exempt Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Preferred Stock Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund*
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida, Massachusetts, New Jersey,
New York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
Admiral Treasury Money Market Fund
Federal Money Market Fund
Prime Money Market Fund*
State Tax-Exempt Money Market Funds
(California, New Jersey, New York, Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY PLAN
- --------------------------------------------------------------------------------
Balanced Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High-Grade Bond Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group, P.O. Box
2600, Valley Forge, PA 19482-2600. Read it carefully before you invest or send
money.
32
<PAGE>
- --------------------------------------------------------------------------------
THE PEOPLE WHO GOVERN YOUR FUND
The Trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund Trustees also serve on the Board of Directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
The majority of Vanguard's board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new Trustees/Directors; and electing
Vanguard officers.
The list below provides a brief description of each Trustee's
professional affiliations. Noted in parentheses is the year in which the Trustee
joined the Vanguard Board.
TRUSTEES
JOHN C. BOGLE * (1967) 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 * (1987) 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 * (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BURTON G. MALKIEL * (1977) 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 Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. * (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JOHN C. SAWHILL * (1991) 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. * (1971) 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 * (1985) Retired Chairman 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.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON * Legal Department.
ROBERT A. DISTEFANO * Information Technology.
JAMES H. GATELY * Individual Investor Group.
KATHLEEN C. GUBANICH * Human Resources.
IAN A. MACKINNON * Fixed Income Group.
F. WILLIAM MCNABB, III * Institutional Investor Group.
MICHAEL S. MILLER * Planning and Development.
RALPH K. PACKARD * Chief Financial Officer.
GEORGE U. SAUTER * Core Management Group.
<PAGE>
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a
reproduction of Leading the Way, a 1984 work created
and copyrighted by noted naval artist Tom Freeman,
of Forest Hill, Maryland.
All comparative mutual fund data are from Lipper Inc. or Morningstar,
Inc., unless otherwise noted.
"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.
[SHIP LOGO]
{THE VANGUARD GROUP (R) 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.
Q770-01/25/2000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
