<PAGE>
As filed with the Securities and Exchange Commission on January 19, 1996
Securities Act File No. 2-10685
Investment Company Act File No. 811-214
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 75 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [X]
(Check Appropriate Box or Boxes)
SENTINEL GROUP FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
National Life Drive
Montpelier, Vermont 05604
(Address of Principal Executive Offices) (Zip Code)
(802) 229-3900
(Registrant's Telephone Number, including Area Code)
D. Russell Morgan, Esq. Copies to:
c/o Sentinel Group Funds, Inc. John A. MacKinnon, Esq.
National Life Drive Brown & Wood
Montpelier, Vermont 05604 One World Trade Center
(Name and Address of Agent for Service) New York, New York 10048-0557
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX)
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[X] on April 1, 1996 pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON STOCK
UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT
COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST
RECENT FISCAL YEAR WAS FILED ON JANUARY 12, 1996.
<TABLE>
<CAPTION>
CALCULATION OF THE REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================================================================================================================================
Title of Securities Being Registered Amount Being Proposed Maximum Proposed Maximum Amount of
Registered Offering Price per Aggregate Offering Registration Fee
Share Price*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock
(par value $.01 per share)
Emerging Growth Fund 1,639,588 $ 4.45 $289,998 $100
Growth Fund 19,674 14.74 289,995 100
World Fund 19,568 14.82 289,998 100
Common Stock Fund 3,686,731 34.24 289,979 100
Balanced Fund 524,871 17.22 289,985 100
Bond Fund 2,202,274 6.83 289,995 100
Tax-Free Income Fund 761,933 14.32 289,994 100
New York Tax-Free Income Fund 83,147 12.29 289,995 100
Government Securities Fund 1,972,979 10.84 289,992 100
Short-Intermediate Government Fund 27,911 10.39 289,995 100
U.S. Treasury Money Market Fund 290,000 1.00 290,000 $1,100
======
====================================================================================================================================
</TABLE>
*Calculation made pursuant to Rule 24e-2(b) under the Investment Company Act of
1940.
<TABLE>
<CAPTION>
Short-
Emerging Common Tax-Free New Govern- Inter-
Growth Growth World Stock Balanced Bond Income York ment mediate Treasury
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares redeemed 4,369,276 464,496 1,110,080 5,212,198 3,386,737 6,008,278 2,099,049 158,731 2,479,497 994,380 148,430,713
or repurchased
Shares used for 2,794,856 464,496 1,110,080 1,533,936 2,878,706 3,848,463 1,357,367 99,180 533,270 994,380 148,430,713
reduction pursuant
to Rule 24e-2(a)
and Rule 24f-2(c)
Shares used for 1,574,420 0 0 3,678,262 508,031 2,159,815 741,682 59,551 1,946,227 0 0
reduction of
registration fee
</TABLE>
<PAGE>
the Registrant's fiscal year; therefore, and shares of the
World, Balanced, Bond, Tax-Free Income, New York Tax-Free Income, Short-
Intermediate Government and U.S. Treasury Money Market Funds, respectively,
redeemed during the Registrant's previous fiscal year are being used to reduce
the registration fee in this amendment to the Registration Statement.
<PAGE>
SENTINEL GROUP FUNDS, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No.
- -------------
PART A
- ------
<S> <C> <C>
Item 1. Cover Page.............................. Prospectus Cover Page
Item 2. Synopsis................................ Fund Expenses
Item 3. Condensed Financial Information......... Financial Highlights; Performance Data
Item 4. General Description of Registrant....... Investment Objectives and Policies; Organization
of the Funds
Item 5. Management of the Fund.................. Fund Expenses; Management of the Funds;
Prospectus Back Cover Page
Item 5A. Management's Discussion of
Fund Performance....................... Not Applicable
Item 6. Capital Stock and Other Securities...... Taxes; Shareholder Services; Dividends and
Capital Gains Distributions; Shareholder
Inquiries; Organization of the Funds; Prospectus
Inside Back Cover Page
Item 7. Purchase of Securities Being
Offered................................ Fund Expenses; Distribution Plans; How to
Purchase Shares; Determination of Net Asset
Value; Shareholder Services; Prospectus Inside
Back Cover Page
Item 8. Redemption or Repurchase................ Fund Expenses; How to Redeem Shares
Item 9. Pending Legal Proceedings............... Not Applicable
PART B
- ------
Item 10. Cover Page.............................. Statement of Additional Information Cover Page
Item 11. Table of Contents....................... Statement of Additional Information Cover Page
Item 12. General Information and History......... Not Applicable
Item 13. Investment Objectives and Policies...... Investment Objectives and Policies; Investment
Restrictions; Portfolio Turnover
Item 14. Management of the Fund.................. Management of the Funds
Item 15. Control Persons and Principal
Holders of Securities.................. Management of the Funds
Item 16. Investment Advisory and Other
Services............................... Statement of Additional Information Cover Page;
The Funds; The Investment Advisory Contract; The
Distribution Contract; The Distribution Plans; The
Fund Services Agreement; General Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 17. Brokerage Allocation and Other
Practices.............................. Portfolio Transactions and
Brokerage Commissions
Item 18. Capital Stock and Other Securities....... Capitalization; How to Redeem
Shares; Dividends and Capital
Gains Distributions
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered............ Capitalization; How to Purchase
Shares and Reduce Sales Charges;
Issuance of Shares at Net Asset Value;
How to Redeem Shares;
Determination of Net Asset
Value; Shareholder Services;
Tax-Deferred Retirement
Plans
Item 20. Tax Status............................... Taxes
Item 21. Underwriters............................. The Distribution Contract;
Portfolio Transactions and
Brokerage Commissions: How to
Purchase Shares and Reduce
Sales Charges
Item 22. Calculation of Performance Data.......... Performance Data; Total Return,
Yield and Tax-Equivalent Yield
Information
Item 23. Financial Statements..................... INDEPENDENT AUDITOR'S REPORT:
STATEMENT OF ASSETS AND
LIABILITIES
</TABLE>
PART C
- ------
Items 24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration
Statement.
<PAGE>
RU:SGP1996P
_____________________________________________________________________________
The Sentinel Funds
National Life Drive
Montpelier, Vermont 05604
800-282-3863
_____________________________________________________________________________
Prospectus Dated April 1, 1996
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Fund Expenses......................... 3 Tax Deferred Retirement Plans................ 33
Financial Highlights.................. 6 Determination of Net Asset Value............. 33
The Funds............................. 9 Dividends and Capital Gains
Investment Objectives and Policies.... 9 Distributions................................ 34
Management of the Funds............... 22 Taxes........................................ 35
Custodian............................. 25 Shareholder Services......................... 38
The Distributor....................... 25 Performance Data............................. 48
Distribution Plans.................... 25 Organization of the Funds.................... 41
How to Purchase Shares................ 26 Applications
How to Redeem Shares.................. 38
</TABLE>
_____________________________________________________________________________
Each of the twelve funds in the Sentinel Family of Funds (individually, a
"Fund", and collectively, the "Funds") has a separate investment objective and
policies. The investment objectives of the Funds are as follows:
. Sentinel U.S. Treasury Money Market Fund (the "Treasury Fund")-seeks as high a
level of current income as is consistent with the preservation of capital and
the maintenance of liquidity, by investing solely in short-term direct
obligations of the U.S. Treasury. An investment in the Treasury Fund is neither
insured nor guaranteed by the U.S. government. The Treasury Fund seeks to
maintain a constant $1.00 per share net asset value; however, there can be no
assurance that the Treasury Fund will be able to maintain a stable net asset
value of $1.00 per share.
_____________________________________________________________________________
This Prospectus sets forth concisely the information about the Funds (as
defined herein) that a prospective investor should know before investing. This
Prospectus should be read carefully and retained for future reference.
Additional information about the Funds is contained in the Statement of
Additional Information, dated April 1, 1996 (the "Statement of Additional
Information"), which has been filed with the Securities and Exchange Commission.
The Statement of Additional Information is available upon request and without
charge from Sentinel Group Funds, Inc. (the "Company") at the address or
telephone number shown above. The Statement of Additional Information is
incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
... Sentinel Common Stock Fund (the "Common Stock Fund")-seeks a combination of
long-term growth of capital and income, current return and relatively low
risk through investment in common stocks of many well-established
companies.
... Sentinel Balanced Fund (the "Balanced Fund")-seeks a conservative
combination of stability, income and long-term growth of capital through
investments in both stocks and bonds, with at least 25% of its net assets
in fixed-income senior securities.
... Sentinel Growth Fund (the "Growth Fund")-seeks long-term growth of capital
through equity participation in companies having growth potential believed
by the Advisor to be more favorable than that of the U.S. economy as a
whole, with a focus on relatively well-established companies.
... Sentinel Emerging Growth Fund (the "Emerging Growth Fund")-seeks long-term
capital appreciation. Assets normally will be invested primarily in common
stocks of small and medium-sized corporations believed by Sentinel Advisors
Company (the "Advisor") to have superior growth potential.
... Sentinel World Fund (the "World Fund")-seeks long-term growth of capital
principally through investments in a diversified portfolio of marketable
equity securities of established non-U.S. companies.
... Sentinel Bond Fund (the "Bond Fund")-seeks as high a level of continuing
income as is consistent with the preservation of capital through
investments primarily in investment grade fixed-income securities.
... Sentinel Government Securities Fund (the "Government Securities Fund")-
seeks as high a level of current income as is consistent with the
preservation of capital through investments primarily in securities issued
or guaranteed by the U.S. government or its agencies or
instrumentalities.
2
<PAGE>
... Sentinel Short-Intermediate Government Fund (the "Short-Intermediate
Government Fund")-seeks as high a level of current income as is consistent
with the preservation of capital through investments primarily in
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund will invest at least 65% of its assets in such
government securities which have an average maturity of from 2 to 5
years.
... Sentinel Tax-Free Income Fund (the "Tax-Free Income Fund")-seeks as high a
level of current income exempt from federal income taxes as is consistent
with the preservation of capital through investments primarily in a
diversified portfolio of investment grade municipal bonds.
... Sentinel New York Tax-Free Income Fund (the "New York Fund")-seeks as high
a level of current interest income exempt from federal and New York State
and City personal income taxes as is consistent with liquidity and capital
preservation.
... Sentinel Pennsylvania Tax-Free Trust (the "Pennsylvania Fund") -seeks as
high a level of current interest income exempt from federal and
Pennsylvania personal income taxes as is consistent with liquidity and
capital preservation.
... The Common Stock, Balanced, Emerging Growth, World, Bond and Tax-Free
Income Funds currently offer two classes of shares. Investors in these Funds may
choose Class A shares, which are generally sold subject to an initial sales
charge, or Class B shares, which are sold subject to a contingent deferred sales
charge ("CDSC") as described below.
<TABLE>
<CAPTION>
Class Sales Charge/(1)/ Service Fee Distribution Fee Conversion Feature
- ------- ------------------ ------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Maximum 5.00% Maximum of Maximum of
A initial sales 0.20%/(3)/ 0.30%/(4)/ No
charge/(2)/
- ----------------------------------------------------------------------------------
Class B Shares
CDSC for a convert to Class A
B maximum of 6 0.25% 0.75% Shares automatically
years/(5)/ after the applicable
CDSC period/(5)(6)/
</TABLE>
___________________
(1) Initial sales charges are imposed at the time of purchase as a
percentage of the offering price. CDSCs are imposed if the redemption
occurs within the applicable CDSC time period. The charge will be
assessed on an amount equal to the lesser of the current net asset
value or cost of the shares being redeemed. See "How to Purchase
Shares-Class A Shares-Sales Charges" and "How to Redeem Shares-Class B
Shares-CDSC".
3
<PAGE>
(2) Reduced for purchases of $100,000 or more and waived for purchases of
Class A Shares by certain investors. Class A share purchases of
$1,000,000 or more are not subject to an initial sales charge but, if
the initial sales charge is waived, will be subject to a 1.0% CDSC and
0.5% CDSC for the first and second year, respectively, after the
purchase. After the second year after purchase, no CDSC will apply.
See "How to Purchase Shares-Class A Shares-Sales Charges" and "How to
Redeem Shares-Class A Shares Purchased in Amounts over $1,000,000-
CDSC".
(3) The maximum service fee for Class A Shares of the Bond Fund and Tax-
Free Income Fund is 0.10%.
(4) The maximum distribution fee for Class A Shares of the Bond Fund and
the Tax-Free Income Fund is 0.20%.
(5) The applicable CDSC period is reduced to 5 years for aggregate
purchases from $250,000 to $499,999 and to 4 years for aggregate
purchases of $500,000 to $999,999. Investors with aggregate purchases
in excess of $1,000,000 are only offered Class A Shares. The CDSC may
be waived in certain circumstances. See "How to Redeem Shares-Class B
Shares-CDSC" and "How to Redeem Shares-Class B Shares-Waiver or
Reduction of the CDSC".
(6) The conversion and holding periods for dividend reinvestment shares
are the same as those for the initial shares to which they relate.
The Growth, Government Securities, New York and Pennsylvania Funds
currently only offer Class A Shares as described below.
<TABLE>
<CAPTION>
Class Sales Charge/(1)/ Service Fee Distribution Fee Conversion Feature
- ------- ------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Maximum 5.00% Maximum of Maximum of
A initial sales 0.10% (0.20% for 0.20% (0.30% for No
charge/(2)/ Growth Fund) Growth Fund)
</TABLE>
___________________
/(1)/ See footnote (1) to the preceding chart.
/(2)/ See footnote (2) to the preceding chart.
The Short-Intermediate Government Fund currently only offers Class A Shares
as described below.
<TABLE>
<CAPTION>
Class Sales Charge/(1)/ Service Fee Distribution Fee Conversion Feature
- ------- ------------------ ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Maximum 1.00% Maximum of Maximum of
A initial sales 0.25% 0.35% No
charge/(2)/
</TABLE>
___________________
/(1)/ See footnote (1) to the preceding chart.
/(2)/ Purchases of such shares of up to $999,999 are subject to a 1.0% initial
sales charge, while purchases of $1,000,000 or more are not subject to an
initial sales charge.
4
<PAGE>
If the initial sales charge is waived because a purchase is $1,000,000 or more
the shares will be subject to a 1.0% CDSC and 0.5% CDSC for the first and second
year, respectively, after the purchase. After the second year after repurchase,
no CDSC will apply. See "How to Purchase Shares-Class A Shares-Sales Charges"
and "How to Redeem Shares-Class A Shares Purchased in Amounts over $1,000,000-
CDSC".
The Treasury Fund offers Class A and Class B Shares. Initial purchases of
Class A Shares of the Treasury Fund are not subject to any initial sales charge,
CDSC or Rule 12b-1 fees. Class B Shares may not be purchased directly or
acquired in exchange for shares of the Growth, Government Securities, Short-
Intermediate Government, New York and Pennsylvania Funds and may be acquired
only in exchange for Class B Shares of another Fund. The period of time that
shares are held in Class B Shares of the Treasury Fund, however, will not count
toward satisfaction of the holding or conversion periods for reduction of any
CDSC imposed on such shares or the conversion of Class B Shares to Class A
Shares, respectively. See "How to Purchase Shares-Class B Shares".
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Funds may expect to incur:
SHAREHOLDER TRANSACTION EXPENSES (as a percentage of offering price)
Class A Shares:
Sales Charge Imposed on Purchases-Common Stock, Balanced, Growth, Emerging
Growth, World, Bond, Government Securities, Tax-Free Income, New York and
Pennsylvania Funds
<TABLE>
<CAPTION>
<S> <C>
Funds..............................................................5.00% maximum
Short-Intermediate Government Fund.................................1.00%
Treasury Fund......................................................None
Sales Charge Imposed on Reinvested Dividends.......................None
Redemption Fees....................................................None*
Exchange Fees......................................................None**
</TABLE>
- ------
* If a shareholder chooses to redeem by means of a wire transfer, a wire
charge not normally in excess of $25.00 will be assessed. In addition, a
deferred sales charge of up to 1% is assessed on certain redemptions of
Class A shares made within two years of purchase, if they were purchased
without an initial sales charge as part of an investment of $1,000,000 or
more. See "How to Purchase Shares - Class A Shares - Sales Charges", below.
** If a shareholder exchanges Class A shares of the Treasury Fund for Class A
shares of another Fund, and such Treasury Fund shares were not acquired in
an exchange from another Fund's Class A shares, then a fee equal to the
sales charge imposed on purchases of the new Fund will be assessed.
Class B Shares (available for the Common Stock, Balanced, Emerging Growth,
World, Bond, Tax-Free Income and Treasury Funds):
<TABLE>
<S> <C>
Sales Charge Imposed on Purchases..........................................None
Sales Charge Imposed on Reinvested Dividends...............................None
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Contingent Deferred Sales Charge...........................................4.00% maximum***
Exchange Fees..............................................................None****
</TABLE>
- ------
*** The maximum CDSC is imposed on shares redeemed in the first year after
purchase. For shares held longer than one year, the CDSC declines according
to the schedules set forth under "How to Redeem Shares - Class B Shares -
------
CDSC", below.
**** Class B shares may be exchanged only for Class B shares of the other Funds
that offer Class B shares as of the date of the exchange.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Class A:
<TABLE>
<CAPTION>
Common Emerging
Stock Balanced Growth Growth World
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees..................... .55% .65% .65% .65% .65%
Rule 12b-1 Fees(a):
Service Fee.................... .07 .12 .07 .17 .20
Distribution Fee............... .20 .18 .20 .13 .10
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Total.......................... .27 .30 .27 .30 .30
Other Expenses:
Accounting and Administrative
Costs......................... .05 .05 .05 .05 .05
Other.......................... .23(d) .29(d) .57(d) .60(d) .63(d)
Total Other Expenses................ .28(d) .34(d) .62(d) .65(d) .68(d)
-------- -------- -------- -------- --------
Total Fund Operating Expenses
Before Expense Offset(b)......... 1.10(d) 1.29(d) 1.54(d) 1.60(d) 1.63(d)
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Govern. Short-Int.
Bond Secur. Government Treasury
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management Fees .53% .53% .53% .40%
Rule 12b-1 Fees(a):
Service Fee .07 .07 .25 None
Distribution Fee .13 .13 .10 None
Total .20 .20 .35 None
Other Expenses:
Accounting and Administrative
Costs .05 .05 .00 .05
Other .25(d) .26(d) .19(d) .37(d)
Total Other Expenses.............. .30(d) .31(d) .19(d) .42(d)
-------- -------- -------- --------
Total Fund Operating Expenses
Before Expense Offset(b) 1.03(d) 1.04(d) 1.07(c)(d) .82(d)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Tax-Free
Income N.Y. Pennsylvania
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Management Fees .53% .53% .55
Rule 12b-1 Fees(a):
Service Fee .07 .10 .06
Distribution Fee .13 .09 .14
Total .20 .19 .20
Other Expenses:
Accounting and Administrative
Costs .05 .05 .00
Other .21(d) .52(d) .03(d)
Total Other Expenses.............. .26(d) .57(d) .03(d)
-------- -------- --------
Total Fund Operating Expenses
Before Expense Offset(b) .99(c)(d) 1.29(d) .78(c)(d)
======== ======== ========
</TABLE>
Class B:
<TABLE>
<CAPTION>
Common Emerging
Stock Balanced Growth World
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management Fees................... .55% .65% .65% .65%
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Rule 12b-1 Fees(a):
Service Fee.................. .25 .25 .25 .25
Distribution Fee............. .75 .75 .75 .75
Total........................ 1.00 1.00 1.00 1.00
Other Expenses:
Accounting and Administrative
Costs....................... .05 .05 .05 .05
Other........................ .25 .35 .87 .78
Total Other Expenses.............. .30 .40 .92 .83
---- ---- ---- ----
Total Fund Operating Expenses(b) 1.85 2.05 2.57 2.48
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Tax-Free
Bond Treasury Income
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Management Fees .53% .40% .53%
Rule 12b-1 Fees(a):
Service Fee .25 None .25
Distribution Fee .75 None .75
Total 1.00 None 1.00
Other Expenses:
Accounting and Administrative
Costs .05 .05 .05
Other .41 1.86 .32
Total Other Expenses.............. .46 1.91 .37
---- ---- ----
Total Fund Operating Expenses(b) 1.99 2.31 1.90
==== ==== ====
</TABLE>
__________________
(a) Assumes distribution history as of November 30, 1995. The maximum annual
Rule 12b-1 fee for Common Stock Fund Class A shares, Balanced Fund Class A
shares, Growth Fund Class A shares, Emerging Growth Fund Class A shares and
World Fund Class A shares, is .30% of average daily net assets of each
such Fund, of which the service fee portion could be as much as .20%; the
maximum annual Rule 12b-1 fee for Bond Fund Class A shares, Government
Securities Fund Class A shares, Tax-Free Income Fund Class A shares, New
York Fund Class A shares and Pennsylvania Fund Class A shares is .20% of
average daily net assets of each such Fund, of which the service fee
portion could be as much as .10%; and the maximum annual Rule 12b-1 fee for
the Short-Intermediate Government Fund Class A shares is .35% of average
daily net assets, of which the service fee portion will be .25%.
(b) Sentinel Administrative Service Company ("Sentinel Service") has
voluntarily agreed to refund its fee to the extent necessary to prevent the
overall aggregate Class A expense ratio of the Funds (excluding World Fund)
from exceeding 1.30% of aggregate average daily net assets in any fiscal
year. For the year ended November 30, 1995, such aggregate expense ratio
was 1.11%, and no reimbursement was required. Although Sentinel Service has
no present intention to do so, this arrangement may be terminated at any
time.
(c) Sentinel Service has voluntarily agreed for an indefinite period to
reimburse World Fund Class A shares, the Pennsylvania Fund Class A shares,
the Short-Intermediate Government Fund Class A shares and the
8
<PAGE>
Treasury Fund Class A shares for expenses necessary to limit those Funds'
overall expense ratios to 2.00%, 0.75% (effective May 15, 1995), 1.00% and
.85%, respectively. For the fiscal year ended November 30, 1995, the
aggregate expense after expense offset ratios of World Fund Class A shares
and the Treasury Fund Class A shares were 1.56% and 0.81%, respectively,
and no reimbursements were required. For the Pennsylvania Fund Class A
Shares a reimbursement of $116,978 was paid in fiscal 1995. In the absence
of the above reimbursement arrangement, the Pennsylvania Fund Class A
shares's Accounting and Administrative Costs, Other Expenses, Total Other
Expenses and Total Fund Operating Expenses would have been .05%, .52%, .57%
and 1.32%, respectively. The dollar amount of the reimbursement paid to the
Short-Intermediate Government Fund Class A shares during the 1995 fiscal
year by Sentinel Service was $42,857. In the absence of the above
reimbursement arrangement, Short-Intermediate Government Fund Class A
shares's Accounting and Administrative Costs, Other Expenses, Total Other
Expenses and Total Fund Operating Expenses would have been, on an anualized
basis, .05%, .38%, .43% and 1.31%, respectively. Although Sentinel Service
has no present intention to do so, these arrangements may be terminated at
any time. Prior to March 27, 1995 Sentinel Service had a voluntary
agreement to reimburse the Sentinel Tax-Free Income Fund class and share
expenses in excess of .75%. For the fiscal year ended November 30, 1995 the
aggregate expense ratio, after expense offset, after taking into account
this reimbursement was actually .90%. The reimbursement totalled $66,467.
Taking into account this reimbursement, Other Expenses, Total Other
Expenses and Total Fund Operating Expenses were .12%, .17% and .90%,
respectively.
(d) Expense ratios after expense offset are as follows:
<TABLE>
<CAPTION>
Other Total Other Total Fund
Expenses Operating Expenses
-------- ------------------
<S> <C> <C> <C>
Common Stock Fund .22 .27 1.09
Balanced Fund .27 .32 1.27
Growth Fund .53 .58 1.50
Emerging Growth Fund .56 .61 1.56
World Fund .56 .61 1.56
Bond Fund .21 .26 .99
Government Securities Fund .25 .30 1.03
Short-Int. Gov't Fund .12 .12 1.00
Treasury Fund .36 .41 .81
Tax-Free Income Fund .18 .23 .96
New York Fund .45 .50 1.22
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C>
Pennsylvania Fund .00 .00 .75
</TABLE>
The following examples illustrate the expenses that an investor would pay
on a $1,000 investment in each of the Funds over various time periods assuming
the operating expense ratio as set forth in the tables above for each class of
shares of each Fund and a 5% annual rate of return.
<TABLE>
<CAPTION>
Class A:
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock Fund...................... $61 $83 $107 $176
Balanced Fund.......................... 62 88 116 196
Growth Fund............................ 64 95 128 220
Emerging Growth Fund................... 65 97 131 226
World Fund............................. 65 97 131 226
Bond Fund.............................. 60 80 102 165
Government Securities Fund............. 60 81 104 170
Short-Int. Gov't Fund.................. 20 42 65 131
Treasury Fund.......................... 8 26 45 100
Tax-Free Income Fund................... 59 79 100 162
New York Fund.......................... 62 87 114 190
Pennsylvania Fund...................... 57 73 90 138
</TABLE>
Class B (assuming redemption at the end of the period):
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock Fund...................... $59 $ 88 $120 $179
Balanced Fund.......................... 61 94 130 200
Emerging Growth Fund................... 66 110 157 243
World Fund............................. 65 107 152 238
Bond Fund.............................. 60 92 127 182
Treasury Fund.......................... 63 102 144 192
Tax-Free Income Fund................... 59 90 123 172
</TABLE>
Class B (assuming no redemption at the end of the period):
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock Fund...................... $19 $58 $100 $179
Balanced Fund.......................... 21 64 110 200
Emerging Growth Fund................... 26 80 137 243
World Fund............................. 25 77 132 238
Bond Fund.............................. 20 62 129 182
Treasury Fund.......................... 23 72 124 192
Tax-Free Income Fund................... 19 60 103 172
</TABLE>
10
<PAGE>
These examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown and the 5%
annual rate used in this example is a hypothetical rate of return.
The purpose of the foregoing tables is to assist the investor in
understanding the various expenses that an investor in the Funds will bear
directly or indirectly. The expense ratios set forth above, in the case of the
Class A shares, are based on costs actually borne by the Funds in the fiscal
year ended November 30, 1995, using average net assets of each Fund for the
fiscal year ended November 30, 1995. In the case of the Class B shares,
estimates of future costs are used. In general, all of the Funds share expenses
that are not specifically incurred by particular Funds in proportion to the net
assets of each Fund, except that expenses which vary by the number of accounts,
such as transfer agent costs and shareholder reports and mailing costs, are
allocated in proportion to the number of accounts in each Fund.
11
<PAGE>
FINANCIAL HIGHLIGHTS (for a share outstanding throughout each of the periods).
The following information, insofar as it relates to the five fiscal years in the
period ended November 30, 1995, other than for the Pennsylvania Fund, has been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. For the Pennsylvania Fund, the following information for the
eleven month period ended November 30, 1993 and for the years ended November 30,
1994 and 1995 has been audited by Price Waterhouse LLP, whose report thereon
was unqualified. The following information with respect to the Pennsylvania
Fund for the two years in the period ended December 31, 1992 has been audited by
Coopers & Lybrand, independent accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto incorporated by reference in the Statement of
Additional Information. No information is presented for any of the Class B
shares of the Funds because none of them had commenced operations as of November
30, 1995. The Annual Report of the Funds may be obtained by shareholders without
charge by calling the Company at (800) 282-3863.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized
Net and Distributions
Fiscal asset Net unrealized Total Dividends from
Year value at investment gain from from net realized
(period beginning income (loss) on investment investment gains on Total
Fund ended) of period (loss) investments operations income investments distributions
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging 9 mo. to
Growth 11/30/93(A) $ 6.49 $(0.06) $ 0.44 $ 0.38 $- $- $-
11/30/94 6.87 (0.04) 0.18 0.14 - 1.48 1.48
11/30/95 5.53 0.02 0.56 0.58 - 0.91 0.91
- ------------------------------------------------------------------------------------------------------------------------------
Growth 11/30/86 $14.17 $ 0.30 $ 2.88 $ 3.18 $0.28 - $0.28
11/30/87 17.07 0.28 (1.20) (0.92) 0.16 2.64 2.80
11/30/88 13.35 0.17 1.36 1.53 0.25 3.18 3.43
11/30/89 11.45 0.16 2.99 3.15 0.18 - 0.18
11/30/90 14.42 0.18 (0.37) (0.19) 0.17 - 0.17
11/30/91 14.06 0.20 1.93 2.13 0.20 - 0.20
11/30/92 15.99 0.11 3.07 3.18 0.16 0.45 0.61
11/30/93 18.56 0.04 (0.28) (0.24) 0.04 0.77 0.81
11/30/94 17.51 0.05 (0.92) (0.87) 0.03 0.46 0.49
11/30/95 16.15 0.07 3.33 3.40 0.05 2.57 2.62
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized
Net and Distributions
Fiscal asset Net unrealized Total Dividends from
Year value at investment gain from from net realized
(period beginning income (loss) on investment investment gains on Total
Fund ended) of period (loss) investments operations income investments distributions
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
World 9 Mo. to
11/30/93(A) $ 9.56 $0.02 $2.28 $2.30 $- $- $-
11/30/94 11.86 0.08 0.89 0.97 0.03 0.06 0.09
11/30/95 12.74 0.14 1.14 1.28 0.09 0.15 0.24
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Common 11/30/86 $19.58 $0.83 $5.72 $6.55 $0.83 - $0.83
Stock 11/30/87 25.30 0.87 (2.87) (2.00) 0.73 1.08 1.81
11/30/88 21.49 0.85 3.17 4.02 0.83 1.55 2.38
11/30/89 23.13 0.91 4.60 5.51 0.99 1.20 2.19
11/30/90 26.45 0.93 (1.50) (0.57) 1.00 1.27 2.27
11/30/91 23.61 0.90 3.90 4.80 0.93 0.70 1.63
11/30/92 26.78 0.90 3.44 4.34 0.91 0.50 1.41
11/30/93 29.71 0.79 1.66 2.45 0.82 1.71 2.53
11/30/94 29.63 0.83 (1.35) (0.52) 0.80 0.06 0.86
11/30/95 28.25 0.72 8.09 8.81 0.74 1.11 1.85
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized
Net and Distributions
Fiscal asset Net unrealized Total Dividends from
Year value at investment gain from from net realized
(period beginning income (loss) on investment investment gains on Total
Fund ended) of period (loss) investments operations income investments distributions
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced 11/30/86 $10.83 $0.67 $ 2.06 $ 2.73 $0.67 $ - $0.67
11/30/87 12.89 0.70 (1.27) (0.57) 0.59 0.41 1.00
11/30/88 11.32 0.71 0.91 1.62 0.72 - 0.72
11/30/89 12.22 0.80 1.33 2.13 0.78 0.04 0.82
11/30/90 13.53 0.79 (0.56) 0.23 0.83 0.35 1.18
11/30/91 12.58 0.77 1.37 2.14 0.78 0.05 0.83
11/30/92 13.89 0.70 0.97 1.67 0.71 0.03 0.74
11/30/93 14.82 0.59 0.81 1.40 0.59 0.36 0.95
11/30/94 15.27 0.58 (1.12) (0.54) 0.56 0.09 0.65
11/30/95 14.08 0.58 2.78 3.36 0.59 0.01 0.60
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized
Net and Distributions
Fiscal asset Net unrealized Total Dividends from
Year value at investment gain from from net realized
(period beginning income (loss) on investment investment gains on Total
Fund ended) of period (loss) investments operations income investments distributions
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bond 11/30/86 $ 6.41 $0.62 $ 0.52 $ 1.14 $0.62 $ - $0.62
11/30/87 6.93 0.58 (0.60) (0.02) 0.57 0.35 0.92
11/30/88 5.99 0.55 0.03 0.58 0.55 - 0.55
11/30/89 6.02 0.56 0.18 0.74 0.55 - 0.55
11/30/90 6.21 0.52 (0.18) 0.34 0.52 - 0.52
11/30/91 6.03 0.50 0.40 0.90 0.50 - 0.50
11/30/92 6.43 0.46 0.13 0.59 0.46 - 0.46
11/30/93 6.56 0.41 0.46 0.87 0.41 0.12 0.53
11/30/94 6.90 0.39 (0.70) (0.31) 0.39 0.35 0.74
11/30/95 5.85 0.42 0.64 1.06 0.42 - 0.42
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Ratio of Ratio of
Net expenses to net Net assets
asset Ratio of average net investment at end
value at Total net expenses assets before income to Portfolio of period
end of return* to average expense reduc- avg. net turnover (000
period (%) net assets(%) tion** (%) assets (%) rate (%) omitted)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 6.87 5.9# 1.52+ 1.52+ (1.01)+ 61 $ 105,176
5.53 2.0 1.58 1.58 (0.74) 46 88,420
5.20 12.2 1.56 1.60 0.26 79 89,321
- ---------------------------------------------------------------------------------------------
$17.07 22.5 0.77 0.77 1.79 102 $ 55,802
13.35 (6.5) 0.76 0.76 1.68 98 49,233
11.45 11.7 1.12 1.12 1.44 69 47,350
14.42 27.7 1.24 1.24 1.18 24 51,665
14.06 (1.4) 1.20 1.20 1.22 15 49,580
15.99 15.2 1.08 1.08 1.22 25 55,598
18.56 20.5 1.05 1.05 0.63 28 63,664
17.51 (1.3) 1.31 1.31 0.22 12 57,833
16.15 (5.1) 1.43 1.43 0.30 58 50,447
16.93 24.9 1.50 1.54 0.42 84 60,446
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------
Ratio of Ratio of
Net expenses to net Net assets
asset Ratio of average net investment at end
value at Total net expenses assets before income to Portfolio of period
end of return* to average expense reduc- avg. net turnover (000
period (%) net assets(%) tion** (%) assets (%) rate (%) omitted)
<S> <C> <C> <C> <C> <C> <C>
$11.86 24.1# 2.00+ 2.12+ 0.41(1)+ 66 $ 16,872
12.74 8.2 1.58 1.58 0.62 30 41,970
13.78 10.2 1.56 1.63 0.79 32 47 702
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$25.30 33.8 0.64 0.64 3.49 8 $ 506,248
21.49 (9.0) 0.62 0.62 3.28 9 459,296
23.13 19.8 0.87 0.87 3.75 7 490,168
26.45 25.6 0.80 0.80 3.69 11 591,136
23.61 (2.4) 0.76 0.76 3.82 6 543,047
26.78 21.1 0.74 0.74 3.41 9 620,179
29.71 16.7 0.72 0.72 3.13 5 688,309
29.63 8.8 0.93 0.93 2.68 9 897,836
28.25 (1.8) 1.02 1.02 2.82 15 839,335
35.21 32.8 1.09 1.10 2.29 22 1,057,944
- ---------------------------------------------------------------------------------------------
$12.89 25.6 0.68 0.68 5.44 58 $ 47,105
11.32 (5.3) 0.67 0.67 5.38 32 62,282
12.22 14.6 0.97 0.97 5.74 52 67,019
13.53 18.1 0.96 0.96 6.16 71 74,417
12.58 1.8 0.91 0.91 6.17 40 74,808
13.89 17.5 0.85 0.85 5.70 32 90,580
14.82 12.4 0.81 0.81 4.86 38 120,700
15.27 9.7 1.14 1.14 3.88 72 229,632
14.08 (3.6) 1.21 1.21 3.97 66 226,328
16.84 24.4 1.27 1.29 3.77 110 267,103
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Ratio of Ratio of
Net expenses to net Net assets
asset Ratio of average net investment at end
value at Total net expenses assets before income to Portfolio of period
end of return* to average expense reduc- avg. net turnover (000
period (%) net assets(%) tion** (%) assets (%) rate (%) omitted)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$6.93 15.7 0.68 0.68 9.01 88 $ 22,913
5.99 (0.7) 0.66 0.66 9.03 139 24,409
6.02 10.0 0.92 0.92 8.97 133 27,858
6.21 12.9 0.87 0.87 9.07 165 31,668
6.03 5.8 0.83 0.83 8.55 108 35,389
6.43 15.6 0.81 0.81 8.06 77 43,447
6.56 9.5 0.78 0.78 7.03 83 58,106
6.90 13.7 0.92 0.92 5.98 147 83,387
5.85 (4.9) 0.98 0.98 6.34 133 80,487
6.49 18.8 0.99 1.03 6.81 237 108,755
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions
- -------------------------------------------------------------------------------------------------------------------------
Net realized
Net and Distributions
Fiscal asset Net unrealized Total Dividends from
Year value at investment gain from from net realized
(period beginning income (loss) on investment investment gains on Total
Fund ended) of period (loss)(2) investments operations income investments distributions
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York 8 Mo. to
Fund 11/30/95(C) $11.19 $0.36 $0.53 $0.89 $0.36 $- $ 0.36
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free
Income 2 mo. to
11/30/90(E) $12.00 $0.10 $0.26 $0.36 $0.10 $- $ 0.10
11/30/91 12.26 0.79 0.42 1.21 0.79 - 0.79
11/30/92 12.68 0.76 0.47 1.23 0.76 0.02 0.78
11/30/93 13.13 0.73 0.79 1.52 0.73 0.11 0.84
11/30/94 13.81 0.68 (1.34) (0.66) 0.68 0.12 0.80
11/30/95 12.35 0.67 1.27 1.94 0.67 - 0.67
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions
- -------------------------------------------------------------------------------------------------------------------------
Net realized
Net and Distributions
Fiscal asset Net unrealized Total Dividends from
Year value at investment gain from from net realized
(period beginning income (loss) on investment investment gains on Total
Fund ended) of period (loss) investments operations income investment distributions
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government 3 mo. to
Securities 11/30/86(B) $10.00 $0.19 $ 0.04 $ 0.23 $ 0.19 $- $0.19
11/30/87 10.04 0.80 (0.70) 0.10 0.79 - 0.79
11/30/88 9.35 0.78 (0.03) 0.75 0.79 - 0.79
11/30/89 9.31 0.81 0.26 1.07 0.81 - 0.81
11/30/90 9.57 0.78 (0.03) 0.75 0.78 - 0.78
11/30/91 9.54 0.74 0.50 1.24 0.74 - 0.74
11/30/92 10.04 0.70 0.14 0.84 0.70 - 0.70
11/30/93 10.18 0.62 0.42 1.04 0.60 0.17 0.77
11/30/94 10.45 0.59 (1.04) (0.45) 0.58 0.11 0.69
11/30/95 9.31 0.63 0.99 1.62 0.63 - 0.63
- -------------------------------------------------------------------------------------------------------------------------
Short-Int. 8 Mo. to
Government 11/30/95(C) $ 9.64 $0.40 $ 0.20 $ 0.60 $ 0.40 $- $ 0.40
- -------------------------------------------------------------------------------------------------------------------------
Treasury 9 mo. to
11/30/93(A) $ 1.00 $0.02 $ 0.00 $ 0.02 $ 0.02 $- $ 0.02
11/30/94 1.00 0.03 0.00 0.03 0.03 - 0.03
11/30/95 1.00 0.05 0.00 0.05 0.05 - 0.05
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Ratio of
Net expenses to net Net assets
asset Ratio of average net investment at end
value at Total net expenses assets before income to Portfolio of period
end of return* to average expense reduc- avg. net turnover (000
period (%) net assets(%) tion** (%) assets (%) rate (%) omitted)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$11.72 8.1 1.22+ 1.29+ 4.60+ 32 * 5,332
- ------------------------------------------------------------------------------------------------
(4) (4)
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Ratio of
Net expenses to net Net assets
asset Ratio of average net investment at end
value at Total net expenses assets before income to Portfolio of period
end of return* to average expense reduc- avg. net turnover (000
period (%) net assets(%) tion** (%) assets (%) rate (%) omitted)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 12.26 3.0+ 0.00 0.52+ 4.98+(5) - $ 13,824
12.68 10.2 0.38 0.73 6.37(5) 29 35,277
13.13 10.0 0.50 0.72 5.93(5) 48 55,538
13.81 11.9 0.64 0.90 5.41(5) 39 111,968
12.35 (5.1) 0.75 0.94 5.11(5) 92 99,935
13.62 16.0 0.90 0.99 5.06(5) 112 110,506
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Ratio of Ratio of
Net expenses to net Net assets
asset Ratio of average net investment at end
value at Total net expenses assets before income to Portfolio of period
end of return* to average expense reduc- avg. net turnover (000
period (%) net assets(%) tion** (%) assets (%) rate (%) omitted)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$10.04 2.3# 0.66+ 0.66+ 6.68+ 2 $ 10,186
9.35 1.2 0.67 0.67 8.31 57 23,057
9.31 8.2 0.90 0.90 8.20 41 31,007
9.57 12.1 0.82 0.82 8.59 25 34,644
9.54 8.3 0.78 0.78 8.25 22 41,134
10.04 13.5 0.77 0.77 7.52 14 45,734
10.18 8.6 0.76 0.76 6.90 79 68,293
10.45 10.6 0.98 0.98 6.06 97 134,749
9.31 (4.5) 1.00 1.00 5.95 149 104,457
10.30 17.9 1.03 1.04 6.50 367 108,100
- ------------------------------------------------------------------------------------------------
9.84 6.3# 1.00 1.38+ 6.07(8)+ 77 $28,417
- ------------------------------------------------------------------------------------------------
$ 1.00 1.7# 0.85+ 0.87+ 2.20+(7) - $72,252
1.00 3.1 0.81 0.81 3.01 - 75,301
1.00 5.0 0.81 0.82 4.83 - 80,664
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Less Distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized
Net and Distributions
Fiscal asset Net unrealized Total Dividends from
Year value at investment gain from from net realized
(period beginning income (loss) on investment investments gains on Total
Fund ended) of period (loss)(2) investments operations income investments distributions
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsyl- 2.5 mo. to
vania Fund 12/31/86(D) $12.50 $0.19 $ 0.19 $ 0.38 $0.19 $0.03 $0.22
12/31/87 12.66 0.85 (1.17) (0.32) 0.85 - 0.85
12/31/88(3) 11.49 0.82 0.58 1.40 0.82 - 0.82
12/31/89 12.07 0.66 0.33 0.99 0.72 - 0.72
12/31/90 12.34 0.72 (0.03) 0.69 0.78 - 0.78
12/31/91 12.25 0.71 0.52 1.23 0.74 - 0.74
12/31/92 12.74 0.73 0.43 1.16 0.75 - 0.75
11 mo. to
11/30/93 13.15 0.69 0.42 1.11 0.69 - 0.69
11/30/94 13.57 0.64 (1.28) (0.64) 0.64 - 0.64
11/30/95 12.29 0.66 1.11 1.77 0.66 - 0.66
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Ratio of
Net expenses to net Net assets
asset Ratio of average net investment at end
value at Total net expenses assets before income to Portfolio of period
end of return* to average expense reduc- avg. net turnover (000
period (%) net assets(%) tion** (%) assets (%) rate (%) omitted)
<S> <C> <C> <C> <C> <C> <C>
$12.66 3.0# 0.00 0.46 6.94+(4) 22+ $14,704
11.49 (2.5) 0.45 1.55 7.24(4) 54 26,590
12.07 12.5 0.86 1.44 6.93(4) 48 29,611
12.34 8.5 1.16 1.16 6.43 50 29,435
12.25 5.9 1.34 1.34 5.90 27 30,536
12.74 10.3 1.27 1.27 5.71 8 32,667
13.15 9.4 1.16 1.16 5.62 1 33,669
13.57 8.1# 1.24+ 1.24+ 5.07+ 23 34,448
12.29 (4.9) 1.30 1.30 4.84 56 31,172
13.40 14.8 0.97 1.36 5.14(4) 80 34,975
</TABLE>
(A) Commenced operations March 1, 1993.
(B) Commenced operations September 2, 1986.
(C) Commenced operations March 27, 1995
(D) Commenced operations October 14, 1986.
(E) Commenced operations October 1, 1990.
+ Annualized.
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total investment return.
# Not annualized.
** Expense reductions are comprised of the voluntary expense reimbursement and
include in 1995 credits received from the custodian and dividend paying
agent on cach balances.
# Not annualized.
(1) Ratios of net investment income to average net assets would have been .29%
in fiscal 1993, in the absence of a voluntary expense reimbursement.
(2) Prior to March 1, 1993, the Pennsylvania Fund's investment advisor was
ProvidentMutual Management Co., Inc. ("PMMC") and the distributor was
ProvidentMutual Financial Services ("PMFS"). For the years ended December
31, 1988 and 1987, PMMC waived advisory fees of $97,538 and $139,071,
respectively, and PMFS waived distribution fees of $72,170 and $57,946,
respectively. In addition, PMFS absorbed operating expenses of the Fund
totaling $55,118 for the year ended December 31, 1987. During the period
October 14, 1986 (commencement of operations) to December 31, 1986, PMMC
waived its entire fee of $15,188, and PMFS waived its entire fee of $6,328
and absorbed operating expenses totaling $15,479. Had fees not been waived
and expenses not absorbed, the ratio of expenses to average net assets for
the fiscal years ended December 31, 1988 and 1987, and for the period ended
December 31, 1986, would have been 1.44%, 1.55% and 0.46%,
respectively.
(3) The Pennsylvania Fund changed investment advisors from The Meritor
Investment Company to PMMC on December 28, 1988, and entered into its
current Investment Advisory Agreement with the Advisor on March 1,
1993.
(4) Ratio of net investment income to average net assets would have been 4.78%
for fiscal 1995, 6.35% in 1988, 6.14% in 1987 and 6.48% in 1986, in the
absence of a voluntary expense reimbursement.
(5) Ratio of net investment income to average net assets would have been 5.00%
in fiscal 1995, 4.92% in fiscal 1994, 5.14% in fiscal 1993, 5.71% in
fiscal 1992, 6.02% in fiscal 1991 and 4.46% in fiscal 1990, in the absence
of a voluntary expense reimbursement.
(6) Ratio of net investment income to average net assets would have been 5.76%
in fiscal 1995, in the absence of a voluntary expense reimbursement.
(7) Ratio of net investment income to average net asset would have been 2.18%
in 1993, in the absence of a voluntary expense reimbursement.
13
<PAGE>
The Funds
Sentinel Group Funds, Inc. (the "Company") is a managed, open-end
investment company that consists of eleven separate series funds, each of which
continuously offers shares to investors. All of the Funds in Sentinel Group
Funds, Inc., except the New York Fund, are diversified. The New York Fund is a
non-diversified series of the Company. The Pennsylvania Fund is a separate
open-end, non-diversified, managed investment company.
Sentinel Advisors Company (the "Advisor") serves as the investment advisor
to all of the Funds and Sentinel Financial Services Company (the "Distributor")
serves as the distributor for all of the Funds. See "Management of the Funds"
and "The Distributor" below.
Investment Objectives and Policies
Each of the Funds has distinct investment objectives and policies.
Investment objectives are fundamental policies of each Fund that may only be
changed by majority vote of the outstanding shares of that Fund. There can be no
assurance that these objectives will be achieved.
Set forth below is a description of each Fund's investment objectives and
policies and information on the person who is primarily responsible for the day-
to-day management of the portfolio of each Fund.
THE FUND INVESTS FOR GROWTH OF CAPITAL AND INCOME WITH RELATIVELY LOW RISK
. The Common Stock Fund seeks a combination of long-term growth of capital
and income, current return and relatively low risk by investing in the common
stocks of a diversified group of well-established companies. The Advisor will
select securities based on the issuing companies' quality and its appraisal of a
stock's price in relation to its value. When appropriate, the Fund may also
invest in preferred stocks or debentures convertible into common stocks.
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THE FUND INVESTS FOR STABILITY, INCOME AND GROWTH
. The Balanced Fund seeks a conservative combination of stability, income
and long-term growth of capital by investing in a diversified portfolio of
stocks and bonds. The percentage invested in each type of security will depend
on whether the Advisor believes stocks or bonds offer a better value at the time
of allocation. A greater proportion invested in bonds ordinarily provides
greater price stability, and a greater proportion in common stocks usually
provides enhanced potential for growth of income and principal. The Fund will
invest at least 25% of its total assets in fixed-income securities. When
determining this percentage, convertible bonds and/or preferred stocks will be
considered common stocks, unless these securities are held primarily for income.
The bond portion of the Balanced Fund will be invested in accordance with the
same investment policies as set forth below for the Bond Fund. As of November
30, 1995, the portfolio securities in the bond portion of the Balanced Fund had
an average rating of A1; the average effective portfolio maturity for the bond
portion of the Fund was 9.3 years.
THE FUND INVESTS IN STOCKS OF GROWING COMPANIES, WITH A FOCUS ON WELL-
ESTABLISHED COMPANIES
. The Growth Fund seeks to achieve long-term growth of capital by investing
primarily in common stocks of companies which the Advisor believes have more
growth potential than the U.S. economy as a whole. The Growth Fund will focus on
securities of well-established companies. Such companies will have, in the
Advisor's judgment, favorable growth potential and experienced managements.
Normally, the Fund will be fully invested in common stocks and other securities
convertible into common stocks; however, the Fund may temporarily retain cash or
invest in fixed-income securities, if deemed appropriate by the Advisor. Income
is not a factor in selecting investments.
The Growth Fund emphasizes securities believed to have superior potential
for growth rather than wide diversification. Up to 25% of the value of the
Growth Fund's assets may be invested in securities of companies within a single
industry.
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THE FUND INVESTS IN STOCKS OF GROWING COMPANIES, WITH A FOCUS ON SMALL AND MID-
SIZED COMPANIES
. The Emerging Growth Fund seeks long-term capital appreciation by
investing primarily in a diversified portfolio of common stocks, or securities
convertible into common stock, issued by small and medium-sized companies. The
Fund may also invest in larger, more established companies. Companies selected
for the Fund are believed to have superior growth potential and are judged to
represent attractive relative values. Income is not a factor in selecting
investments.
The median market capitalization of the Fund's portfolio companies
generally will not exceed $1 billion. Up to 25% of the Fund's assets may be
invested in securities within a single industry. The Fund may temporarily retain
cash or invest in fixed-income securities, if deemed appropriate by the Advisor.
The Fund's policy is to avoid short-term trading. However, the Advisor may
sell a security without regard to holding period if the Advisor believes it is
in the Fund's best interest to do so.
The Fund's turnover rate is not expected to exceed 100% annually. The Fund
is intended for long-term investors willing to accept a higher-than-average
level of volatility in order to seek above-average gains.
Investments in small and medium-sized companies typically involve more risk
than investments in larger companies, because they generally have limited
financial resources and narrower product lines and may have less seasoned
managers, and their securities may trade less frequently and in lower share
volumes, making them subject to wider price fluctuations.
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THE FUND INVESTS PRIMARILY IN STOCKS OF NON-U.S. COMPANIES.
. The World Fund seeks long-term growth of capital by investing primarily
in a diversified portfolio of marketable equity securities of established non-
U.S. companies. Normally, at least 75% of the Fund's total assets will be
invested in securities of non-U.S. issuers selected by the Sub-Advisor primarily
for long-term capital growth. The remaining 25% may be invested in companies
organized in the United States that have their principal activities and
interests (i.e., 50% of assets and/or 50% of revenues) outside of the United
States. The Fund may also invest in convertible or debt securities rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by
Standard & Poor's Ratings Group ("Standard & Poor's").
The Fund generally will not invest more than 25% of its total assets in any
one country; however, the Fund may invest up to 40% of its assets in any one
country if in the judgment of Cashman Farrell and Associates (the "Sub-
Advisor"), economic and business conditions make it appropriate to do so.
It is anticipated that the majority of the Fund's portfolio transactions
will be executed on established stock exchanges or in the over-the-counter
markets in the countries in which portfolio investments are being made. The
Fund also expects to purchase American Depositary Receipts ("ADRs"), and
European Depositary Receipts in bearer form, which are designed for use in
European securities markets. ADRs represent foreign securities traded on U.S.
exchanges or in the over-the-counter markets. To expedite
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settlement of portfolio transactions and minimize currency value fluctuations,
the Fund may purchase foreign currencies and/or engage in forward foreign
currency transactions. You can obtain more information about these strategies by
reading the section entitled, "Investment Objectives and Policies-Considerations
Applicable to the World Fund-Foreign Currency Transactions" in the Statement of
Additional Information. Normally, however, the Fund does not hedge its foreign
currency exposure.
Under abnormal economic or market conditions abroad, the Fund may assume a
temporary defensive posture by investing all, or a major portion, of its assets
in U.S. government obligations or investment-grade fixed income securities of
companies organized in the United States.
Investors should note that investing in foreign securities involves certain
special risk considerations which normally are not associated with investing in
U.S. securities, including, but not necessarily limited to, those listed below.
The Fund may be affected favorably or unfavorably by changes in currency rates
or exchange control regulations and may incur costs in connection with
conversions between various currencies. Foreign companies generally release less
financial information than comparable U.S. companies. Furthermore, foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting requirements. In general, securities listed on foreign
stock exchanges are less liquid and more volatile than securities listed on U.S.
stock exchanges, due to, for example, substantially lower trading volume. Such
lower volume could result in the Fund's obtaining lower sales prices in the
event of forced liquidation of securities to meet unanticipated cash
requirements. Fixed commissions on foreign stock exchanges are generally higher
than negotiated commissions on U.S. stock exchanges, and there is less
supervision and regulation of such exchanges. When investing in foreign
countries, there is the possibility of expropriation of assets, confiscatory
taxation, difficulty with the execution of judgments against foreign issuers,
imposition of the withholding of taxes prior to payment of dividends or other
distributions, political or social instability, or diplomatic developments that
could affect U.S. investments in those countries.
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THE FUND INVESTS FOR CONTINUING INCOME CONSISTENT WITH CAPITAL PRESERVATION
. The Bond Fund seeks as high a level of continuing income as is consistent
with capital preservation. The Fund will invest its assets exclusively in fixed-
income securities. At least 80% of the Fund's assets, exclusive of cash items
such as commercial paper, certificates of deposit and banker's acceptances, will
be invested in one or more of the following types of securities:
1. Debt securities which at the time of purchase are rated within the
four highest rating categories of Moody's, Standard & Poor's or any
other nationally recognized statistical rating organization;
2. Debt securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities ("U.S. Government Securities");
3. Debt securities (payable in U.S. dollars) issued or guaranteed by the
government of Canada or of a province of Canada, or any
instrumentality or subdivision thereof; and
4. Debt obligations of, or guaranteed by, domestic banks or bank holding
companies, even though not rated by Moody's or Standard & Poor's, if
the Advisor believes they have investment qualities comparable to
securities which may be purchased under (1) above.
The remainder of the Fund's assets may be invested in other fixed-income
investments not described above, such as straight or convertible debt securities
and straight or convertible preferred stocks. Generally, the Fund will invest no
more than 5% of its total assets in either (i) securities rated lower than BBB
by Standard & Poor's or Baa by Moody's, or (ii) unrated securities whose credit
quality, in the Advisor's opinion, is below the credit quality of securities
rated BBB by Standard & Poor's or Baa by Moody's. See "Appendix A-Description
of Bond Ratings" in the Statement of Additional Information for more information
concerning ratings of debt securities. As of November 30, 1995, the portfolio
securities in the Bond Fund had an average credit quality of A2; the average
effective portfolio maturity for the Fund was 9.5 years.
The Bond Fund may not invest more than 25% of its total assets in any one
industry, except for U.S. Government Securities. In applying this limitation,
utility companies will be divided according to their services, and financial
services companies will be classified according to the end users of their
services. For example, gas, gas transmission, electric, electric and gas, and
telephone will each be considered a separate industry, as will auto finance,
bank finance, and diversified finance.
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In the fiscal year ended November 30, 1995, the Bond Fund had portfolio
turnover of 237%. The Bond Fund is actively managed, and its portfolio is
constantly monitored and adjusted in an attempt to increase income, protect the
income stream or improve the quality of the portfolio. This investment policy
may result in relatively high portfolio turnover, but this need not adversely
affect the performance of the Bond Fund, because the Fund generally does not pay
commissions; it deals directly with dealers acting as principals when buying or
selling. Although the price of the securities may include a profit to the
dealer, the Fund will only execute these transactions when the Advisor believes
it will help the Fund to achieve its investment objective.
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THE FUND INVESTS PRIMARILY IN U.S. GOVERNMENT SECURITIES
. The Government Securities Fund seeks as high a level of current income as
------------------------------
is consistent with capital preservation by investing primarily in U.S.
Government Securities. To a limited extent, the Fund may also invest in
repurchase agreements with respect to these securities. In addition, the Fund
may invest up to 20% of its net assets in high quality money market instruments
which are not issued or guaranteed by the U.S. government or its agencies or
instrumentalities. These include bank money market instruments, commercial
paper or other short-term corporate obligations listed in the highest rating
categories by nationally recognized statistical rating organizations. Money
market instruments may be used as a means of making short-term investments.
The Fund may also use repurchase agreements as a means of making short-term
investments, and will invest only in repurchase agreements with durations of
seven days or less, only where the collateral securities are U.S. Government
Securities, and in aggregate amounts of not more than 25% of the Fund's net
assets. Further information concerning repurchase agreements is set forth on
page , below.
U.S. Government Securities include the following:
1. U.S. Treasury Bills, Notes and Bonds. These are obligations issued
directly by the U.S. Treasury and have maturities of less than one year
for Bills, one to ten years for Notes, and ten to 30 years for Bonds.
U.S. GOVERNMENT SECURITIES INCLUDE A WIDE ARRAY OF INVESTMENTS
2. Obligations guaranteed by the U.S. government. These include securities
issued or guaranteed by certain agencies and instrumentalities of the
U.S. government as to which the U.S. government guarantees repayment of
principal and payment of interest. These securities include fully
modified pass-through mortgage-backed certificates whose principal and
interest are guaranteed by the Government National Mortgage Association
("GNMA Certificates").
3. Obligations of U.S. government agencies and instrumentalities. These
include obligations issued or guaranteed by U.S. government agencies and
instrumentalities, supported by any of the following: (i) the right of
the issuer to borrow an amount limited to a specific line of credit from
the U.S. Treasury; (ii) discretionary authority of the U.S. government
to purchase certain obligations of the agency or instrumentality; or
(iii) the full faith and credit of the agency or instrumentality.
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The Fund is not required to maintain a set amount in any of the various
types of U.S. Government Securities described above. The types of U.S.
Government Securities selected for purchase will depend on market conditions and
the Advisor's outlook for interest rates and the economy. As of November 30,
1995, the Fund's average effective portfolio maturity was 7.0 years.
THE FUND MAY INVEST SUBSTANTIALLY IN MORTGAGE-BACKED SECURITIES
At times, the Fund may make investments in GNMA Certificates and other
mortgaged-backed U.S. Government Securities ("Mortgage-Backed Securities").
Each GNMA Certificate is backed by a pool of mortgage loans insured by the
Federal Housing Administration and/or the Veterans Administration. GNMA
Certificates provide for the payment of fixed monthly installments of principal
and interest to the registered holder of the security. As noted above, timely
repayment of principal and payment of interest is guaranteed by the full faith
and credit of the U.S. government.
In addition to GNMA Certificates, the Fund may invest in mortgage-backed
securities issued by the Federal National Mortgage Association ("FNMA") and by
the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA, a federally-
chartered and privately-owned corporation, issues pass-through securities and
certificates representing an interest in a pool of FNMA pass-through securities
which are guaranteed as to the repayment of principal and payment of interest by
FNMA. FHLMC, a corporate instrumentality of the United States, issues
participation certificates which represent an interest in mortgages from FHLMC's
portfolio and securities representing an interest in a pool of FHLMC
participation certificates. FHLMC guarantees the timely payment of interest and
the ultimate collection of principal. As is the case with GNMA Certificates,
the actual maturity of and realized yield on particular FNMA and FHLMC mortgage-
backed securities will vary based on the prepayment experience of the underlying
pool of mortgages. Securities guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States.
While the maximum life of a Mortgage-Backed Security is typically 30 years,
its average life varies with the maturities of the underlying mortgage
instruments. Average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the Mortgage-Backed Security, due to
prepayments, refinancing or foreclosure of these mortgage loans. Prepayments
are passed through to the registered holder along with regularly scheduled
repayments of principal and payments of interest.
In general, if prevailing interest rates are significantly below the rates
on mortgages underlying the Mortgage-Backed Securities, the Mortgage-Backed
Securities are likely to have higher prepayment rates than if prevailing rates
are at or above the interest rates on the underlying mortgages. Prepayment
possibilities reduce the potential of Mortgage-Backed Securities to appreciate
in market value during periods of falling interest rates, while the risk of
decline in market value during periods of
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rising interest rates may be comparable to other debt securities of similar
maturities.
The Fund does not intend to enter into options or futures transactions with
respect to U.S. Government Securities, lend its securities to others, or enter
into reverse repurchase agreements. With respect to repurchase agreements, the
Fund might incur time delays or losses in the event of the failure of the other
party to the agreement to repurchase the securities.
THE FUND INVESTS PRIMARILY IN U.S. GOVERNMENT SECURITIES WITH LIMITED MATURITIES
. The Short-Intermediate Government Fund seeks as high a level of current
income as is consistent with capital preservation by investing primarily in U.S.
Government Securities. This Fund will invest at least 65% of its assets in U.S.
Government Securities with average maturities of from 2 to 5 years. The
remainder of the Fund's assets may be invested in U.S. Government Securities
with other maturities, and the Fund may also invest to a limited extent in
repurchase agreements with respect to these securities. In addition, like the
Government Securities Fund, the Short-Intermediate Government Fund may invest up
to 20% of its net assets in high quality money market instruments which are not
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
The Fund may also use repurchase agreements as a means of making short-term
investments, in the same way as described for the Government Securities Fund
above.
U.S. Government Securities include the types of securities described above
under "The Government Securities Fund".
The Fund is not required to maintain a set amount in any of the various
types of U.S. Government Securities. The types of U.S. Government Securities
selected for purchase will depend on market conditions and the Advisor's outlook
for interest rates and the economy. At times, the Fund may make investments in
Mortgage-Backed Securities, as described above under "The Government
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Securities Fund". As of November 30, 1995, the Fund's average effective
portfolio maturity was 4.0 years.
The Fund does not intend to enter into options or futures transactions with
respect to U.S. Government Securities, lend its securities to others, or enter
into reverse repurchase agreements. With respect to repurchase agreements, the
Fund might incur time delays or losses in the event of the failure of the other
party to the agreement to repurchase the securities.
The Fund is not guaranteed or insured by the U.S. Government, and the value
of the Fund's shares will fluctuate.
THE FUND INVESTS SOLELY IN SHORT-TERM U.S. TREASURY SECURITIES
. The Treasury Fund seeks as high a level of current income as is
consistent with capital preservation and the maintenance of liquidity by
investing solely in short-term obligations of the U.S. Treasury. Such
obligations include U. S. Treasury Bills, U. S. Treasury Notes and U. S.
Treasury Bonds with remaining maturities of 397 days or less. Securities that
comprise the Fund may earn less income than longer term securities or lower
quality securities that have less liquidity, greater market risk and greater
market value fluctuations.
The Fund will seek to maintain a net asset value of $1.00 per share, by
using the amortized cost method of valuing its securities. In accordance with
rules adopted by the Commission, the Fund is required to maintain a dollar-
weighted average portfolio maturity of 90 days or less and to purchase only
instruments having remaining maturities of 397 days or less. For more
information about the amortized cost method, see "Determination of Net Asset
Value" herein and in the Statement of Additional Information.
INCOME MAY BE EXEMPT FROM STATE AND LOCAL TAXES
In many states, the Fund's income dividends may be exempt from state and
local income taxes, but subject to federal income taxes. For more information on
state and local tax exemption, see "Taxes" herein.
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THE FUND INVESTS FOR CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES
. The Tax-Free Income Fund seeks as high a level of current income, exempt
from federal income taxes, as is consistent with capital preservation, by
investing primarily in a diversified portfolio of municipal bonds. These
investments may include obligations of states, territories and possessions of
the United States and their political subdivisions, agencies, authorities and
instrumentalities. The payments from these investments, in the opinion of the
issuer's bond counsel, are exempt in their entirety from federal income
tax.
THE FUND CONSISTS PRIMARILY OF INVESTMENT GRADE MUNICIPAL BONDS
At least 80% of the total assets of the Tax-Free Income Fund will, at all
times, be invested in municipal bonds rated within the four highest rating
categories, or obligations of issuers having an issue of outstanding municipal
bonds rated within the four highest rating categories of either Moody's or
Standard & Poor's, except to the extent the Fund is invested in defensive
investments, as described below. See "Appendix A-Description of Bond Ratings"
in the Statement of Additional Information for more information regarding
ratings of debt securities.
The Fund also may invest in unrated municipal bonds, if the Advisor
believes the credit characteristics are at least equivalent to those of
municipal bonds ranked in the fourth highest rating category of either Moody's
or Standard & Poor's. Although this is not a fundamental policy, no more than
5% of the Fund's total assets may be invested in securities rated below
investment-grade or unrated securities that the Advisor believes are not
equivalent in credit quality to municipal bonds in the fourth highest rating
category. As of November 30, 1995, the portfolio securities of the Tax-Free
Income Fund had an average rating of AA3; the average effective portfolio
maturity of the Fund was 13.3 years.
THE FUND SEEKS HIGH CURRENT INCOME EXEMPT FROM FEDERAL AND NEW YORK STATE AND
CITY INCOME TAXES
. THE NEW YORK FUND seeks as high a level of current interest income exempt
-----------------
from federal income taxes and New York State and New York City personal income
taxes as is consistent with liquidity and capital preservation, by investing
substantially all of its assets in obligations issued by or on behalf of the
State of New York and its political subdivisions, agencies, authorities, and
instrumentalities ("New York Obligations"), the interest on which, in the
opinion of the issuer's bond counsel, is exempt from federal income tax and New
York State and City personal income tax. The New York Fund normally will invest
substantially all of its net assets in New York Obligations with maturities of
more than one year at the time of investment. The Fund may, however, invest up
to 20% of its net assets in short-term New York Obligations.
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THE FUND CONSISTS PRIMARILY OF INVESTMENT GRADE MUNICIPAL BONDS
At least 80% of the total assets of the New York Fund will, at all times,
be invested in municipal bonds rated within the four highest rating categories,
or obligations of issuers having an issue of outstanding municipal bonds rated
within the four highest rating categories of either Moody's or Standard &
Poor's, except to the extent the New York Fund is invested in defensive
investments, as described below. See "Appendix A - Description of Bond Ratings"
to the Statement of Additional Information for more information regarding
ratings of debt securities.
The New York Fund also may invest in unrated municipal bonds, if the
Advisor believes the credit characteristics are at least equivalent to those of
municipal bonds ranked in the fourth highest rating category of either Moody's
or Standard & Poor's. Although this is not a fundamental policy, no more than
5% of the New York Fund's total assets may be invested in securities rated below
investment-grade or unrated securities that the Advisor believes are not
equivalent in credit quality to municipal bonds in the fourth highest rating
category. As of November 30, 1995, the portfolio securities of the New York
Fund had an average rating of A3; the average effective maturity of the Fund was
11.6 years.
Due to the New York Fund's concentration in New York Obligations, the Fund
is more susceptible to factors adversely affecting issuers of New York
Obligations than a municipal bond fund which is diversified nationally. Because
the Fund invests at least 80% of its assets in New York Obligations, its net
asset value is particularly sensitive to changes in the economic condition and
governmental policies of the State of New York. For example, the economic
condition of a significant industry within New York may have a corresponding
effect on specific issuers within New York or on anticipated revenue to the
State. Other factors that may negatively affect economic conditions in New York
include adverse changes in employment rates, federal revenue sharing or laws
with respect to tax-exempt financing. In recent years, New York State, New York
City and other New York public bodies have encountered financial difficulties,
and New York City is currently encountering financial difficulties, which could
have an adverse effect with respect to the performance of the Fund. On January
17, 1995, Standard & Poor's placed the City's general obligation bonds on Credit
Watch with negative implications. The Advisor does not believe, however, that
the current economic conditions in New York will have a significant adverse
effect on the Fund's ability to invest in high quality New York Obligations.
For additional information pertinent to investment in New York Obligations, see
"Appendix B - Economic Conditions in New York" to the Statement of Additional
Information.
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The Fund seeks high current income exempt from federal and Pennsylvania income
taxes
. THE PENNSYLVANIA FUND seeks as high a level of current interest income
exempt from federal income taxes and Pennsylvania personal income taxes as is
consistent with liquidity and capital preservation, by investing substantially
all of its assets in obligations issued by or on behalf of the Commonwealth of
Pennsylvania (the "Commonwealth" or "Pennsylvania") and its political
subdivisions, agencies, authorities, and instrumentalities ("Pennsylvania
Obligations"), the interest on which, in the opinion of the issuer's bond
counsel, is exempt from federal income tax and Pennsylvania personal income tax.
A general discussion of municipal bonds is contained in the description of the
New York Fund, above.
Under prior Pennsylvania law, in order for the Pennsylvania Fund to qualify
to pass through to investors income exempt from Pennsylvania personal income
tax, the Pennsylvania Fund was required to adhere to certain investment
restrictions. In order to comply with this and other Pennsylvania law
requirements previously in effect, the Pennsylvania Fund's Declaration of Trust
provides that the Fund will invest for income earnings rather than trading for
profit, and that the Fund have no power to vary its portfolio investments except
to (i) eliminate unsafe investments and investments not consistent with the
preservation of the capital or tax status of the investments of the Fund; (ii)
honor redemption orders, meet anticipated redemption requirements and negate
gains from discount purchases; (iii) maintain a constant net asset value per
unit pursuant to, and in compliance with, an order or rule of the U.S.
Securities and Exchange Commission (the "Commission"); (iv) reinvest the
earnings from securities in like securities; or (v) defray normal administrative
expenses (the "Pennsylvania Requirements"). Pennsylvania has enacted
legislation which eliminated the necessity for the foregoing investment
restrictions. The Fund is in the process of soliciting shareholder approval to
amend the Declaration of Trust to eliminate the Pennsylvania Requirements, and
upon the completion of this process, if the shareholders grant their approval,
the Pennsylvania Requirements will no longer apply. However, until the
Declaration of Trust is amended, the Pennsylvania Fund continues to be governed
by such investment restrictions.
The Pennsylvania Fund normally will invest substantially all of its net
assets in Pennsylvania Obligations with maturities of more than one year. The
Fund may, however, invest up to 20% of its net assets in short-term Pennsylvania
Obligations. All of the Pennsylvania Obligations in which the Pennsylvania Fund
invests will be rated in the top four rating categories by Moody's or Standard &
Poor's or, if unrated, possess equivalent investment characteristics, as
determined by the Advisor. See "Appendix A-Description of Bond Ratings" to the
Statement of Additional Information for more information regarding ratings of
debt securities. As of November 30, 1995, the portfolio securities of the
Pennsylvania Fund had an average rating of AA3; the average effective portfolio
maturity for the Fund was 12.0 years.
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THE FUND CONSISTS PRIMARILY OF HIGH-GRADE MUNICIPAL BONDS
At least 75% of the Pennsylvania Fund's assets will be invested in (a)
municipal obligations rated "A" or higher by Moody's or by Standard & Poor's or,
if not rated, that, in the opinion of the Advisor, possess equivalent investment
characteristics; (b) municipal notes rated "SP-1" or higher by Standard & Poor's
or "MIG-2" or higher by Moody's or, if not rated, that, in the opinion of the
Advisor, possess equivalent investment characteristics; and (c) tax-exempt
commercial paper rated "A-1" or higher by Standard & Poor's or "Prime-1" by
Moody's or, if not rated, that, in the opinion of the Advisor, possess
equivalent investment characteristics. The Pennsylvania Fund cannot invest in
municipal obligations or notes rated lower than "BBB" by Standard & Poor's or
"Baa" by Moody's or unrated securities that possess investment characteristics
equivalent to these securities, in the opinion of the Advisor.
Due to the Pennsylvania Fund's concentration in Pennsylvania Obligations,
the Fund is more susceptible to factors adversely affecting issuers of
Pennsylvania Obligations than a municipal bond fund which is diversified
nationally. Because the Fund invests at least 80% of its assets in Pennsylvania
Obligations, its net asset value is particularly sensitive to changes in the
economic condition and governmental policies of Pennsylvania. For example, the
economic condition of a significant industry within Pennsylvania may have a
corresponding effect on specific issuers within Pennsylvania or on anticipated
revenue to the Commonwealth.
Other factors that may negatively affect economic conditions in
Pennsylvania include adverse changes in employment rates, federal revenue
sharing or laws with respect to tax-exempt financing. For additional
information pertinent to investment in Pennsylvania Obligations, see "Appendix C
- - Economic Conditions in Pennsylvania" to the Statement of Additional
Information.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
INFORMATION RELEVANT TO THE INVESTMENT PRACTICES OF SEVERAL FUNDS
Information Relevant to All Funds
PERIODICALLY THE FUNDS MAY BE LESS THAN FULLY INVESTED
Depending upon the Advisor's appraisal of the availability of attractive
securities and upon its judgment with respect to market conditions, a Fund may
be less than fully invested.
There can be no assurance that a Fund's objective will be attained.
None of the Funds may invest in illiquid securities, or engage in short
sales of securities.
All of the Funds, except the Treasury Fund, may also invest in repurchase
agreements, provided the counterparty maintains the
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value of the underlying securities at a value not less than the repurchase price
stated in the agreement. Under a repurchase agreement, a Fund purchases fixed-
income securities and simultaneously agrees to resell these holdings to the
counterparty at a prearranged time and specific price. If the counterparty
defaults on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities would be less
than the repurchase price stated in the agreement. Bankruptcy or insolvency of
such a defaulting counterparty may cause a Fund to delay or limit its rights
concerning these securities. For more information about repurchase agreements,
please refer to the Statement of Additional Information.
Information Relevant to the Fixed-Income Funds
The market prices of debt securities, including those issued by the U.S.
government, are inversely affected by interest rate changes. As a result, the
net asset value of the shares of Funds holding debt securities will fluctuate
with conditions in the debt securities market. Debt securities with longer
maturities and longer effective durations (a measure of an instrument's
sensitivity to changes in interest rates) generally have higher yields and are
subject to greater price fluctuation due to interest rate changes than debt
securities with shorter maturities or shorter effective durations.
The Bond, New York and Tax-Free Income Funds, and the bond portion of the
Balanced Fund, may invest without limitation in debt securities in the fourth
highest rating category of Moody's and Standard & Poor's. The Pennsylvania Fund
may invest up to 25% of its assets in such debt securities. While considered
"investment-grade", these securities may have more speculative characteristics
and may be more likely to be downgraded than securities rated in the three
highest rating categories. If a debt security in any of the Funds is downgraded
below investment-grade, the Advisor will determine whether selling the security
is in the shareholders' best interest. To arrive at this decision, the Advisor
will consider several factors, including price, credit risk, market conditions
and the prospective trend in interest rates.
The assets of the Bond, New York, Pennsylvania, Tax-Free Income, Government
Securities and Short-Intermediate Government Funds and the bond portion of the
Balanced Fund may include securities that have been purchased on a when-issued
or delayed-delivery basis. Delivery of and payment for these securities could
take place a month or more after the date of the transaction. During this time,
the value of the purchase commitment will fluctuate with the market for
comparable securities. However, when the Fund makes a commitment to purchase
the securities, the payment and interest terms of these issues are fixed. A
Fund will make these commitments only with the intention of acquiring the
securities, but may sell those holdings before
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<PAGE>
settlement date if, in the Advisor's opinion, such action would benefit
shareholders. When a Fund purchases securities on a when-issued or delayed-
delivery basis, it will provide its custodian with enough assets to pay the
purchase price of these securities upon delivery. Payment would be in the form
of cash, cash equivalents, or short-term, high grade, fixed-income securities.
This policy ensures that the use of when-issued or delayed-delivery purchases
does not have the effect of leveraging the portfolio.
The Bond, Government Securities, Short-Intermediate Government and Balanced
Funds may also enter into "dollar rolls". A dollar roll occurs when a Fund
sells mortgage-backed or U.S. Treasury securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. During the
roll period, a Fund foregoes principal and interest paid on the mortgage-backed
or U.S. Treasury securities. A Fund is compensated by the difference between
the current sales price and the lower forward price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. A "covered roll" is a specific type of dollar
roll in which the proceeds of a dollar roll are held in a segregated account
with liquid, short-term, high grade debt securities. Dollar rolls in which the
Funds may invest will be limited to covered rolls.
Information Relevant to the Tax-Exempt Funds
Interest income on certain "private activity" bonds is a preference item
for shareholders subject to the alternative minimum tax ("AMT"). Municipal
bonds whose interest is a preference item for AMT purposes will comprise less
than 20% of each of the Tax-Free Income and New York Funds' total assets. From
their inceptions through March 25, 1996, the Tax-Free Income and New York Funds
did not hold private activity bonds. However, past investment strategies are
not necessarily indicative of the Funds' future investment program. The
Pennsylvania Fund does not presently intend to purchase bonds subject to the
AMT. For more information on private activity bonds, refer to the section
entitled "Taxes" below.
Any gain or loss from the sale of a tax-exempt security will generally be
treated as either a short-term or long-term capital gain or loss for the Fund,
depending on the holding period. Capital gains distributions are fully
taxable.
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<PAGE>
STRATEGIES TO PROTECT SHAREHOLDER CAPITAL IN TIMES OF MARKET WEAKNESS
Should the Advisor anticipate a rise in interest rates, and a corresponding
decline in value of long-term municipal bonds, the Tax-Free Income, New York and
Pennsylvania Funds may invest temporarily in short-term debt obligations,
including taxable investments, to help protect shareholder capital. Such
investments may include notes issued by or on behalf of municipal issuers; U.S.
Government Securities; instruments of domestic banks; repurchase agreements;
domestic commercial paper; and other cash-type investments.
Under these conditions, the Pennsylvania Fund will limit its investments in
securities other than Pennsylvania obligations to 20% of its assets. With
respect to non-governmental issuers the Pennsylvania Fund will limit these
investments to obligations of issuers whose quality rating at the time of
purchase is within the two highest categories of either Standard & Poor's or
Moody's.
The interest on municipal obligations issued by states other than New York
or Pennsylvania, for the New York and Pennsylvania Funds, respectively, is
exempt only from federal income tax. Interest on certain qualifying U.S.
Government Securities, but not all such securities, is exempt only from state
personal income tax. Interest on instruments of domestic banks, repurchase
agreements, domestic commercial paper, and other cash-type investments are
generally fully subject to both federal and any applicable state income
taxes.
The New York, Pennsylvania and Tax-Free Income Funds may purchase and sell
certain exchange-traded financial futures contracts and related options for the
following reasons:
. to hedge against adverse changes in interest rates;
. to protect against depreciation of municipal bond investments; or
. to hedge against increases in the cost of prospective municipal bond
investments.
None of the New York, Pennsylvania or Tax-Free Income Funds will purchase
and sell financial futures contracts or related options if, immediately after
purchase, the sum of the amount of initial margin on existing futures positions
and premiums paid for outstanding options exceeds 5% of the Fund's total assets.
Options and futures transactions involve certain risks; however, the Advisor
believes that since the New York, Pennsylvania and Tax-Free Income Funds will
engage in these transactions for hedging purposes only, these portfolio
strategies will not subject these Funds to the risks frequently associated with
the speculative use of options and futures transactions. However, there are
certain risks related to futures transactions used for hedging purposes that you
should understand. These include: (i) incorrect forecasts of interest rates by
the Advisor, which may result in the hedge being ineffective; (ii) possible lack
of a
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<PAGE>
liquid secondary market for a financial futures contract, which may result if
the particular market exceeds its daily price fluctuation limit, or for other
reasons, in which case the New York, Pennsylvania or Tax-Free Income Fund may be
adversely affected by its inability to close out its futures position; and (iii)
imperfect correlation between the change in the market value of a Fund's
municipal bonds and the prices paid for futures contracts, which may result in
the hedge being ineffective. From their inceptions through April 1, 1996, none
of the New York, Pennsylvania or Tax-Free Income Funds has engaged in any of the
hedging transactions described above. For further information on financial
futures contracts and options, please refer to "Investment Objectives and
Policies" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
Board of Directors - Board of Trustees
The Board of Directors of the Company and the Board of Trustees of the
Pennsylvania Fund (together, the "Boards") consist of ten individuals, two of
whom are "interested persons" of the Funds as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). The Boards are responsible for the
overall supervision of the operations of the Funds and performs the various
duties imposed on the directors of investment companies by the 1940 Act.
Investment Advisor
The Advisor's indirect owners are major insurance companies with combined
assets of over $18 billion. The Advisor is a Vermont general partnership whose
general partners are affiliates of three of the nation's major insurance
companies, with aggregate assets of over $18 billion. The partners are:
. Sentinel Advisors, Inc., an indirect wholly-owned subsidiary of National
Life Insurance Company ("National Life"),
. ProvidentMutual Management Co., Inc., an affiliate of Provident Mutual
Life Insurance Company ("Provident Mutual"),
. HTK of Delaware, Inc., an affiliate of The Penn Mutual Life Insurance
Company ("Penn Mutual"), and
. Sentinel Management Company, a Vermont general partnership whose general
partners are affiliates of National Life, Provident Mutual and Penn
Mutual.
The principal business address of the Advisor is National Life Drive,
Montpelier, Vermont 05604. Subject to the direction and control of the Boards,
the Advisor makes the investment
35
<PAGE>
decisions for the Funds and provides certain administrative and related
services. For these services to the Funds, the Advisor receives a fee, based on
the aggregate average daily value of net assets of the Funds at the following
annual rates:
(1) With respect to the Emerging Growth, Growth, World and Balanced Funds:
0.70% per annum on the first $200 million of average daily net assets
of such Funds in the aggregate;
0.65% per annum on the next $100 million of such assets;
0.60% per annum on the next $100 million of such assets; and
0.55% per annum on such assets in excess of $400 million.
(2) With respect to the Common Stock Fund:
0.55% per annum on the average daily net assets of the Fund.
(3) With respect to the Bond, New York, Tax-Free Income, Government
Securities and Short-Intermediate Government Funds,:
0.55% per annum on the first $200 million of average daily net assets
of such funds in the aggregate;
0.50% per annum on the next $200 million of such assets; and
0.45% per annum on such assets in excess of $400 million.
(4) With respect to the Pennsylvania Fund:
0.55% per annum on the first $50 million of average daily net assets
of such funds in the aggregate;
0.50% per annum on the next $50 million of such assets; and
0.45% per annum on such assets in excess of $100 million.
(5) With respect to the Treasury Fund:
0.40% per annum on the first $300 million of average daily net assets
of the Fund; and
0.35% per annum on such assets in excess of $300 million.
Portfolio Managers
The Common Stock Fund and the Emerging Growth Fund are managed by teams of
investment professionals led by Keniston P. Merrill. Mr. Merrill is Chairman of
the Board of the Company and the Pennsylvania Fund and has been associated with
the Advisor and its predecessor since 1982, serving as Chairman and Chief
Executive Officer since 1986. He has a total of 38 years experience as an
investment professional.
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<PAGE>
The portfolio manager for the Growth Fund is Robert L. Lee, Vice President
of the Advisor. Mr. Lee is a Chartered Financial Analyst. Mr. Lee assumed
responsibility for the Fund in November, 1993, when he joined the Advisor. Prior
to that time he was a Vice President at Shawmut National Corporation.
The Balanced Fund's portfolio manager is Rodney A. Buck, Senior Vice
President of the Advisor. Mr. Buck is a Chartered Financial Analyst, and has
been the Fund's portfolio manager since 1982. He is also Chairman and Chief
Executive Officer of National Life Investment Management Company, Inc., and
Senior Vice President and Chief Investment Officer of National Life. Mr. Buck
has been employed by the Advisor or its affiliates since 1972.
The portfolio manager for the Bond Fund and the Treasury Fund is Richard D.
Temple, Vice President of the Advisor. He has been the Bond Fund's portfolio
manager since 1985 and has been employed by the Advisor or its affiliates since
1969.
The portfolio manager of the Government Securities and Short-Intermediate
Government Funds is David M. Brownlee, Vice President of the Advisor. Mr.
Brownlee is a Chartered Financial Analyst. Prior to joining the Advisor in
1993, Mr. Brownlee was a Managing Director at Aetna Life and Casualty.
The portfolio manager of the Tax-Free Income, New York and Pennsylvania
Funds is Kenneth J. Hart, Vice President of the Advisor. Mr. Hart has been with
the Advisor since 1990, and prior to that he was employed by Sentinel
Administrative Service Corporation and Shearson Lehman Brothers.
Sub-Advisor
CASHMAN FARRELL AND ASSOCIATES SERVES AS SUB-ADVISOR TO THE WORLD FUND
With respect to the World Fund only, the Advisor has entered into a sub-
advisory agreement with the Sub-Advisor, Cashman Farrell and Associates.
Pursuant to such agreement, the Sub-Advisor provides the Advisor with a
continuous investment program consistent with the World Fund's stated investment
objectives and policies. The sub-advisory agreement provides for a fee from the
Advisor to the Sub-Advisor of the greater of (a) a monthly fee equal to 0.03125%
(0.375% per annum) of the average daily net assets of the Fund up to $500
million and 0.025% (0.30% per annum) of such average net assets in excess of
$500 million, or (b) $20,000 per annum. The effective fee rate paid by the
Advisor to the Sub-Advisor for the fiscal year ended November 30, 1995 was
0.375% per annum.
The Sub-Advisor is located at 1235 Westlakes Drive, Berwyn, PA, 19312.
The World Fund's portfolio manager since June 1994 has been Erik B.
Granade, a Partner of the Sub-Advisor. Mr. Granade is a Chartered Financial
Analyst. He has been associated with the Sub-
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<PAGE>
Advisor since June 1994. Prior to that time he was an International Portfolio
Manager with Provident Capital Management, Inc.
Administration
In accordance with Fund Services Agreements with the Funds, Sentinel
Service serves as the transfer agent for the Funds and also provides the Funds
with certain fund accounting, financial administration and shareholder relations
services. To perform the transfer agency function, Sentinel Service utilizes
the computer system of DST Systems, Inc., ("DST") on a remote basis through
Investors Fiduciary Trust Company ("IFTC").
The Fund Services Agreements provides for the Company and the Pennsylvania
Fund to pay to Sentinel Service fixed fees of $842,500 per year and $84,000 per
year, respectively, for fund accounting and financial administration services.
They also provide for annual fees payable by the Company and the Pennsylvania
Fund for transfer agency and shareholder relations services of $2,563,000 and
$37,000, respectively, plus an amount equal to an annual rate of $15 per
shareholder account in excess of 106,500 and 1,500, respectively, as of the last
day of the month preceding the installment due date. The fixed fees are subject
to increase under inflation clauses approved by the Boards. The Funds must pay
for remote access to the computer system of DST. Generally this is a fixed
annual charge per shareholder account, plus certain out-of-pocket expenses,
minus certain credits. The fees, as a percentage of net assets for transfer
agency and shareholder servicing are somewhat higher than industry norms.
However, the Boards believe that such fees are warranted in light of the level
of service provided.
In addition, Sentinel Service has voluntarily agreed to refund its fee to
the extent necessary to prevent the overall aggregate expense ratio of the Class
A shares of the Funds (excluding the World Fund) from exceeding 1.30% of average
aggregate daily net assets in any fiscal year. However, the expense ratios of
the individual Funds vary, and no reimbursement need be made under this
agreement if an individual Fund's expense ratio exceeds 1.30%, as long as the
overall expense ratio of the Funds (excluding the World Fund) is less than
1.30%. For the fiscal year ended November 30, 1995, the overall aggregate
expense ratio of the Funds (excluding the World Fund), was 1.11%, and no
reimbursement was made under this agreement. Sentinel Service has also
voluntarily agreed to reimburse the Pennsylvania Fund, the Short-Intermediate
Government Fund, the Treasury Fund and the World Fund for expenses necessary to
limit such Funds' individual expense ratios to 0.75%, 1.00%, 0.85% and 2.00%,
respectively. Although Sentinel Service has no present intention to do so,
these arrangements may be terminated at any time.
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<PAGE>
Sentinel Service is also a Vermont general partnership of which affiliates
of National Life, Provident Mutual and Penn Mutual are the general partners.
CUSTODIAN
IFTC serves as the Custodian and Dividend Paying Agent for the Funds. IFTC
is an affiliate of State Street Bank.
THE DISTRIBUTOR
The Distributor, Sentinel Financial Services Company, whose address is
National Life Drive, Montpelier, Vermont 05604, serves as national distributor
for the Funds under the terms of agreements which became effective March 1,
1993. The Distributor has the exclusive right to distribute shares of the Funds
through broker-dealers with whom it has selling agreements. The Distributor is
a general partnership of which affiliates of National Life, Provident Mutual and
Penn Mutual are the general partners.
DISTRIBUTION PLANS
On March 1, 1993, each of the Funds, except for the Treasury, Short-
Intermediate Government and New York Funds, adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act, applicable to their Class A shares. On March
27, 1995, the Short-Intermediate Government Fund adopted a supplemental
distribution plan pursuant to Rule 12b-1 under the 1940 Act, applicable only to
it and both the Short-Intermediate Government Fund and the New York Fund became
subject to the existing distribution plan for all of the other Funds. Effective
April 1, 1996, the Emerging Growth, World, Common Stock, Balanced, Bond and
Tax-Free Income Funds adopted a Class B Distribution Plan applicable only to the
Class B shares of these Funds. These distribution plans are herein referred to
as the "Plans". Neither the Class A nor the Class B shares of the Treasury Fund
is a participant in the Plans and none of the fees paid by the other Funds
pursuant to the Plans will be used to reimburse the Distributor for expenses
incurred in connection with the distribution of Treasury Fund shares.
Under the Plans applicable to the Class A shares, each participating Fund
will pay to the Distributor a monthly fee at the maximum annual rate of (a) .30%
of average daily net assets in the case of the Emerging Growth, Growth, World,
Common Stock and Balanced Funds, (b) .20% of average daily net assets in the
case of the Bond, New York, Pennsylvania, Tax-Free Income and Government
Securities Funds, or (c) .35% of average daily net assets in the case of the
Short-Intermediate Government Fund. Such fees will be used to reimburse the
Distributor for expenses incurred in connection with distribution and promotion
of the
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<PAGE>
shares of each participating Fund, including salaries and expenses of the
Distributor's wholesale sales force, home office management and marketing
personnel, expenses incurred by the Distributor for the occupancy of its office
space in Montpelier, Vermont, expenses incurred by the Distributor with respect
to equipment and supplies, expenses incurred for the preparation, printing and
distribution of sales literature used in connection with the offering of such
shares to the public, expenses incurred in advertising, promoting and selling
shares of such Fund to the public, expenses incurred for the preparation,
printing and distribution of the Prospectus and Statement of Additional
Information, and any supplement thereto used in connection with the offering of
such Fund's shares to the public, or any reports and other communications for
distribution to existing shareholders, and service fees paid to securities
dealers who have executed a selling agreement with the Distributor.
Under the Plan applicable to the Class B shares, the Class B shares of each
of the Emerging Growth, World, Common Stock, Balanced, Bond and Tax-Free Income
Funds will pay to the Distributor a monthly fee at an annual rate of up to a
total of 1.00% of average daily net assets, of which up to 0.25% shall be for
service fees to broker-dealers, and the remaining 0.75% shall be for the
recovery of the initial sales commissions paid by the Distributor at the time of
sales of Class B shares, together with the cost of financing such payments, and
for the other types of distribution, sales and marketing expenditures detailed
in the preceding paragraph for the Plans applicable to the Class A shares.
These asset-based fees, excepting the service fee component, are subject to
aggregate limits imposed by the National Association of Securities Dealers,
Inc.
To dealers, the Distributor pays, in the case of the Class A shares of the
Emerging Growth, Growth, World, Common Stock and Balanced Funds, .20% per annum
of average net assets owned by clients of the dealer who acquired such shares on
or after March 1, 1993; in the case of the Class A shares of the Bond, New York,
Pennsylvania, Tax-Free Income and Government Securities Funds, .10% per annum of
the Funds' average net assets owned by clients of the dealer who acquired such
shares on or after March 1, 1993, or, in each case, who acquired their shares in
the acquisitions of ProvidentMutual Fund or Independence Capital Group of Funds
assets by the Funds; and in the case of the Short-Intermediate Government Fund,
.25% per annum of the average net assets owned by clients of the dealer. In the
case of Class B shares of the Emerging Growth, World, Common Stock, Balanced,
Bond and Tax-Free Income Funds, the Distributor pays to dealers a service fee
which varies based on the total assets in Class B shares of the Funds for which
each
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<PAGE>
registered representative of such dealer is the registered representative of
record, as follows:
<TABLE>
<CAPTION>
ASSETS IN CLASS B SHARES
OF THE FUNDS FOR WHICH A
PARTICULAR INDIVIDUAL IS
REGISTERED REPRESENTATIVE ANNUAL BROKER-DEALER
OF RECORD SERVICE FEE
- ------------------------- --------------------
<S> <C>
$0 - $99,999 -0-
$100,000 - $199,999 0.10%
$200,000 - $999,999 0.25%
$1,000,000 and over 0.50%
</TABLE>
In no case will the Class B shares of any Fund pay service fees which total more
than 0.25% per year. To the extent the above schedule requires a payment from
the Distributor in an amount exceeding 0.25% of average daily assets of the
Class B shares of any Fund, then the Distributor will make such payment and will
not be entitled to recover the excess over 0.25% from the Funds under the Plans.
The Class B share service fee for the first year after a purchase will be used
to partially recover the cost of the dealer concession paid by SFSC to the
selling dealer.
The portion of the distribution fee consisting of service fees to dealers
will be paid out of the general assets of the related Fund and therefore affects
all shareholders of each such Fund equally, regardless of whether a service fee
payment is made in respect to a particular shareholder's shares. The degree to
which each Fund is affected will depend on the percentages of the shares of such
Fund which are or are not subject to service fee payments.
The Distributor will not be reimbursed for any unreimbursed eligible
expenses from any other Fund, or in any future year for reimbursable expenses
for any Fund that exceed the applicable 0.35%, 0.30%, 0.20% or 1.00%
maximums.
HOW TO PURCHASE SHARES
OPENING AN ACCOUNT IS EASY
You can purchase shares of the Funds through any securities dealer who has
a sales agreement with the Distributor. If you already have an account with
Sentinel you can purchase shares by mailing your check directly to Sentinel
Service.
Alternative Purchase Options
The Emerging Growth, World, Common Stock, Balanced, Bond and Tax-Free
Income Funds offer prospective investors a choice of two
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<PAGE>
classes of shares, Class A and Class B, which incur sales charges in different
forms and amounts and which bear different levels of expenses. These alternative
purchase arrangements are designed to enable the investor to choose the method
of purchasing Fund shares that is most beneficial to the investor based on all
factors to be considered, which may include: the amount and intended length of
the investment, the type of Fund, and whether the investor intends to utilize
the exchange privilege. Generally, when making an investment decision, investors
should at least consider the anticipated life of an intended investment in the
Funds, the accumulated distribution fees plus CDSC on Class B shares, the
initial sales charge, if any, plus accumulated distribution fees on Class A
shares, the possibility that the anticipated higher return on Class A shares due
to the lower ongoing charges will offset the initial sales charge paid on such
shares, and the automatic conversion of Class B shares to Class A shares at
certain specified times.
In determining which class of shares to purchase, an investor should always
consider whether any waiver or reduction of a sales charge or a CDSC is
available. See generally "Class A Shares - Reduced Sales Charges" and "How to
Redeem Shares - Class B Shares - Waiver or Reduction of the CDSC" below.
There is no size limit on purchases of Class A shares. The maximum
purchase of Class B shares accepted is $999,999. The Funds may refuse any order
to purchase shares.
The Growth, New York, Pennsylvania, Government Securities, and Short-
Intermediate Government Funds offer only Class A shares. Class B shares of the
Treasury Fund are offered only for exchanges from the Class B shares of other
Funds, and are not offered for initial purchase. See "Shareholder Services -
Exchange Privilege" below.
Class A Shares
For all purchases of Class A shares, you pay the public offering price,
which equals the net asset value per share (next computed following receipt of
your order by Sentinel Service), plus a sales charge (except that in the case of
the Treasury Fund, there is no sales charge).
The sales charge ranges from 5.0% to 0.0% of the offering price (5.3% to
0.0% of the net amount invested). The size of your purchase will determine the
amount of your sales charge.
Class A Shares - Sales Charges
The table below shows the schedule of sales charges for all of the Funds,
other than the Short-Intermediate Government and Treasury Funds.
SALES DEALER
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<PAGE>
<TABLE>
<CAPTION>
SALE SIZE CHARGE REALLOWANCE
- --------- ------ -----------
<S> <C> <C>
$-0- to $99,999 5.00% 4.50%
$100,000 to $249,999 4.00% 3.75%
$250,000 to $499,999 2.50% 2.25%
$500,000 to $999,999 2.00% 1.75%
$1,000,000 or more 0 0
</TABLE>
For the Short-Intermediate Government Fund, the sales charge for sales of
up to $999,999 is 1.00%, with a dealer reallowance of 0.75%. For sales of
$1,000,000 and over, there is no initial sales charge.
In cases in which there is no sales charge because the sale is in an amount
of $1,000,000 or more, the Distributor will pay dealers compensation of 1.00%
for sales of up to $4,999,999, and in an individually negotiated amount for
sales of $5,000,000 and over. See "How to Redeem Shares - Class A Shares
Purchased in Amounts Over $1,000,000 - CDSC", below.
Equity Services, Inc., PML Securities Company, Janney Montgomery Scott,
Inc., and Hornor, Townsend & Kent, Inc., which are wholly-owned subsidiaries of
the partners of the Advisor, receive a dealer reallowance equal to the entire
sales charge on their sales of Fund shares. As a result, they may be considered
underwriters of such shares.
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<PAGE>
44
<PAGE>
Class B Shares
For all purchases of Class B shares, you pay the current net asset value.
There is no initial sales charge. A CDSC will be imposed on Class B shares
(including Class B shares of the Treasury Fund), if you redeem shares during the
applicable CDSC period, and no waiver of the CDSC applies. See "How to Redeem
Shares - Class B Shares - CDSC" and "How to Redeem Shares - Class B Shares -
Waiver or Reduction of the CDSC", below.
Class B shares are subject to higher distribution fees than Class A shares
for a fixed period after their purchase. See "Distribution Plans" above. After
such period, the Class B shares automatically convert to Class A shares and are
no longer subject to such higher distribution fees. The holding period for
Class B shares after which they automatically convert to Class A shares varies
depending on the amount of the initial purchase payment. For purchase payments
up to $249,999, the automatic conversion occurs at the end of the sixth year;
for purchase payments from $250,000 to $499,999, the automatic conversion occurs
at the end of the fifth year; and for purchase payments from $500,000 to
$999,999, the automatic conversion occurs at the end of the fourth year. The
holding period for Class B shares will include the holding period of Class B
shares of another Fund from which they were exchanged.
Because the CDSC may be lower and the conversion to Class A shares may be
faster for purchase amounts of $250,000 and over, it may be advantageous for a
shareholder to use a Right of Accumulation or a Letter of Intent in connection
with the purchase of Class B shares. These privileges are described below under
"How to Redeem Shares - Waiver or Reduction of the CDSC".
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<PAGE>
For sales of Class B shares made and services rendered to Class B
shareholders, the Distributor intends to make payments to selling broker-
dealers, at the time a shareholder purchases Class B shares, of amounts equal to
the following percentages of the purchase amount, for each of the Funds offering
initial purchases of Class B shares:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE PAYMENT BROKER-DEALER PAYMENT
- -------------------------- ---------------------
<S> <C>
Up to $249,999 4.0%
$250,000 to $499,999 2.5%
$500,000 to $999,999 2.0%
</TABLE>
The Class B shares of the Treasury Fund are only available through exchange
from the Class B shares of another Fund. The Class B shares of the Treasury
Fund do not bear the higher ongoing distribution expenses normally associated
with the Class B shares. However, time during which assets have been exchanged
from the Class B shares of another Fund into the Class B shares of the Treasury
Fund will not count either toward the time that must elapse before Class B
shares are automatically converted to Class A shares of the same Fund, or toward
the time that results in a declining CDSC. See "How to Redeem Shares - Class B
Shares - CDSC", below.
Class A Shares-Reduced Sales Charges
YOU CAN RECEIVE A REDUCED SALES CHARGE FOR A NUMBER OF REASONS
Quantity discounts begin with investments in Class A shares of $100,000
or more. This applies to purchases of Class A shares one or more of the Funds
at one time, or to purchases of either Class A shares or Class B shares combined
over time, under the "Right of Accumulation", in each case by you, your spouse
and children under the applicable age of majority, a trustee or other fiduciary
account for these same persons. Additionally, accounts for charitable,
religious, educational and similar corporations, associations, or foundations
exempt under Section 501(c)(3) or (13) of the Code, retirement plans set up
under the Self-Employed Individuals Tax Retirement Act of 1962, and Individual
Retirement Accounts ("IRA's") set up under the Employee Retirement Income
Security Act of 1974, as amended, may be linked to an individually owned account
for this privilege. However, a shareholder may not link individually registered
accounts with a participant account in any plan which has multiple accounts
linked. To take advantage of this privilege, you must advise your
representative at the time of purchase that you are eligible and must provide
the fund name(s), registration of account(s), and account number(s). This
privilege is not extended to Section 403(b) plans established after March 1,
1993.
The Letter of Intent (the "LOI") lowers your costs on Class A share
investments of $100,000 or more or Class B share investments of $250,000 or more
spread over 13 months or, in the case of corporate qualified plans, spread over
30 months. The LOI is not a binding commitment by you to purchase, or the Fund
to sell, additional shares. All purchases made for your account within 13
months, or when applicable, 30 months, from the date of the LOI, except
reinvested dividends and distributions, will be made at the reduced sales charge
for the amount
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<PAGE>
checked on the investment application. Any dividends and distributions will be
reinvested without a sales charge and will not be considered in determining
whether the LOI has been completed.
Any purchases of the Sentinel Family of Funds (except the Treasury Fund)
made by you within the 90 days preceding the date of your LOI may be included
under it. You may also combine the value at the current offering price of any
shares you own of other Funds in order to determine the quantity discount which
would apply under the LOI.
The minimum initial investment under a LOI is 2% of the amount indicated in
the LOI, and there must be sufficient shares in at least one account owned by
you to meet this minimum. Shares representing this amount will be held in
escrow by Sentinel Service and released at the end of the 13- or 30-month period
or upon completion of the LOI if requested. When multiple accounts are
involved, the escrow will be placed on the largest account, unless otherwise
specified, but all such escrowed shares must be held in one account.
If however, such total purchases are less than the LOI amount indicated on
the application, and if within 20 days after notification of the amount of the
sales charge due, you do not pay such amount due, you irrevocably constitute and
appoint Sentinel Service your attorney-in-fact with full power of substitution
in the premises to surrender for redemption any or all escrow shares to the
extent necessary to pay such amount due and to release the balance of escrow
shares, if any, to you. The sale of shares for this purpose will be a taxable
event.
In addition, any group of investors which notifies the Distributor that it
will act as a group in purchasing Fund shares, in such a way as to result in
reduced selling expenses, will be entitled to be treated as if it were a single
entity for purposes of the reduced sales charges for quantity purchases, the
Right of Accumulation, and the Letter of Intent.
Certain investors, subject to limitations, may purchase Fund shares at net
asset value. Such investors include current and former Directors of the Funds
and predecessors to the Funds; certain current and retired directors, officers,
employees and retirees of the general partners of the Advisor and their
affiliates; directors, officers, employees and clients of the Sub-Advisor;
members of the immediate families of all of the above-referenced individuals;
registered representatives of securities dealers that have entered into a sales
agreement with the Distributor, and who notify the Distributor of such status at
the time of the purchase, and members of their immediate families; non-profit
organizations with which any of the above-referenced persons are actively
involved; clients of dealers, brokers, registered investment advisors or
registered investment advisor representatives who have entered into an agreement
with the Distributor providing specifically for the use of shares of a Fund in
particular investment programs or products (where such program or product
already imposes a fee) made available to clients of such dealer, broker,
registered investment advisor or registered
47
<PAGE>
investment advisor representative; purchasers who are investing section 403(b)
loan principal repayments; purchasers who notify the Distributor that the funds
being used for such purchase consist of redemption proceeds from other mutual
fund shares for which a sales charge or CDSC has been paid, and such funds in
fact come from such source; and investments being transferred from individually
managed trust accounts at American Guaranty & Trust Company ("AG&T"). If there
is more than one person on an account registration, all persons named in the
account registration must qualify. You must notify the Distributor at the time
of purchase if you qualify for a front-end sales charge waiver.
Other Matters Relating to Distribution of Fund Shares
The Distributor will reimburse all broker-dealers who agree with the
Distributor to undertake activities designed to specifically promote the Funds,
for costs incurred by such broker-dealers in the course of such activities. The
Advisor has adopted a policy under which sales of shares of the Funds may be
considered as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds, subject to the conditions that commissions paid to
such broker-dealers be no higher than would otherwise be paid, and that the
prices be, in the judgment of the Advisor, the best then available.
OPEN AN ACCOUNT WITH AS LITTLE AS $50
Accounts may be opened with only $50 using the Automatic Investment Plan.
Otherwise, the minimum initial investment in any Fund is $1,000, except as
otherwise provided in the Statement of Additional Information. The minimum
subsequent investment is $50. The Funds reserve the right to reject any order
and may charge a fee of $25 for each check returned unpaid due to insufficient
funds.
Purchasing Shares by Check
Make your checks payable to "Sentinel Administrative Service Company" and
remit to:
Sentinel Administrative Service Company
P.O. Box 1499
Montpelier, VT 05601-1499
All checks must be drawn in U. S. dollars on a U.S. bank. The Funds reserve the
right not to permit the redemption of shares purchased by check for 15 days
after the purchase date.
A purchase made by check is effected on the day when federal funds are made
available to a Fund, usually within one business day after Sentinel Service
receives the check. Federal funds are monies held by a commercial bank on
deposit in one of the U.S. Federal Reserve branch banks (the "Federal Reserve
Banks").
48
<PAGE>
Purchasing Shares by Wire
ANOTHER EASY WAY TO BUY SHARES
You may purchase shares by wiring federal funds directly to Sentinel
Service when the New York Stock Exchange ("NYSE") and Federal Reserve Banks are
open for business.
To make your initial purchase by wire, call our toll-free number noted
below and obtain an account number. If you don't have an application, request
one. Complete the application and return it promptly to Sentinel Service.
Your bank may charge you a fee to wire funds. Payments made by wire and
received by Sentinel Service on any business day are available to the fund on
the next business day.
Dealer Wire Purchase Orders
As a convenience to shareholders, the Distributor will, acting for the
funds without charge, ordinarily accept orders from dealers who have sales
agreements with the funds for the purchase of shares at the applicable offering
price.
HOW TO REDEEM SHARES
FOLLOW THESE EASY STEPS TO REDEEM SHARES
If your shares are held by Sentinel Service, you can redeem your shares by
providing Sentinel Service with the appropriate instructions by mail or
otherwise.
If you are the shareholder of record and have a certificate representing
ownership in a Fund, you can redeem your shares by either:
. Surrendering the certificate in person, to Sentinel Service (National
Life Drive, Montpelier, Vermont),
or
. Mailing a certificate to
Sentinel Administrative Service Company
P.O. Box 1499, Montpelier, VT 05601-1499
We suggest sending certificates by certified mail.
Sentinel Service is required to redeem your shares at net asset value, less
any applicable CDSC, as of the close of business on the day such surrender or
appropriate instructions are received, in "good order," prior to 4:00 p.m. on a
day that the NYSE is open for business.
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<PAGE>
IMPORTANT INFORMATION FOR REDEEMING SHARES
"Good order" means that the instructions must be signed by the registered
owner(s) exactly as the shares are registered and the signature(s) must be
guaranteed by an eligible guarantor institution which meets Sentinel Service's
requirements, unless an exception listed below applies. The seal or stamp of a
notary public is not acceptable. You are not required to provide a signature
guarantee when:
. the proceeds of the redemption do not exceed $50,000 in any one day and
the proceeds check is made payable to the registered owner(s) and mailed
to the record address (provided the record address has not been changed
within the past 30 days), or
. the proceeds of the redemption are payable to one of the Advisor's parent
corporations or an affiliate.
Class B Shares - CDSC
If you redeem Class B shares, a CDSC may be imposed. Whether a CDSC is
imposed and the amount of the CDSC depends on the amount of your purchases and
the number of years since you made the purchase from which an amount is being
redeemed. Partial redemption requests will be increased by the amount of CDSC
due. CDSC balances due for full redemptions will be deducted from the
redemption proceeds. Purchases are subject to the CDSC according to the
following schedules:
For purchase amounts of up to $249,999:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- ---------------- ---------------
<S> <C>
First 4%
Second 4%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
</TABLE>
For purchase amounts from $250,000 to $499,999:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- ---------------- ---------------
<S> <C>
First 3.5%
Second 3%
Third 2%
Fourth 1%
Fifth 1%
</TABLE>
For information and assistance call your Registered Representative or
Investor Service 1-800-282- FUND (3863)
50
<PAGE>
For purchase amounts from $500,000 to $999,999:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- ---------------- ---------------
<S> <C>
First 3%
Second 2%
Third 1%
Fourth 1%
</TABLE>
In determining whether a CDSC is payable, redemptions are taken first from
any shares acquired through reinvestment of distributions, or any other shares
as to which a waiver of the CDSC is applicable. The purchase payment from which
a redemption is made is the earliest purchase payment from which a redemption or
exchange has not already been fully effected. The amount of the CDSC will be
equal to the applicable CDSC percentage multiplied by the lower of the purchase
price or the net asset value of the shares being redeemed. Any CDSC imposed on
a redemption of Class B shares is paid to the Distributor.
If you exchange Class B shares into Class B shares of the Treasury Fund,
the time during which these assets are held in the Class B shares of the
Treasury Fund will not count either toward the time that must elapse before
Class B shares are automatically converted to Class A shares of the same Fund,
or toward the time that results in a declining CDSC. Therefore, if such Class B
shares of the Treasury Fund are ultimately redeemed, a CDSC will apply in the
amount that would have been applicable on the date the assets were exchanged
into the Class B shares of the Treasury Fund, regardless of how long the Class B
shares of the Treasury Fund were held. Also, if the Class B shares of the
Treasury Fund are then further exchanged into Class B shares of another Fund,
and such shares are ultimately redeemed, a CDSC will apply in the amount that
would have been applicable if the total holding period for the shares was the
period during which Class B shares of Funds other than the Treasury Fund were
held. In such a case, the automatic conversion into Class A shares of the same
Fund will occur only after Class B shares of Funds other than the Treasury Fund
have been held for the six, five or four year period, as applicable.
Class B Shares - Waiver or Reduction of the CDSC
You are subject to a reduced CDSC for quantity purchases, as indicated
above, or when you buy shares in connection with the Right of Accumulation or a
Letter of Intent. The Right of Accumulation will apply to purchases of Class B
shares when you and members of your family own Class A shares and Class B shares
in the aggregate of more than $250,000. See "How to Purchase Shares - Class A
Shares - Reduced Sales Charges" for more information on the Right of
Accumulation and the Letter of Intent.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
51
<PAGE>
The CDSC applicable to Class B shares may be waived in the following
situations when the Funds have been notified at the time of redemption:
The Distributor may require documentation prior to waiver of the CDSC,
including, without limitation, certification by plan administrators, applicable
tax forms, or death certificates.
1. Redemptions of shares acquired from the reinvestment of income
distributions and/or capital gains distributions;
2. Redemptions from the account of a shareholder (including one who owns
the shares as joint tenant with his or her spouse) following his or her
death, provided the redemption is requested within one year of the
shareholder's death;
3. Redemptions which result from ERISA or IRS requirements that mandate
that a distribution be made from a qualified retirement plan or individual
retirement account;
4. Redemptions that occur as a result of a loan taken from an account
established as a retirement plan account for an employee of a tax-exempt
organization under section 403(b)(7) of the Code; and
5. Redemptions in amounts up to 10% annually of the account's then
current net asset value annually.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
52
<PAGE>
Class A Shares Purchased in Amounts Over $1,000,000 - CDSC
In the case of a purchase of Class A shares with no front-end sales charge
because the sale is in an amount of $1,000,000 or more, if the shares purchased
are redeemed within one year of the purchase, a CDSC will be imposed in the
amount of 1.00%. If the shares are redeemed during the second year after the
purchase, a CDSC of 0.50% will be imposed. After the second year, no CDSC will
apply. As with the CDSC payable on redemptions of Class B shares, the CDSC is
imposed on the lower of the cost or the current net asset value of the shares
redeemed. Partial redemption requests will be increased by the amount of CDSC
due. CDSC balances due for full redemptions will be deducted from the
redemption proceeds. The Distributor receives the entire amount of any CDSC
paid. The CDSC is currently waived in all of the same circumstances as specified
under "Class B Shares - Waiver or Reduction of the CDSC" above. In determining
whether a CDSC is payable, the Funds will first redeem shares not subject to any
charge.
Other Information on Redeeming Shares
Normally, Sentinel Service will mail you payment for such shares within
seven days after it receives all documents required to process the redemption.
Exceptions to this policy include any period in which the right of redemption is
suspended or date of payment is postponed because the NYSE is closed, trading on
such Exchange is restricted, or the Securities and Exchange Commission (the
"Commission") deems an emergency to exist.
Additional documentation may be required to redeem shares that are
registered in the name of a corporation, trust, company retirement plan, agent
or fiduciary, or if a shareholder is deceased. The Funds reserve the right not
to honor redemption requests where shares to be redeemed have been purchased by
check within 15 calendar days prior to the date the redemption request is
received.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
53
<PAGE>
If you write a check to redeem Class A shares (see "Shareholder Services-
Check Writing Privileges" below) in the Government Securities, Bond, New York,
Pennsylvania, Tax-Free Income, Short-Intermediate Government or Treasury Funds,
Sentinel Service normally will not honor the redemption check if those shares
have been purchased less than 15 calendar days prior to the date the redemption
request is presented to Sentinel Service.
Distributions from retirement plans may be subject to withholding by the
Internal Revenue Service ("IRS") under the Internal Revenue Code of 1986, as
amended (the "Code").
Due to the expense of maintaining accounts with small balances, the Funds
reserve the right to liquidate and to charge an annual maintenance fee of up to
$25 to any account that has a current value less than $1,000 and that has been
open for at least 24 months.
401(k), pension and profit-sharing plans which elect to have individually
registered accounts for the benefit of plan participants will be assessed an
annual service fee for each participant account. The fee will be deducted
automatically from each participant account in June of each year unless prepaid.
The fee assessed will vary based upon the average account value of all
participant accounts within the plan, and will be as set forth below:
<TABLE>
<CAPTION>
Average Account Fee Per Participant
Value Account
--------------- -------------------
<S> <C>
0-$1000 $20.00
$1000 - $2999 $10.00
$3000 and over No fee
</TABLE>
Dealer Wire Redemption Orders
For the convenience of shareholders, the Distributor, acting for the Funds
without charge, ordinarily accepts orders from dealers who have sales agreements
with the Funds for the repurchase of shares based on net asset value, less any
applicable CDSC. (The net asset value may be more or less than your initial
cost. It is computed as described below on days on which the NYSE is open.) Such
orders to repurchase shares of the Funds are confirmed on the same basis as
orders to purchase. Brokers are not prohibited from charging for their service
for such a redemption.
Telephone Redemption
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
54
<PAGE>
YOU CAN REDEEM BY TELEPHONE
Unless otherwise specified when opening your account or by subsequently
submitting a Telephone Authorization and Request with a proper signature
guarantee and supporting documents where applicable, you may redeem up to
$1,000,000 from your account each business day.
In such instances, you may request that the proceeds be sent directly to a
predesignated commercial bank account. If you do not provide the name of a bank,
the proceeds will be sent automatically to the address of record, provided the
address has not been changed within the preceding 30 days.
You must furnish a signature guarantee when making any change in redemption
instructions. To redeem shares by telephone, please call Sentinel Service.
If proceeds are wired to your bank, a fee normally not greater than $25
will be deducted from the proceeds. Neither the Funds, the Advisor nor Sentinel
Service is responsible for the authenticity of exchange or redemption
instructions received by telephone, and they are not liable in the event of an
unauthorized telephone exchange or redemption, provided that, in the case of the
Funds, the Funds have followed procedures reasonably designed to prevent such
losses taking into account the cost of such procedures and the potential risk of
loss. In processing telephone exchange or redemption requests, the Funds will
determine that reasonable procedures are employed to confirm that such telephone
instructions are genuine, and if such procedures are not employed, the Funds may
be liable for any resulting losses. Such procedures include receiving all calls
for telephone redemptions and exchanges on a recorded telephone line, and
screening callers through a series of questions regarding specific account
information.
NO FEES FOR TELEPHONE REDEMPTIONS
No fees are charged for telephone redemptions; however, service fees
described above may apply, and the CDSC described above under "How to Redeem
Shares" may apply.
TAX-DEFERRED RETIREMENT PLANS
THE FUNDS CAN BE USED IN MANY TYPES OF PLANS
The federal tax laws provide for a variety of retirement plans offering tax
benefits. Fund shares may be purchased by all types of tax-deferred retirement
plans, including Keogh Plans, Individual Retirement Accounts ("IRAs"),
Simplified Employee Pension Plans; Section 403(b) Plans, Section 457 Plans, and
other corporate pension and profit-sharing plans.
American Guaranty & Trust Company, a Delaware trust company and an affiliate
of the Advisor, will act as a custodian for IRAs and
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
55
<PAGE>
403(b) plans, if desired, and will charge an annual fee of $15 per participant
account. This fee will be deducted automatically from the account in November of
each year unless prepaid. Sentinel Service will act as agent for the custodian
and will receive from the custodian $12 of the above annual fee per participant
account. A fee of $25 is assessed for transferring assets. Consult your tax
advisor for details regarding deductibility of contributions to IRAs.
The Funds intend to enter into agreements with third parties who will
provide administrative services to section 403(b) plans, which are qualified
retirement savings plans for employees of governmental and charitable
institutions. The Funds may assess an annual fee in an amount of up to $100 to
accounts in 403(b) plans which have elected to obtain administrative services
from third party administrators pursuant to the agreements between such
administrators and the Funds. Such third party administrators may include both
affiliates of the Advisor and nonaffiliates.
DETERMINATION OF NET ASSET VALUE
HOW THE VALUE OF FUND SHARES IS DETERMINED
Net asset value for each Fund is calculated once each business day at 4:00
p.m., Eastern Time, and becomes effective immediately upon its determination.
The net asset value per share is computed by dividing the total value of the
assets of each Fund, less its liabilities, by the total number of each Fund's
outstanding shares. Securities that comprise the Funds are valued as shown
below:
. Equity securities are valued at the latest transaction prices on the
principal stock exchanges on which they are traded.
. Unlisted and listed securities for which there were no sales during the
day are valued at the mean between the latest available bid and asked
prices.
. Fixed-income securities are valued daily on the basis of valuations
furnished by an independent pricing service.
. Financial futures are valued at the settlement price established each day
by the board of trade or exchange on which they are traded.
. Exchange-traded options are valued at the last sale price unless there is
no timely sale price, in which event current prices provided by market
makers are used.
The Treasury Fund's assets are valued on the basis of amortized cost, which
involves valuing a portfolio instrument at its cost initially and thereafter
assuming a constant amortization to maturity of any discount or premium
regardless of the impact of fluctuating interest rates on the market value of
the instrument.
For information and assistance call your Registered Representative or
Investor Services 1-800-282-FUND (3863)
56
<PAGE>
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of Class B shares, reflecting the daily
expense accruals of the account maintenance, distribution and higher transfer
agency fees applicable with respect to Class B shares. It is expected, however,
that the per share net asset value of the classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions which will differ by approximately the amount of the expense
accrual differentials between the classes.
WHEN THE FUNDS PAY DIVIDENDS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund pays dividends substantially equivalent to its net investment
income in accordance with the following schedule.
<TABLE>
<CAPTION>
FUND DIVIDENDS PAID
- ---- --------------
<S> <C>
Growth Fund...............................Annually
Emerging Growth Fund......................Annually
World Fund................................Annually
Common Stock Fund........................Quarterly
Balanced Fund............................Quarterly
Bond Fund..................................Monthly
Government Securities Fund.................Monthly
Short-Intermediate Government Fund.........Monthly
Tax-Free Income Fund.......................Monthly
New York Fund..............................Monthly
Pennsylvania Fund..........................Monthly
</TABLE>
The Treasury Fund's net income is determined as of the close of business,
4:00 p.m. Eastern Time, on each day the NYSE is open. The Fund declares
dividends of all of its daily net income to shareholders of record as of the
close of business the preceding business day. Dividends are declared and accrued
each day the NYSE is open and are payable monthly. The amount of the dividend
may fluctuate daily and may be omitted on days when net realized losses on
securities in the portfolio or expenses exceed the Fund's income.
Distributions of any net realized gains for a fiscal year are paid in
December, following the November 30th fiscal year-end. Income dividends and
capital gains distributions will be reinvested automatically in Fund shares at
net asset value at the close of business on the designated record date, unless
you elect otherwise (see "Shareholder Services-Distribution Options" below).
Allocation of Income, Gains, Losses and Expenses. Allocation of income,
gains and losses of each Fund shall be allocated pro rata according to the net
assets of each class.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
57
<PAGE>
Allocation of expenses not allocated to a specific class of each Fund other than
the Money Market Fund shall be allocated according to the net assets or number
of shareholder accounts, each on a pro rata basis, of each class. Allocations in
the case of the Money Market Fund shall be made (i) to each share without regard
to class, provided that the Fund has received undertakings from the Advisor or
any other provider of services to the Fund, agreeing to waive or reimburse the
Fund for payments to such service provider by one or more classes, as allocated
as described above, to the extent necessary to assure that all classes of the
Funds maintain the same net asset value per share, or (ii) on the basis of
relative net asset value.
TAXES
HOW INCOME AND GAINS ARE TAXED
General. Each Fund intends to continue to qualify for the special tax
treatment afforded regulated investment companies under the code. qualifying
funds (but not their shareholders) are free from federal income tax on net
ordinary income and net realized capital gains distributed to shareholders. The
funds intend to distribute substantially all of this income and gain.
Unless your shares are held in a tax-deferred retirement plan, or in the
New York, Pennsylvania or Tax-free Income Funds, which are discussed below, you
are subject to ordinary income tax for federal income tax purposes on dividends
from investment income and distributions made from an excess of net short-term
capital gains over net long-term capital losses (together referred to as
"ordinary income dividends"). Distributions made from an excess of net long-
term capital gains over net short-term capital losses (including gains or losses
from certain transactions in options and futures) ("capital gain dividends") are
taxable as long-term capital gains for federal income tax purposes, regardless
of the length of time you have owned your shares. Distributions in excess of a
fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder for federal income tax purposes
(assuming the shares are held as a capital asset).
Any loss incurred on the sale or exchange of shares of a fund held for six
months or less will be treated as a long-term capital loss for federal income
tax purposes to the extent of any capital gain dividends received with respect
to such shares. In addition, with respect to the New York, Pennsylvania and
Tax-Free Income Funds such loss will be disallowed to the extent of any "exempt-
interest dividends" paid, as defined in section 852(b)(5) of the code.
No gain or loss will be recognized by class b shareholders for federal
income tax purposes on the conversion of their Class B
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3865)
58
<PAGE>
shares into class a shares. A shareholder's basis in the Class A shares acquired
will be the same as such shareholder's basis in the Class B shares converted,
and the holding period of the acquired Class A shares will include the holding
period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange for federal income tax purposes will be reduced (or the gain increased)
to the extent of the sales charge the shareholder would have owed in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of a Fund will be
disallowed for federal income tax purposes if other shares of the same fund are
acquired (whether through the automatic reinvestment of dividends or otherwise)
within a 61-day period beginning 30 days before and ending 30 days after the
date that the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Dividends generally are taxable to shareholders even though they are
reinvested in additional shares (unless they are designated as exempt-interest
dividends). Each fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends no later than 60 days after the close of its taxable year.
A portion of a fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the code, if certain
requirements are met. if a fund pays a dividend in January which was declared
in the previous October, November or December to shareholders of record on a
specified date in one of these months, then the dividend will be treated for tax
purposes as if it were paid by the fund and received by its shareholders on
December 31st of the year in which the dividend was declared.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding include the following:
. Those for whom no certified taxpayer identification number is on file
with Sentinel Service,
. Those who have furnished Sentinel Service with an incorrect certified
taxpayer identification number, and
. Those identified by the IRS.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
59
<PAGE>
When establishing an account, you must certify, under penalty of perjury,
that your taxpayer identification number is correct and that you are not
otherwise subject to backup withholding.
Ordinary income dividends paid to nonresident alien shareholders or foreign
entities will be subject to a 30% United States withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. If you are a nonresident alien shareholder, consult your
tax advisor concerning the applicability of the United States withholding
tax.
By law, interest income from obligations of the U.S. Treasury is exempt
from state and local taxes. Many states with income taxes permit this exemption
to be passed through to dividends of regulated investment companies that invest
in such securities. Therefore, many shareholders can expect to receive Treasury
Fund dividends and a significant portion of Government Securities Fund and
Short-Intermediate Government Fund dividends free of state and local taxes. If
you have a taxable account and live in a state that imposes income taxes,
consult with your tax advisor to determine whether all or part of the dividends
from the Treasury Fund, the Government Securities Fund or the Short-Intermediate
Government Fund are exempt from state and local taxation. In any case, such
income will not be exempt from federal income tax. Furthermore, capital gains,
if any, realized by such Funds will not be exempt from federal taxes or,
generally, from state and local taxes.
Dividends and/or interest received by the World Fund and to a lesser
extent, the Bond Fund and to a much smaller degree, the Balanced Fund and the
Common Stock Fund may give rise to withholding and other taxes imposed by
foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of the World fund may
be able to claim United States foreign tax credits with respect to such taxes,
subject to certain conditions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the World Fund. If more than 50% in
value of the World Fund's total assets at the close of its taxable year consists
of securities of foreign corporations, the Fund will be eligible, and intend, to
file an election with the Internal Revenue Service pursuant to which
shareholders of such fund will be required to include their proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
United States income taxes. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to United States withholding tax on the
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
60
<PAGE>
income resulting from the World Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such United States tax
for the foreign taxes treated as having been paid by such shareholder. The World
Fund will report annually to its shareholders the amount per share of such
withholding taxes.
Under Code Section 988, gains or losses of the World Fund from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the World Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the World Fund would not be able to make ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than the shareholder's fund shares and
resulting in a capital gain for any shareholder who received a distribution
greater than the shareholder's tax basis in fund shares (assuming the shares
were held as a capital asset).
The foregoing description relates only to federal income taxes. You should
consult with your tax advisor as to the availability of any exemptions from
state or local taxes.
New York, Pennsylvania and Tax-Free Income Funds.
Each of the New York, Pennsylvania and Tax-Free Income Funds intend to
invest a sufficient portion of its assets in municipal bonds and notes to
qualify to pay "exempt interest dividends" to shareholders. Such dividends are
excludable from gross income for federal income tax purposes. Exempt-interest
dividends are included, however, in determining the portion, if any, of an
individual's Social Security benefits and Railroad Retirement benefits subject
to federal income taxes. All or a portion of the New York, Pennsylvania and Tax-
Free Income Funds' gain from the sale or redemption of tax-exempt obligations
purchased at a market discount will be treated as ordinary income for federal
income tax purposes rather than capital gain. This rule may increase the amount
of ordinary income dividends received by shareholders of these Funds.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
61
<PAGE>
Interest on indebtedness incurred or continued to purchase or carry shares
of a regulated investment company paying exempt-interest dividends will not be
deductible by the shareholder for federal income tax purposes to the extent
attributable to exempt-interest dividends.
The Code subjects interest received on certain otherwise tax-exempt
securities to an AMT. The AMT applies to interest received on private activity
bonds issued after August 7, 1986. Private activity bonds are bonds which,
although tax-exempt, are used for purposes other than those generally performed
by governmental units and which benefit non-governmental entities (e.g. bonds
used for commercial or housing purposes). Income received on such bonds is
classified as an item of "tax preference" which would subject investors in such
bonds, including shareholders of the New York, Pennsylvania and Tax-Free Income
Funds, to an AMT.
Each of the New York, Pennsylvania and Tax-Free Income Funds may purchase
private activity bonds and will report to shareholders within 60 days after
their taxable year-end on the portion of its dividends declared during the year
which is a tax preference item for AMT purposes.
The Code further provides that corporations are subject to an AMT based in
part on certain differences between taxable income as adjusted for other tax
preferences and the corporation's adjusted current earnings. Because an exempt-
interest dividend paid by the New York, Pennsylvania or Tax-Free Income Fund
will be included in adjusted current earnings, a corporate shareholder may be
required to pay AMT on exempt interest dividends paid by any such Fund.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
62
<PAGE>
The Code provides that every person required to file a tax return must
include on such return the amount of exempt-interest dividends received from the
New York, Pennsylvania and Tax-Free Income Funds during the taxable year.
Persons who may be substantial users (or "related persons" of substantial
users) of facilities financed by industrial development bonds or private
activity bonds held by the New York, Pennsylvania or Tax-Free Income Fund should
consult their tax advisors before purchasing Fund shares.
The New York Fund intends to invest primarily in New York Obligations.
Distributions from the New York Fund which are attributable to interest income
received from such obligations
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
63
<PAGE>
also will be exempt from New York State and New York City personal income
tax.
The Pennsylvania Fund intends to invest primarily in Pennsylvania
Obligations. Distributions from the Pennsylvania Fund which are attributable to
interest income received from such obligations also will be exempt from
Pennsylvania personal income tax.
Distributions from the New York and Pennsylvania Funds which are
attributable to interest received from qualifying obligations of the U.S.
government, its agencies and instrumentalities similarly will be exempt from New
York State and New York City or from Pennsylvania personal income tax,
respectively. Distributions from these Funds may, however, be subject to
taxation at a local level within either New York State (but outside New York
City) or Pennsylvania.
Exempt-interest dividends paid to a corporate shareholder in the New York
Fund will be subject to New York State corporation franchise tax and New York
City general corporation tax.
To the extent exempt-interest dividends paid to a shareholder of the
Pennsylvania Fund are excluded from taxable income for federal corporate income
tax purposes (determined before net operating loss carryovers and special
deductions), they will not be subject to the Pennsylvania corporate net income
tax. However, an investment in the Pennsylvania Fund by a corporate shareholder
may not qualify as an exempt asset for purposes of apportionment of the
Pennsylvania capital stock/foreign franchise tax.
Distributions from the Pennsylvania Fund will be exempt from the
Philadelphia School District investment income tax for individual residents of
the City of Philadelphia to the extent that such distributions are attributable
to interest received from Pennsylvania Obligations or from qualifying
obligations of the U.S. Government, its agencies and instrumentalities, or to
the extent such distributions are designated as capital gain dividends for
federal income tax purposes.
Shares of the Pennsylvania Fund will be exempt from Pennsylvania county
personal property tax to the extent Pennsylvania Fund assets are comprised of
Pennsylvania Obligations and qualifying obligations of the U.S. government, its
agencies and instrumentalities on the annual assessment date.
If the New York and Pennsylvania Funds invest in obligations and allowable
investments other than New York Obligations and Pennsylvania Obligations,
respectively, a portion of the income
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
64
<PAGE>
distributed to shareholders may be subject to federal, state and local
taxes.
Shareholders of the New York and Pennsylvania Funds who are subject to
taxation by states other than New York or Pennsylvania will realize a lower
after-tax return than New York or Pennsylvania shareholders, respectively, since
the dividends distributed by the New York and Pennsylvania Funds generally will
not be exempt, to any significant degree, from income taxation by such other
states. The New York and Pennsylvania Funds will inform shareholders annually
as to the portion of such Fund's distributions which constitutes exempt-interest
dividends and the portion which is exempt from New York or Pennsylvania personal
income taxes.
CONSULT WITH YOUR TAX ADVISOR ABOUT TAX IMPLICATIONS OF CERTAIN
DISTRIBUTIONS
Consult with your tax advisor regarding specific questions about federal,
foreign, state or local taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in the Funds.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and U.S. Treasury regulations, and relevant state and
local tax laws presently in effect. For the complete provisions, refer to the
pertinent Code sections and the U.S. Treasury regulations promulgated
thereunder, and relevant state and local tax laws. The Code and U.S. Treasury
Regulations, and relevant state and local tax laws are subject to change by
legislative, judicial or administrative action, either prospectively or
retroactively.
SHAREHOLDER SERVICES
MANY CONVENIENT SHAREHOLDER SERVICES ARE AVAILABLE
When you establish a new account, all dividends and any capital gains
distributions are reinvested at net asset value and without charge to purchase
additional shares, unless you elect another option. Many other features are
available to you, as described below. Minimum account values apply for some.
Distribution Options: Several options for receiving dividends and capital
gains distributions are available, including the ability to reinvest dividends
and distributions from shares of one Fund into shares of the same class in
another Fund.
Automatic Investment Plan: This feature affords you the opportunity to
dollar-cost average using periodic electronic Funds transfer from your bank
account to the Fund(s) of your choice.
Telephone Investment Service: This feature enables you to purchase fund
shares via electronic funds transfers from your bank account simply by phoning
Sentinel Service.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
65
<PAGE>
Check Writing Privileges: Check writing is offered without charge to
holders of Class A shares of the bond, New York, Pennsylvania, Tax-Free Income,
Government Securities, Short-Intermediate Government and Treasury Funds.
Exchange Privilege: Once every 15 days, you may exchange shares of one fund
for shares of the same class of another fund, without charge, by phoning
Sentinel service or by providing appropriate instructions in writing to Sentinel
Service. Because Class B Shares in the Growth, New York, Pennsylvania,
Government Securities and Short-Intermediate Government Funds are not currently
offered, holders of Class B Shares in the other Funds may not exchange into
these Funds. Funds are only available for exchange for residents of states in
which such funds are registered. in the case of purchases of less than $1
million of the Short-Intermediate Government Fund, however, shares purchased
(other than by exchange from another Fund other than the Treasury Fund) must
remain in the account for 90 days before they are eligible for the exchange
privilege. Also, where Class A shares in the Treasury Fund, which were not
acquired in exchange for shares of another Fund, are exchanged for class a
shares of another fund, you will be required to pay a sales charge equal to what
the sales charge would have been for an initial purchase of the shares into
which treasury fund shares are being exchanged. In determining the holding
period for Class B shares, the holding period for shares which have been
exchanged into the then currently held shares will be included, except that the
time that an investment is in the Class B shares of the Treasury Fund will not
count toward the time necessary to reduce or eliminate any applicable CDSC, or
to be converted into Class A shares.
New purchases must remain in an account for 15 days before they can be
exchanged to another fund. all shareholders automatically receive the privilege
to make exchanges over the telephone by calling Sentinel Service. See "How to
Redeem Shares-Telephone Redemption" above for a statement of the funds'
liability disclaimer policy for unauthorized telephone instructions. Although
the funds and sentinel service will attempt in good faith to provide adequate
telephone exchange service at all times, telephone exchanges may be difficult to
implement in times of drastic economic change. In the event you cannot contact
Sentinel Service by telephone, you may effect an exchange by sending a written
request to Sentinel Administrative Service Company, P.O. Box 1499, Montpelier,
VT 05601-1499. Please be certain to specify which account options are desired on
any newly established account. There is currently no limitation on the number of
times a shareholder may exercise the exchange privilege. the exchange privilege
may be modified or terminated in accordance with the rules of the
Commission.
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
66
<PAGE>
Systematic Exchange: This feature enables you to sell a specified number or
dollar-value of shares in one of the Funds periodically and use the proceeds to
purchase the same class of shares in another Fund.
Transfers: When you need to change ownership of or the name on an account,
a Sentinel Service representative will provide you with the necessary
assistance.
Systematic Withdrawal Plan: If you want to have regular withdrawals from
your account, this feature will enable you to have shares sold regularly with
the proceeds directed as you elect. Each withdrawal constitutes a taxable
event.
Reinstatement Privilege: If you redeem shares or receive dividends or
capital gains distributions in cash and subsequently want to reinvest your
proceeds, you may do so within 365 days at net asset value, without paying any
additional sales charge.
To learn more about these services or to find out how to add any of them to
your account, please refer to the Shareholder Services Guide and/or the
Statement of Additional Information.
PERFORMANCE DATA
HOW THE FUNDS COMPUTE TOTAL RETURN
Periodically, the Funds include average annual total return in
advertisements or in information distributed to existing and prospective
shareholders.
Average annual total return quotations are calculated by determining the
average annual compounded rates of return (based on net investment income and
any capital gains or losses on portfolio investments over such periods) that
would equate the initial amount invested to the redeemable value of such
investment at the end of each period.
Included in the calculation are all applicable recurring and nonrecurring
expenses, and it is assumed that all dividends and distributions are reinvested.
To better illustrate the performance of money already invested in the
Funds, the Funds may also periodically advertise total return for specified
periods without subtracting sales charges.
HOW THE FUNDS COMPUTE YIELD
Periodically, the Bond, New York, Pennsylvania, Tax-Free Income, Government
Securities, Short-Intermediate Government and Treasury Funds may also quote
yields in advertisements. Yields are computed by dividing net investment income
for a recent 30-day (or one month) period by the product of the average daily
number of shares outstanding during that period and the maximum offering
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
67
<PAGE>
price per share on the last day of the period. The result is then annualized.
(The amount of income generated during the 30-day period is assumed to be
earned, reinvested at a constant rate at the end of such period and compounded
semi-annually.)
The Funds listed above may also show comparable yields to those
shareholders already invested in the Funds by using the net asset value per
share instead of maximum offering price in the above calculations. This has the
effect of raising the quoted yields.
The Emerging Growth, Growth, Common Stock and Balanced Funds may compare
their performance to the following indices:
. The Dow Jones Industrial Average
. The Standard & Poor's 500 Stock Index
. The Russell 2000 Index
The World Fund may compare its performance to the "EAFE" (Europe,
Australia, Far East) Index.
The Bond, New York, Pennsylvania, Tax-Free Income, Government Securities,
Short-Intermediate Government, and Treasury Funds may compare their performance
to the following indices:
. Lehman Aggregate Bond Index
. Lehman Municipal Bond Index
. Lehman Government Bond Index
. IBC/Donoghue's Money Fund Report
In addition, the New York, Pennsylvania and Tax-Free Income Funds may quote
tax-equivalent yields in advertisements.
HOW THE FUNDS COMPUTE TAX-EQUIVALENT YIELD
To determine the tax-equivalent yield of the Tax-Free Income Fund, divide
the tax-exempt part of the Fund's yield by an amount which is one minus a stated
tax rate, and add the result to that part, if any, of the Fund's yield that is
taxable.
To determine the tax-equivalent yields of the New York or Pennsylvania
Funds, the yield as calculated above is increased by the amount necessary to
reflect the payment of federal and either New York State and City or
Pennsylvania state taxes, as applicable, at a stated tax rate.
Note: The tax-equivalent yields for the New York, Pennsylvania and Tax-Free
Income Funds will always be higher than their yields. (For more information on
performance data, please refer to "Total
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
68
<PAGE>
Return, Yield and Tax-Equivalent Yield Information" in the Statement of
Additional Information.)
ORGANIZATION OF THE FUNDS
HISTORICAL INFORMATION ABOUT THE FUNDS
All of the Funds except the Pennsylvania Fund are series of the Company.
The Company was originally incorporated in Delaware as Group Securities, Inc. in
1933. The Company sold its first shares to the public in January 1934, and
became a Maryland corporation in 1973.
The Company's stock is fully paid and non-assessable. Each share of the
Company entitles its shareholders to one vote for each dollar of net asset value
per share for all purposes.
In the case of dissolution or other liquidation of the Company,
shareholders are entitled to receive (ratably per share) the net assets of each
Fund in which they are invested, with any general assets distributed ratably per
share, regardless of the Fund. Voting rights are non-cumulative.
The Pennsylvania Fund is a separate trust formed under Pennsylvania law in
1986. Its shares of beneficial interest are fully paid and non-assessable. Each
share of beneficial interest is entitled to one vote for all purposes. Voting
rights are non-cumulative. The Fund became a member of the Sentinel Family of
Funds on March 1, 1993, when the Advisor and the Distributor assumed
responsibility for the Fund. Previously, the Fund was known as "ProvidentMutual
Pennsylvania Tax-Free Trust".
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
69
<PAGE>
The Sentinel Funds
National Life Drive
Montpelier, VT 05604
INVESTMENT ADVISOR
Sentinel Advisors Company
National Life Drive
Montpelier, VT 05604
PRINCIPAL UNDERWRITER
Sentinel Financial Services Company
National Life Drive
Montpelier, VT 05604
COUNSEL
Brown & Wood
One World Trade Center
New York, NY 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
FUNDS' CUSTODIAN AND DIVIDEND PAYING AGENT
*Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105
TRANSFER AGENT, SHAREHOLDER SERVICING AGENT AND ADMINISTRATOR
Sentinel Administrative Service Company
*National Life Drive
Montpelier, VT 05604
800-282-FUND (3863)
- ------
* All mail and correspondence should be sent to Sentinel Administrative Service
Company, P.O. Box 1499, Montpelier, VT 05601-1499
For information and assistance call your Registered Representative or
Investor Service 1-800-282-FUND (3863)
70
<PAGE>
1
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1996
THE SENTINEL FUNDS
NATIONAL LIFE DRIVE
MONTPELIER, VERMONT 05604
(800) 282-FUND (3863)
Sentinel Common Stock Fund (the "Common Stock Fund")
Sentinel Balanced Fund (the "Balanced Fund")
Sentinel Growth Fund (the "Growth Fund")
Sentinel Emerging Growth Fund (the "Emerging Growth Fund")
Sentinel World Fund (the "World Fund")
Sentinel Bond Fund (the "Bond Fund")
Sentinel Government Securities Fund (the "Government Securities Fund")
Sentinel Short-Intermediate Government Fund (the "Short-Intermediate Government
Fund")
Sentinel U.S. Treasury Money Market Fund (the "Treasury Fund")
Sentinel Tax-Free Income Fund (the "Tax-Free Income Fund")
Sentinel New York Tax-Free Income Fund (the "New York Fund")
Sentinel Pennsylvania Tax-Free Trust (the "Pennsylvania Fund")
Each of SENTINEL GROUP FUNDS, INC. (the "Company") and the Pennsylvania Fund is
a managed, open-end investment company, which continuously offers its shares to
investors. The Company consists of eleven separate and distinct funds, ten of
which are diversified (the New York Fund being non-diversified), and the
Pennsylvania Fund is a separate, non-diversified fund. The eleven funds of the
Company and the Pennsylvania Fund are referred to hereinafter collectively as
the "Funds", and individually as a "Fund". The Funds are described in a
Prospectus of the Funds dated April 1, 1996 (the "Prospectus"). Each of the
Funds has different investment objectives and risk characteristics.
Sentinel Advisors Company (the "Advisor") acts as the investment advisor to the
Funds. Shares of the Funds are distributed by Sentinel Financial Services
Company ("SFSC"). Both the Advisor and SFSC are partnerships whose partners are
affiliates of National Life Insurance Company ("National Life"), Provident
Mutual Life Insurance Company ("Provident Mutual") and The Penn Mutual Life
Insurance Company ("Penn Mutual").
This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the Prospectus. The Prospectus, which has been filed with
the Securities and Exchange Commission (the "SEC"), can be obtained upon request
and without charge
1
<PAGE>
by writing to the Funds at the above address. This Statement of Additional
Information has been incorporated by reference into the Prospectus.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Funds.......................................................
Investment Objectives and Policies..............................
Investment Restrictions.........................................
Management of the Funds.........................................
The Investment Advisory Contract................................
The Distribution Contracts......................................
The Distribution Plans..........................................
The Fund Services Agreements....................................
Portfolio Transactions and Brokerage Commissions................
Portfolio Turnover..............................................
Capitalization..................................................
How To Purchase Shares and Reduce Sales Charges.................
Issuance of Shares at Net Asset Value...........................
How to Redeem Shares............................................
Determination of Net Asset Value................................
Computation of Maximum Offering and Redemption Prices...........
Dividends and Capital Gains Distributions.......................
Taxes...........................................................
Shareholder Services............................................
Tax-Deferred Retirement Plans...................................
Total Return, Yield and Tax-Equivalent Yield Information........
Code Of Ethics..................................................
General Information.............................................
Financial Statements............................................
Appendix A - Description of Bond Ratings........................
Appendix B - Economic Conditions in New York....................
Appendix C - Economic Conditions in Pennsylvania................
</TABLE>
3
<PAGE>
THE FUNDS
Originally incorporated in the State of Delaware on December 5, 1933 as
Group Securities, Inc., the Company became a Maryland corporation on February
28, 1973. On November 30, 1973, the Company's name was changed to USLIFE Funds,
Inc. On September 30, 1976, the Company's name was changed to Sentinel Group
Funds, Inc.
On March 31, 1978, Sentinel Bond Fund, Inc. (formerly Sentinel Income Fund,
Inc.) and Sentinel Growth Fund, Inc., both managed, open-end, diversified
investment companies incorporated in Maryland on October 24, 1968, were merged
into the Company as separate classes of stock. On March 27, 1986, the Board of
Directors created, as a new class of stock of the Company, the Government
Securities Fund. The Board of Directors created the Tax-Free Income Fund as a
new class of the Company's stock on June 14, 1990.
The Pennsylvania Fund is a trust formed under the laws of Pennsylvania in
1986. The Fund became a member of the Sentinel Family of Funds on March 1,
1993. On that date the Advisor and SFSC became the investment advisor and
distributor, respectively, to the Fund. Immediately prior to March 1, 1993, the
investment advisor to the Fund was ProvidentMutual Management Co., Inc.
("PMMC"), and its distributor was ProvidentMutual Financial Services, Inc., both
of which are affiliates of Provident Mutual.
On March 1, 1993, the Company completed the acquisition of substantially
all of the assets of eight ProvidentMutual Funds, and Sentinel Cash Management
Fund, Inc., ("SCMF") in exchange solely for common stock of the corresponding
Funds of the Company that acquired such assets. In order to facilitate the
acquisitions, on August 13, 1992 the Board of Directors authorized the creation
of three new classes of stock of the Company, namely, the Emerging Growth, World
and Treasury Funds. On the same date, the Investment Advisory Agreement between
the Company and Sentinel Advisors, Inc., ("Sentinel Advisors"), an indirect
wholly-owned subsidiary of National Life, and the Distribution Agreement between
the Company and Equity Services, Inc. ("ESI"), also an indirect wholly-owned
subsidiary of National Life, terminated, and were replaced by the arrangements
described in the Prospectus under "Management of the Funds" and "How to Purchase
Shares".
On March 27, 1995, the Company completed the acquisition of substantially
all of the assets of seven funds of The Independence Capital Group of Funds,
Inc., in exchange solely for common stock of the corresponding Funds of the
Company that acquired such assets. In order to facilitate the acquisitions, on
December 15, 1994, the Board of Directors authorized the creation of two new
classes of stock of the Company, namely, the New York and Short-Intermediate
Government Funds.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and certain fundamental policies of each of the
Funds are set forth in the Prospectus.
General Considerations
- ----------------------
Each Fund's fundamental policies and investment objectives as they affect
each such Fund cannot be changed without the approval of the lesser of (i) 67
percent or more of the voting securities of each such Fund present at a meeting
if the holders of more than 50 percent of the outstanding voting securities of
each such Fund are present or represented by proxy, or (ii) more than 50 percent
of the outstanding voting securities of each such
4
<PAGE>
Fund. With respect to the submission of a change in fundamental policy or
investment objective of each such Fund, such matter shall be deemed to have been
effectively acted upon with respect to any such Fund if a majority of the
outstanding voting securities of such Fund vote for the approval of such
matters, notwithstanding (1) that such matter has not been approved by a
majority of the outstanding voting securities of any other Fund affected by such
matter and (2) that such matter has not been approved by a majority of the
outstanding voting securities of the Company. Fundamental policies adopted with
respect to each Fund, except the Pennsylvania Fund and the New York Fund,
provide that no Fund shall concentrate its investments in a particular industry
or group of industries nor will it purchase a security if, as a result of such
purchase, more than 25% of its assets will be invested in a particular
industry.
Considerations Applicable to the Fixed-Income Funds
- ---------------------------------------------------
Each of the Bond Fund, the New York Fund, the Tax-Free Income Fund, and the
fixed income portion of the Balanced Fund may invest up to 5% of its total
assets in debt securities which are rated below "investment grade", i.e., lower
than "Baa" by Moody's Investors Service, Inc. ("Moody's") or lower than "BBB" by
Standard & Poor's Ratings Group ("Standard & Poor's") or which, in the Advisor's
judgment, possess similar credit characteristics. See Appendix A - "Description
of Bond Ratings" for additional information regarding ratings of debt
securities. The Advisor considers the ratings assigned by Standard & Poor's or
Moody's as one of several factors in its independent credit analysis of issuers.
Such securities are considered by Standard & Poor's and Moody's to have varying
degrees of speculative characteristics. Consequently, although securities rated
below investment grade can be expected to provide higher yields, such securities
may be subject to greater market price fluctuations and risk of loss of
principal than lower yielding, higher rated debt securities. Investments in
such securities will be made only when in the judgment of the Advisor, such
securities provide attractive total return potential relative to the risk of
such securities, as compared to higher quality debt securities. The Funds do
not intend to purchase debt securities that are in default or which the Advisor
believes will be in default.
Each of the Funds to a limited extent may enter into repurchase agreements
with selected banks and broker-dealers under which the Fund purchases securities
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
("U.S. Government Securities") and agrees to resell the securities at an agreed
upon time and an agreed upon price. The difference between the amount a Fund
pays for securities and the amount it receives upon resale is interest income to
a Fund. Failure of the seller to repurchase the securities as agreed may result
in a loss to a Fund if the market value of the securities has
5
<PAGE>
fallen to less than the repurchase price. In the event of such a default, a Fund
may also experience certain costs and be delayed or prevented from recovering or
liquidating the collateral securities, which could result in further loss to a
Fund. The Funds will use repurchase agreements as a means of making short-term
investments of seven days or less and in aggregate amounts of not more than 25%
of the net assets of the Fund. All repurchase agreements used by the Funds will
provide that the value of the collateral underlying the repurchase agreement
always will be at least equal to 102% of the repurchase price. The Advisor will
monitor on a continuing basis the creditworthiness of all parties with which it
might enter into repurchase agreements and will enter into repurchase agreements
only if it determines that the credit risk of such a transaction is minimal.
Considerations Applicable to the Tax-Exempt Funds
- -------------------------------------------------
As described in the Prospectus, the Tax-Free Income Fund, the Pennsylvania
Fund and the New York Fund (together, the "Tax-Exempt Funds") may purchase and
sell exchange-traded financial futures contracts ("financial futures contracts")
to hedge their portfolios of municipal bonds against declines in the value of
such securities and to hedge against increases in the cost of securities they
intend to purchase. To hedge their portfolios, the Tax-Exempt Funds may take an
investment position in a financial futures contract which will move in the
opposite direction from the portfolio position being hedged. While the use of
hedging strategies is intended to moderate capital changes in portfolio holdings
and thereby reduce the volatility of the net asset value of Fund shares, the
Tax-Exempt Funds anticipate that their net asset values will fluctuate. Set
forth below is information concerning financial futures transactions.
Description of Financial Futures Contracts A financial futures contract
------------------------------------------
is an agreement between two parties to buy and sell a security, or in the case
of an index-based financial futures contract, to make and accept a cash
settlement for a set price on a future date. A majority of transactions in
financial futures contracts, however, do not result in the actual delivery of
the underlying instrument or cash settlement, but are settled through
liquidation, i.e., by entering into an offsetting transaction. Financial futures
contracts have been designed by boards of trade which have been designated
"contracts markets" by the Commodity Futures Trading Commission (the "CFTC").
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker and the
relevant contract market, which varies but is generally about 5% of the contract
amount, must be deposited with the broker. This amount is known as "initial
margin" and represents a "good faith" deposit assuring the performance of both
the purchaser and seller under the financial futures contract. Subsequent
payments to and from the broker, called "variation margin", are required to be
made on a daily basis as the price for the futures contract fluctuates and makes
the long and short positions in the futures contract more or less valuable, a
process known as "mark to the market". At any time prior to the settlement date
of the futures contract, the position may be closed out by taking an opposite
position which will operate to terminate the position in the futures contract.
A final determination of variation margin is then made, additional cash is
required to be paid to or released by the broker and the position realizes a
loss or a gain. In addition, a nominal commission is paid on each completed
sale transaction.
The Tax-Exempt Funds may deal in financial futures contracts based on a
long-term municipal bond index developed by the Chicago Board of Trade (the
"CBT") and The Bond Buyer (the "Municipal Bond Index"). The Municipal Bond
Index is comprised of 40 tax-exempt municipal revenue bonds and general
obligations bonds. Each bond included in the Municipal Bond Index must be rated
"A" or higher by Moody's or Standard & Poor's and must have a remaining maturity
of 19 years or more. Twice a month new issues satisfying
6
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the eligibility requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal Bond Index is
computed daily according to a formula based on the price of each bond in the
Municipal Bond Index, as evaluated by six dealer-to-dealer brokers.
The Municipal Bond Index financial futures contract is traded only on the
CBT. Like other contract markets, the CBT assures performance under financial
futures contracts through a clearing corporation, a non-profit organization
managed by the exchange membership which is also responsible for handling daily
accounting of deposits or withdrawals of margin.
The Tax-Exempt Funds may purchase and sell financial futures contracts on
U.S. Government Securities as a hedge against adverse changes in interest rates
as described below. With respect to U.S. Government Securities, currently there
are financial futures contracts based on long-term U.S. Treasury bonds, U.S.
Treasury notes, Government National Mortgage Association ("GNMA") Certificates
and three-month U.S. Treasury bills. The Tax-Exempt Funds may purchase and
write call and put options on financial futures contracts on U.S. Government
Securities in connection with their hedging strategies.
The Tax-Exempt Funds also may engage in other financial futures contracts
transactions, such as financial futures contracts on other municipal bond
indices which may become available, if the Advisor should determine that there
is normally a sufficient correlation between the prices of such financial
futures contracts and the municipal bonds in which the Tax-Exempt Funds invest
to make such hedging appropriate.
Futures Strategies A Tax-Exempt Fund may sell a financial futures contract
------------------
(i.e., assume a short position) in anticipation of a decline in the value of
their investments in municipal bonds resulting from an increase in interest
rates or otherwise. The risk of decline could be reduced without employing
futures as a hedge by selling such municipal bonds and either reinvesting the
proceeds in securities with shorter maturities or by holding assets in cash.
This strategy, however, entails increased transaction costs in the form of
dealer spreads and typically would reduce the average yield of the Funds'
portfolio securities as a result of the shortening of maturities. The sale of
financial futures contracts provides an alternative means of hedging against
declines in the value of their investments in municipal bonds. As such values
decline, the value of the Funds' positions in the financial futures contracts
will tend to increase, thus offsetting all or a portion of the depreciation in
the market value of the Funds' municipal bond investments which are being
hedged. While the Tax-Exempt Funds will incur commission expenses in selling
and closing out financial futures contract positions, commissions on financial
futures contract transactions are lower than transaction costs incurred in the
purchase and sale of municipal bonds. In addition, the ability to trade in the
standardized contracts available in the futures markets may offer a more
effective defensive position than a program to reduce the average maturity of
the portfolio securities, due to the unique and varied credit and technical
characteristics of the municipal debt instruments available to the Funds.
Employing futures as a hedge also may permit the Tax-Exempt Funds to assume a
defensive posture without reducing the yield on their investments beyond any
amounts required to engage in futures trading.
When the Tax-Exempt Funds intend to purchase municipal bonds, they may
purchase financial futures contracts as a hedge against any increase in the cost
of such municipal bonds, resulting from a decrease in interest rates or
otherwise, that may occur before such purchases can be effected. Subject to the
degree of correlation between the municipal bonds and the financial futures
contracts, subsequent increases in the cost of municipal bonds should be
reflected in the value of the futures held by the Tax-Exempt Funds. As such
purchases are made, an equivalent amount of financial futures contracts will be
closed out. Due to changing market conditions and interest rate forecasts,
however, a
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financial futures contract position may be terminated without a corresponding
purchase of portfolio securities.
Call Options on Financial Futures Contracts The Tax-Exempt Funds also may
-------------------------------------------
purchase and sell exchange-traded call and put options on financial futures
contracts on U.S. Government Securities. The purchase of a call option on a
financial futures contract is analogous to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the financial futures contract on which it is based, or the price of the
underlying debt securities, it may or may not be less risky than ownership of
the financial futures contract or the underlying debt securities. Like the
purchase of a financial futures contract, a Tax-Exempt Fund will purchase a call
option on a financial futures contract to hedge against a margin advance when it
is not fully invested.
The writing of a call option on a financial futures contract constitutes a
partial hedge against declining prices of the securities which are deliverable
upon exercise of the financial futures contract. If the futures price at
expiration is below the exercise price, the Tax-Exempt Fund will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in the Fund's portfolio holdings.
Put Options on Financial Futures Contracts The purchase of a put option
------------------------------------------
on a financial futures contract is analogous to the purchase of a protective put
option on a portfolio security. The Tax-Exempt Funds may purchase put options on
financial futures contracts to hedge the Funds' portfolios against the risk of
rising interest rates.
The writing of a put option on a financial futures contract constitutes a
partial hedge against increasing prices of the securities which are deliverable
upon exercise of the futures contract. If the futures price at expiration is
higher than the exercise price, the Tax-Exempt Funds will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of municipal bonds which the Funds intend to purchase.
The writer of an option on a financial futures contract is required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to financial futures contracts. Premiums received from the writing
of an option will be included in initial margin. The writing of an option on a
financial futures contract involves risks similar to those relating to financial
futures contracts.
Restrictions on Use of Futures Transactions Regulations of the CFTC
-------------------------------------------
applicable to the Tax-Exempt Funds provide that the Tax-Exempt Funds may
purchase and sell financial futures contracts and options thereon either (a) for
bona fide hedging purposes or (b) for non-hedging purposes, provided that the
aggregate initial margins and premiums required to establish positions in such
contracts and options do not exceed 5% of the liquidation value of a Tax-Exempt
Fund's portfolio assets after taking into account any unrealized profits and
losses on such contracts or options. (However, as stated above, the Tax-Exempt
Funds intend to engage in futures and options transactions for hedging purposes
only.) Margin deposits may consist of cash or securities acceptable to the
broker and the relevant contract market.
When the Tax-Exempt Funds purchase a financial futures contract or a call
option with respect thereto or write a put option on a financial futures
contract, an amount of cash, cash equivalents or short-term, high-grade, fixed-
income securities will be deposited in a segregated account with the Funds'
custodian so that the amount so segregated, plus the amount of initial and
variation margin held in the account of their broker, equals the market value of
the financial futures contract, thereby ensuring that the use of such futures is
unleveraged.
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Risk Factors in Futures and Options Transactions Investment in financial
------------------------------------------------
futures contracts involves the risk of imperfect correlation between movements
in the price of the financial futures contract and the price of the security
being hedged. The hedge will not be fully effective when there is imperfect
correlation between the movements in the prices of two financial instruments.
For example, if the price of the financial futures contract moves more than the
price of the hedged security, the Tax-Exempt Funds will experience either a loss
or gain on the financial futures contract which is not completely offset by
movements in the price of the hedged securities. To compensate for imperfect
correlations, the Tax-Exempt Funds may purchase or sell financial futures
contracts in a greater dollar amount than the hedged securities if the
volatility of the price of the hedged securities is historically greater than
that of the financial futures contracts. Conversely, the Tax-Exempt Funds may
purchase or sell fewer financial futures contracts if the volatility of the
price of the hedged securities is historically less than that of the financial
futures contracts.
The particular municipal bonds comprising the index underlying the
Municipal Bond Index financial futures contract may vary from the bonds held by
the Tax-Exempt Funds. As a result, each Fund's ability to hedge effectively all
or a portion of the value of its municipal bonds through the use of such
financial futures contracts will depend in part on the degree to which price
movements in the index underlying the financial futures contract correlate with
the price movements of the municipal bonds held by that Fund. The correlation
may be affected by disparities in the average maturity, ratings, geographic mix
or structure of such Fund's investments as compared to those comprising the
Municipal Bond Index, and general economic or political factors. In addition,
the correlation between movements in the value of the Municipal Bond Index may
be subject to change over time as additions to and deletions from the Municipal
Bond Index alter its structure. The correlation between financial futures
contracts on U.S. Government Securities and the municipal bonds held by the Tax-
Exempt Funds may be adversely affected by similar factors and the risk of
imperfect correlation between movements in the prices of such financial futures
contracts and the prices of the municipal bonds held by the Tax-Exempt Funds may
be greater.
The Tax-Exempt Funds expect to liquidate a majority of the financial
futures contracts they enter into through offsetting transactions on the
applicable contract market. There can be no assurance, however, that a liquid
secondary market will exist for any particular financial futures contract at any
specific time. Thus, it may not be possible to close out a financial futures
contract position. In the event of adverse price movements, the Tax-Exempt Funds
would continue to be required to make daily cash payments of variation margin.
In such situations, if a Fund has insufficient cash, it may be required to sell
portfolio securities to meet daily variation margin requirements at a time when
it may be disadvantageous to do so. The inability to close out financial futures
contract positions also could have an adverse impact on a Fund's ability to
hedge effectively its investments in municipal bonds. The Tax-Exempt Funds will
enter into a financial futures contract position only if, in the judgment of the
Advisor, there appears to be an actively traded secondary market for such
financial futures contracts.
The liquidity of a secondary market in a financial futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open financial futures contract positions. Prices
have in the past reached or exceeded the daily limit on a number of consecutive
trading days.
The successful use of transactions in futures and related options also
depends on the ability of the Advisor to forecast correctly the direction and
extent of interest rate movements within a given time frame. To the extent
interest rates remain stable during
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<PAGE>
the period in which a financial futures contract or option is held by the Tax-
Exempt Funds or such rates move in a direction opposite to that anticipated, a
Fund may realize a loss on the hedging transaction which is not fully or
partially offset by an increase in the value of portfolio securities. As a
result, a Fund's total return for such period may be less than if it had not
engaged in the hedging transaction.
Because of low initial margin deposits made on the opening of a financial
futures contract position, futures transactions involve substantial leverage.
As a result, relatively small movements in the price of the financial futures
contracts can result in substantial unrealized gains or losses. Because the
Tax-Exempt Funds will engage in the purchase and sale of financial futures
contracts solely for hedging purposes, however, any losses incurred in
connection therewith should, if the hedging strategy is successful, be offset in
whole or in part by increases in the value of securities held by the Funds or
decreases in the price of securities that the Funds intend to acquire.
The amount of risk the Tax-Exempt Funds assume when they purchase an option
on a financial futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option on a financial futures contract also entails the risk that
changes in the value of the underlying financial futures contract will not be
fully reflected in the value of the option purchased.
Municipal Bond Index financial futures contracts only recently have been
approved for trading and therefore have little trading history. It is possible
that trading in such financial futures contracts will be less liquid than
trading in other futures contracts. The trading of financial futures contracts
also is subject to certain market risks, such as inadequate trading activity,
which could at times make it difficult or impossible to liquidate existing
positions.
Tax-Exempt Obligations The Tax-Exempt Funds may invest in municipal
----------------------
obligations that constitute "private activity bonds" under the Internal Revenue
Code of 1986, as amended (the "Code") which subjects certain private activity
bonds to an alternative minimum tax ("AMT"). The provisions of the Code
relating to private activity bonds generally apply to bonds issued after August
15, 1986, with certain transitional rule exemptions. Private activity bonds are
eligible for purchase by the Tax-Exempt Funds provided that the interest paid
thereon qualifies as exempt from federal income taxes (and in the case of the
New York and Pennsylvania Funds, New York State and City, and Pennsylvania,
personal income taxes, respectively). It is the position of the SEC and the
Funds that municipal obligations that generate income subject to the AMT should
not be counted as tax-exempt for the purpose of determining whether 80% of a
Fund's net assets are invested in tax-exempt obligations.
Tax-exempt obligations held by the Tax-Exempt Funds generally will consist
of investment grade municipal obligations with maturities of longer than one
year. Long-term obligations normally are subject to greater market fluctuations
as a result of changes in interest rates and market conditions than are short-
term obligations. The two principal classifications of municipal obligations
which may be held by the Tax-Exempt Funds are "general obligation" bonds and
"revenue" bonds. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power in support of the payment of principal
and interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Tax-exempt private activity bonds (including
industrial development bonds) are in most cases revenue bonds and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds usually is related directly to the credit
standing of the corporate user of the facility involved. In addition, the Tax-
Exempt Funds may invest in short-term municipal obligations (commonly referred
to as municipal notes). Municipal notes often are used to provide for short-
term capital needs and
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<PAGE>
generally have maturities of one year or less. Municipal notes include variable
and floating rate demand obligations, tax anticipation notes, revenue
anticipation notes, construction loan notes and bond anticipation notes.
The Pennsylvania Fund will attempt to invest 100% of its assets in
Pennsylvania Obligations (as defined in the Prospectus), and the New York Fund
will attempt to invest 100% of its assets in New York Obligations (as defined in
the Prospectus). As a matter of fundamental policy, the Pennsylvania and New
York Funds, under normal market conditions, will invest at least 80% of their
net assets in tax-exempt Pennsylvania Obligations or New York Obligations,
respectively, in each case which are rated within the top four rating categories
by a nationally recognized statistical rating organization or, if not rated,
which, in the opinion of the Advisor, possess equivalent investment
characteristics. The fourth grade is considered medium-grade and has
speculative characteristics. The Pennsylvania Fund may invest up to 25% of its
assets in securities rated at this fourth grade, and the New York Fund may
invest without limitation in securities rated at this fourth grade. These bond
ratings are described in Appendix A to this Statement of Additional
Information.
During temporary defensive periods when, in the Advisor's opinion, suitable
Pennsylvania or New York Obligations are unavailable, or the Advisor anticipates
an increase in interest rates, the Pennsylvania and New York Funds may invest
not more than 20% of their assets in obligations the interest on which is exempt
only from federal income taxes (such as obligations issued by states other than
Pennsylvania or New York) or is exempt only from Pennsylvania or New York
personal income taxes (such as obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities). Moreover, under such
conditions, all three Tax-Exempt Funds may make temporary investments in high-
quality obligations the interest on which is not exempt from either federal or
any state personal income taxes. Such investments will consist of debt
securities (including commercial paper) of issuers having, at the time of
purchase, a quality rating within the two highest categories of either Standard
& Poor's or Moody's, certificates of deposit, banker's acceptances, or
repurchase agreements.
Variable or Floating Rate Notes The Tax-Exempt Funds may invest in
-------------------------------
variable or floating rate demand obligations, which are securities that provide
for adjustment in their interest rates at intervals ranging from daily to up to
one year based upon prevailing market rates for similar investments and an
adjustment formula that is intended to maintain the market value of the security
at par. These obligations normally have a stated maturity in excess of one year
but permit the holder to demand repayment of principal plus payment of accrued
interest at any time upon a specified number of days' notice. The Tax-Exempt
Funds will have the right to receive repayment of principal and payment of
accrued interest within seven days. Some notes may be rated by credit rating
agencies but unrated notes purchased by the Funds, in the Advisor's opinion,
will be of comparable quality at the time of purchase to instruments that are
rated as high quality. Where necessary to ensure that an unrated note is of
high quality, the Funds will require that the issuer's obligation to pay the
principal of the note be backed by an unconditional domestic or foreign bank
letter or line of credit, guarantee or commitment to lend. In such a case, the
quality of the bank will be looked to for purposes of satisfying the Funds'
quality standards. In addition, the Advisor will consider that foreign banks
are not subject to the same regulations as are domestic banks and may be
involved in different business activities and have different risks. Although
there may be no active secondary market for a particular instrument, the Funds
may, upon notice, exercise a note's demand feature or resell the note at any
time to a third party. If a significant portion of a Fund's assets were
invested in notes of a single issuer, however, the issuer's ability to meet the
demand feature could affect that Fund's liquidity. Included in the variable and
floating rate demand instruments that the Tax-Exempt Funds may purchase are
participations in municipal obligations purchased from and owned by financial
institutions, primarily banks, the interest on which, in the opinion of counsel
to the issuer, is exempt from federal income taxes and in the case of the
New
11
<PAGE>
York and Pennsylvania Funds, New York State and City, and Pennsylvania, personal
income taxes, respectively. In determining average weighted portfolio maturity,
an instrument will be deemed to have a maturity equal to the longer of the
period remaining to the next interest rate adjustment or the demand notice
period.
Municipal Bond Insurance Certain of the municipal obligations held in the
------------------------
portfolios of the Tax-Exempt Funds may be insured. Different types of such
insurance include a "New Issue Insurance Policy", a "Mutual Fund Insurance
Policy" or a "Secondary Market Insurance Policy".
A New Issue Insurance Policy is obtained by the issuer of the securities,
and all premiums for such a policy are paid in advance by the issuer. Such
policies are generally used by an issuer to increase the credit rating of a
lower-rated security, and therefore may increase both the purchase price and the
subsequent resale value of a security for a Fund's portfolio. They are non-
cancellable and continue in force as long as the securities are outstanding and
the respective insurers remain in business. Premiums for issuer insurance are
paid in advance by the issuer and are reflected in a somewhat higher purchase
price paid by the Tax-Exempt Funds for these obligations. The creditworthiness
of the issuer will be evaluated in order to determine its ability to meet its
obligations to pay interest and repay principal. The insurance covers the event
that the issuer defaults on an interest payment or principal repayment; if this
occurs, the insurer will be notified and will make payment to the bondholders.
There is, however, no guarantee that the insurer will meet its obligations.
These insurance policies do not protect bondholders from adverse changes in
interest rates.
A Mutual Fund Insurance Policy is used to guarantee specific bonds only
while owned by a mutual fund. If a Fund were to purchase such a policy, payment
of the annual premiums would reduce such Fund's current yield. The Tax-Exempt
Funds have no plans to purchase a Mutual Fund Insurance Policy at this time.
A Secondary Market Insurance Policy is purchased by an investor subsequent
to a security's issuance and generally insures a particular security for the
remainder of its term. The Tax-Exempt Funds may purchase securities which
already have been insured under a Secondary Market Insurance Policy by a prior
investor, or such Funds may purchase such a policy from a vendor providing such
a service.
Other Matters Specific to the New York Fund. The New York Fund is a non-
-------------------------------------------
diversified series of the Company under the Investment Company Act of 1940, as
amended (the "1940 Act"). Therefore, the New York Fund could invest all of its
assets in securities of a single issuer. However, as the Fund intends to comply
with Subchapter M of the Code, at least 50% of its total assets must be
comprised of individual issues, each of which represents no more than 5% of such
Fund's total assets. Those issues which represent more than 5% of the New York
Fund's total assets must be limited in the aggregate to 50% of such Fund's total
assets, provided, however, that no more than 25% of the Fund's total assets may
be invested in any one issuer. For these purposes, a security is considered to
be issued by the governmental entity (or entities) whose assets or revenues back
the security, or with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user. In accordance with SEC regulations,
the guarantor of a guaranteed security may be considered to be an issuer in
connection with such guarantee. Since investment return on a non-diversified
portfolio typically is dependent upon the performance of a smaller number of
securities relative to the number held in a diversified portfolio, the New York
Fund is more susceptible to economic, political and regulatory developments and
the change in value of any one security will affect the overall value of a non-
diversified portfolio and thereby subject its net asset value per share to
greater fluctuations.
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<PAGE>
Because the New York Fund invests at least 80% of its assets in New York
Obligations, its net asset value is particularly sensitive to changes in the
economic conditions and governmental policies of the State of New York. See
Appendix B - "Economic Conditions in New York" for additional information
regarding these factors.
Other Matters Specific to the Pennsylvania Fund. The Pennsylvania Fund is
registered as a non-diversified, open-end investment company under the 1940 Act.
Therefore, the Pennsylvania Fund could invest all of its assets in securities of
a single issuer. However, as the Pennsylvania Fund also intends to comply with
Subchapter M of the Code, it must observe the same diversification restrictions
set forth in the preceding section for the New York Fund. Since investment
return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio, the Pennsylvania Fund is also more susceptible to
economic, political and regulatory developments, and the change in value of any
one security will affect the overall value of a non-diversified portfolio and
thereby subject the Pennsylvania Fund's net asset value per share to greater
fluctuations.
Because the Pennsylvania Fund invests at least 80% of its assets in
Pennsylvania Obligations, its net asset value is particularly sensitive to
changes in the economic conditions and governmental policies of the Commonwealth
of Pennsylvania ("Pennsylvania"). See Appendix C - "Economic Conditions in
Pennsylvania" for additional information regarding these factors.
Under prior Pennsylvania law, in order for the Pennsylvania Fund to qualify
to pass through to investors income exempt from Pennsylvania personal income
tax, the Pennsylvania Fund was required to adhere to certain investment
restrictions. In order to comply with this and other Pennsylvania law
requirements previously in effect, the Pennsylvania Fund's Declaration of Trust
provides that the Pennsylvania Fund will invest for income earnings rather than
trading for profit, and that the Pennsylvania Fund have no power to vary its
portfolio investments except to (i) eliminate unsafe investments and investments
not consistent with the preservation of the capital or tax status of the
investments of the Pennsylvania Fund; (ii) honor redemption orders, meet
anticipated redemption requirements and negate gains from discount purchases;
(iii) maintain a constant net asset value per unit pursuant to, and in
compliance with, an order or rule of the SEC; (iv) reinvest the earnings from
securities in like securities; or (v) defray normal administrative expenses.
Pennsylvania has enacted legislation which eliminated the necessity for the
foregoing investment restrictions. The Fund is in the process of soliciting
shareholder approval to amend the Declaration of Trust to eliminate the
Pennsylvania Requirements, and upon the completion of this process, if the
shareholders grant their approval, the Pennsylvania Requirements will no longer
apply. However, until the Declaration of Trust is amended, the Pennsylvania
Fund continues to be governed by such investment restrictions.
The Pennsylvania Fund's portfolio turnover rate generally will not exceed
100%. A portfolio turnover rate of 100% or higher will result in higher
transaction costs, which must be borne directly by the Pennsylvania Fund and
ultimately by its shareholders. High portfolio turnover may result in the
realization of substantial net capital gains. To the extent net short-term
capital gains are realized, any distributions resulting from such gains are
considered ordinary income for federal income tax purposes.
In addition, the Pennsylvania Fund does not intend to (i) invest in
securities secured by real estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests therein, or (ii)
invest in securities issued by companies which, together with any predecessor,
have been in continuous operation for fewer than three years. The Pennsylvania
Fund would seek to notify shareholders before changing any of these
policies.
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Considerations Applicable to the World Fund
- -------------------------------------------
Foreign Currency Transactions The value of the assets of the World Fund
-----------------------------
as measured in U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control regulations, and the
Fund may incur costs in connection with conversions between various currencies.
The Fund will conduct its foreign currency exchange transactions either on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through the use of forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract will involve an
obligation by the World Fund to purchase or sell a specific amount of currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are transferable in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirements, and no commissions are
charged at any stage for trades. Neither type of foreign currency transaction
will eliminate fluctuations in the prices of the Fund's portfolio securities or
prevent loss if the prices of such securities should decline.
The World Fund may enter into forward foreign currency exchange contracts
only under two circumstances. First, when the Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. The World Fund will
then enter into a forward contract for the purchase or sale, for a fixed amount
of dollars, of the amount of foreign currency involved in the underlying
securities transactions; in this manner the Fund will be better able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the securities are purchased or sold and the date on
which payment is made or received.
Second, when the Advisor or the Sub-Advisor (as defined in the Prospectus)
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency. The precise matching of the forward contract amounts and
the value of the securities involved generally will not be possible since the
future value of those securities may change between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. The Advisor does not intend
to enter into such forward contracts under this second circumstance on a regular
or continuous basis. The World Fund also will not enter into such forward
contracts or maintain a net exposure to such contracts when the consummation of
the contracts would obligate the World Fund to deliver an amount of foreign
currency in excess of the value of the World Fund's securities or other assets
denominated in that currency. The Advisor believes that it is important to have
the flexibility to enter into such forward contracts when it determines that to
do so is in the best interest of the World Fund. The World Fund's custodian
bank segregates cash or equity or debt securities in an amount not less than the
value of the World Fund's total assets committed to forward foreign currency
exchange contracts entered into under the second circumstance. If the value of
the securities segregated declines, additional cash or securities are added so
that the segregated amount is not less than the amount of the World Fund's
commitments with respect to such contracts. Under normal circumstances, the
World Fund expects that any appreciation (depreciation) on such forward exchange
contracts will be offset approximately by the (depreciation) appreciation in
translation of the underlying foreign investment arising from fluctuations in
foreign currency exchange rates.
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The World Fund will recognize the unrealized appreciation or depreciation
from the fluctuation in a foreign currency forward contract as an increase or
decrease in the Fund's net assets on a daily basis, thereby providing an
appropriate measure of the World Fund's financial position and changes in
financial position.
Foreign Securities for Funds other than the World Fund
- ------------------------------------------------------
Before foreign securities are purchased for Funds other than the World
Fund, the differences between them and U.S. securities are considered. This
includes possible differences in taxation, regulation, trading volume and
currency controls, the possibility of expropriation and lack of uniform
accounting and reporting standards. While there may be investment opportunities
in foreign securities, there also may be investment risks not usually associated
with U.S. securities. At November 30, 1995, the Common Stock Fund had 2.4%, the
Balanced Fund had 4.2%, the Bond Fund had 12.3% of its net assets invested in
foreign securities; the Emerging Growth, Growth, Tax-Free Income, Pennsylvania,
New York, Treasury, Government Securities and Short-Intermediate Government
Funds had no such investments as of that date.
INVESTMENT RESTRICTIONS
The Company. Certain By-Laws of the Company, which may be changed only by a
shareholder vote, prohibit the purchase of the securities of any company not in
operation continuously for at least three years (including any predecessor
company) and, except for U.S. Government Securities and obligations of the
government of Canada, forbid the purchase of the securities of any one issuer,
if the market value of such securities exceeds 5% of the total market value of
all of the Company's securities and cash.
The Company's Board of Directors has also adopted a policy under which each
of the Common Stock Fund, Balanced Fund, Growth Fund and Bond Fund cannot
purchase securities of any one issuer if the market value of such securities
exceeds 5% of the total market value of each such Fund's securities and cash.
It is also a fundamental policy of the Company that it may not borrow
money, except from banks in an amount up to 5% of a Fund's total assets for
temporary or emergency purposes or to meet redemption requests which might
otherwise require the untimely disposition of securities, and it may not
purchase securities on margin. Also, the Company may not lend its cash or
securities, may not deal in real estate, may not act as underwriter of
securities issued by others, and may not purchase from or sell to any officer,
director or employee of the Company, or the Advisor or underwriter, or any of
their officers or directors, any securities other than shares of the Company's
capital stock. None of its Funds may deal in options, commodities or commodities
contracts except to the extent the Tax-Exempt Funds may enter into futures
transactions and related options for hedging purposes as described above. None
of the Funds may invest in oil, gas or other mineral exploration or development
programs or leases. None of the Funds will invest more than 5% of its net assets
in warrants valued at the lower of cost or market, or more than 2% of its net
assets in warrants which are not listed on either the New York Stock Exchange or
the American Stock Exchange.
The Company's By-Laws also prohibit the purchase or retention of the
securities of any one issuer if officers and directors of the Company, its
advisor or underwriter owning individually more than .5% of the securities of
such issuer together own more than 5% of the securities of such issuer.
15
<PAGE>
The Company may not purchase more than 10% of the voting securities of any
issuer. The Company may not invest in companies for purposes of exercising
control or management and may not invest in any securities of any issuer which
the Company is restricted from selling to the public without registration under
the Securities Act of 1933. It also may not purchase for any Fund securities of
any issuer beyond a market value of 5% of such Fund's net assets, and may not
invest in securities which are not readily marketable. The Company may not make
short sales of securities.
Although not a fundamental policy, so long as the Common Stock Fund is used
as the underlying investment vehicle for a National Life separate account, it is
the view of management that its investment policies will be affected by
insurance laws of certain states, principally New York, which, among other
things, may limit most of the Common Stock Fund's investment in common stocks to
the common stocks of listed companies meeting certain earnings tests. These
essentially are qualitative limitations imposed upon the investments of life
insurance companies in order to reduce the risk of loss.
Restrictions and policies established by resolution of the directors may be
changed by the Board, with any material changes to be reported to shareholders.
Those presently in effect provide that under circumstances that the directors
with the advice of independent investment counsel determine to be extraordinary,
assets of all Funds may be invested entirely or in part in U.S. Government
Securities or an agency thereof, or held as cash deposits in a bank or trust
company having resources of not less than $2,000,000. The securities of foreign
companies or governments may be selected as being suitable for one or more of
the Funds.
The Pennsylvania Fund. The following investment limitations are applicable
to the Pennsylvania Fund, and may not be changed without a vote of the
Pennsylvania Fund's shareholders.
The Pennsylvania Fund may not:
1. Purchase or sell real estate, except that the Fund may invest in
municipal obligations which are secured by real estate or interests
therein.
2. Make loans, except that the Fund may purchase or hold debt instruments
and enter into repurchase agreements pursuant to its investment objective and
policies.
3. Underwrite the securities of other issuers, except to the extent that
the acquisition or disposition of municipal obligations or other securities
directly from the issuer thereof in accordance with the Fund's investment
objective and policies might be deemed to be an underwriting.
4. Purchase securities of companies for the purpose of exercising
control.
5. Acquire any other investment company or investment company security,
except in connection with a merger, consolidation, reorganization or acquisition
of assets.
6. Purchase securities on margin, make short sales of securities or
maintain a short position, provided that the Fund may enter into futures
contracts.
7. Issue senior securities except insofar as borrowing in accordance with
the Fund's investment objective and policies might be considered to result in
the issuance of a senior security; provided that the Fund may enter into futures
contracts.
8. Invest in or sell interests in oil, gas or other mineral exploration
development programs.
16
<PAGE>
9. Invest in private activity bonds where the payment of principal and
interest are the responsibility of a company (including its predecessors) with
less than three years of continuous operations.
The above investment limitations are considered at the time that portfolio
securities are purchased.
If a percentage restriction is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in asset value
will not constitute a violation of the restriction.
In order to permit the sale of Pennsylvania Fund shares in certain states,
the Pennsylvania Fund may make commitments more restrictive than the investment
policies and limitations described above. Should the Pennsylvania Fund
determine that any such commitment is no longer in the best interests of the
Fund, it will revoke the commitment by terminating sales of its shares in the
state involved.
MANAGEMENT OF THE FUNDS
Management is made up of (i) the Company's Board of Directors and the
Pennsylvania Fund's Board of Trustees, which consist of the same ten individuals
and which are responsible for the Funds' operations; (ii) the officers of the
Company and the Pennsylvania Funds, who are responsible to the Boards; and (iii)
the Advisor which, under agreements with the Company and the Pennsylvania Fund,
supervises and assists in the management of the Funds and the purchase and sale
of securities. In addition, the Advisor has retained the services of the Sub-
Advisor with respect to the World Fund. See the "The Investment Advisory
Contracts", below. Set forth below is information regarding the
directors/trustees and officers of the Company and the Pennsylvania Fund, their
ages, and their principal occupations during the past five years. As of March 1,
1996, the Company's and the Pennsylvania Fund's directors/trustees and officers
as a group owned less than 1% of the outstanding shares of each Fund. In
addition, as of such date, National Life and its affiliates, each of whose
address is National Life Drive, Montpelier, Vermont 05604, owned of record and
beneficially________shares amounting to_____% of the outstanding shares of the
Company (______% of the voting power) which included_______shares of the Common
Stock Fund amounting to_____% of such class,_______shares of the Balanced Fund
amounting to_____% of such class,_______shares of the Growth Fund amounting
to_____% of such class,_______shares of the Emerging Growth Fund amounting
to______% of such class,________shares of the World Fund amounting to ______% of
such class, _________ shares of the Bond Fund amounting to ______% of such
class, ________ shares of the Government Securities Fund amounting to_____% of
such class,______shares of the Treasury Fund amounting to_____% of such
class_________ shares of the Tax-Free Income Fund amounting to ______% of such
class,_________ shares of the New York Fund amounting to ______% of such class.
National Life and its affiliates also owned _________ shares of the Pennsylvania
Fund amounting to ______% of the outstanding shares on such date. As of March
1, 1995, Penn Mutual and its affiliates (other than those entities which are
also affiliates of National Life) owned ________ shares of the Company,
amounting to ____% of the outstanding shares (____% of the voting power),
including ______shares of the Bond Fund, amounting to ____% of the class, and
_____shares of the Short-Intermediate Government Fund, amounting to_____% of the
class. Provident Mutual and its affiliates (other than those entities who are
also affiliates of National Life) did not own shares of any of the Funds at such
date.
17
<PAGE>
KENISTON P. MERRILL~* - CHAIRMAN AND DIRECTOR/TRUSTEE
National Life Drive
Montpelier, Vermont 05604
Age 59
Sentinel Advisors Company - Chairman and Chief Executive Officer, 1993 to
present; Sentinel Advisors, Inc. - Chairman and Chief Executive Officer, 1986
to 1993, President and Chief Operating Officer, 1982 to 1986, Director, 1982 to
present; National Life - Executive Vice President and Chief Investment Officer,
February, 1994 to 1995, Senior Vice President and Chief Investment Officer, 1989
to February, 1994, Senior Vice President-Investments, 1986 to 1989, Vice
President, 1982 to 1986; National Life Investment Management Company, Inc. -
Chairman and Chief Executive Officer, 1990 to 1995, President and Chief
Executive Officer, 1986 to 1990, Director, 1982 to present; Sentinel Cash
Management Fund, Inc. - Chairman and Director, 1990 to 1993, President and
Director, 1987 to 1990 American Guaranty & Trust Company - Director, 1993 to
present.
JOSEPH M. ROB~ - PRESIDENT
National Life Drive
Montpelier, Vermont 05604
Age 53
Sentinel Management Company - Chief Executive Officer, 1993 to present; Sentinel
Financial Services Company - Chief Executive Officer, 1993 to present; Sentinel
Administrative Services Company - Chief Executive Officer, 1993 to present; ESI
- - Chairman, Chief Executive Officer, and Director, 1985 to present, President,
1986 to present; Sentinel Administrative Service Corporation - Chairman of the
Board, 1988 to 1993; Sentinel Cash Management Fund, Inc. - President, 1990 to
1993, Vice President, 1985 to 1990; American Guaranty & Trust Company -
Chairman, 1993 to present; Life Insurance Company of the Southwest - Director,
1996 to present.
RICHARD J. BORDA - DIRECTOR/TRUSTEE
P. O. Box 6091
Carmel, California 93923
Age 64
National Life - Former Vice Chairman of the Board, 1985 to 1990, Director, 1975
to 1991; Sentinel Cash Management Fund, Inc. - Chairman, 1987 to 1990, President
1985 to 1987, Director, 1985 to 1993; National Life Investment Management
Company, Inc. - Chairman, 1986 to 1990, President, 1985 to 1986, Director, 1985
to 1990; Sentinel Advisors, Inc. - Chairman, Chief Executive Officer, 1985 to
1986, Director, 1985 to 1987, 1988 to 1990; ESI - Director, 1985 to 1987, 1988
to 1990; Air Force Aid Society - President, 1980 to present; The Monterey
Institute for International Studies - Vice Chairman, Director and Trustee, 1991
to present.
DR. KALMAN J. COHEN - DIRECTOR/TRUSTEE
2312 Honeysuckle Court
Chapel Hill, North Carolina 27514-1711
Age 65
18
<PAGE>
Distinguished Bank Research Professor Emeritus, The Fuqua School of Business,
Duke University, 1994 to present; Distinguished Bank Research Professor, 1974 to
1994; USLIFE Income Fund, Inc. - Director, 1973 to present; Sentinel Cash
Management Fund, Inc. - Director, 1981 to 1993.
RICHARD D. FARMAN - DIRECTOR/TRUSTEE
555 West Fifth Street, 29th Floor
Los Angeles, California 90013-1011
Age 60
President, Chief Operating Officer and Director, Pacific Enterprises, 1993 to
present; Chairman and Chief Executive Officer, Southern California Gas Company,
1989 to 1993; Chairman, KCET Public Service Television; Director and Executive
Committee Member, Los Angeles Area Chamber of Commerce; Director, Union Bank;
Past Chairman and Director, American Gas Association; Director, Interstate
Natural Gas Association of America.
JOHN D. FEERICK - DIRECTOR/TRUSTEE
140 West 62nd Street
New York, New York 10023
Age 59
Fordham University School of Law - Dean, 1982 to present; Sentinel Cash
Management Fund, Inc. - Director, 1984 to 1993; American Home Products
Corporation - Director, 1987 to present; The Association of the Bar of the City
of New York - President, 1992 to 1994; New York State Commission on Government
Integrity - Chairman, 1987 to 1990.
RICHARD I. JOHANNESEN, JR. - DIRECTOR/TRUSTEE
87 Whitney Lane
Stowe, Vermont 05672
Age 61
Retired; Former Vice President and Manager - Bond Market Research Department,
Salomon Brothers Inc
ROBERT B. MATHIAS - DIRECTOR/TRUSTEE
7469 East Pine Avenue
Fresno, California 93727
Age 65
Sports Consultant; formerly Executive Director, National Fitness Foundation;
former U.S. Congressman; ProvidentMutual Investment Shares, Inc. - Director,
1990 to 1993; ProvidentMutual Growth Fund, Inc. - Director, 1990 to 1993.
19
<PAGE>
DEBORAH G. MILLER - DIRECTOR
3 Bates Street
Cambridge, Massachusetts 02140
Age 46
Digital Equipment Corporation - Vice President-Americas Systems Business Unit,
1995 to present; Miller Van Buren, Inc. - Chief Executive Officer, 1994 to 1995;
Silicon Graphics - Vice President, 1991 to 1994; (International Business
Machines Corporation - General Manager, 19__ to 19__.)
STANLEY R. REBER~ - DIRECTOR/TRUSTEE
1600 Market Street
Philadelphia, Pennsylvania 19103
Age 52
Provident Mutual Life Insurance Company - Executive Vice President, 1988 to
present; prior thereto, Senior Vice President; President and Director of Market
Street Fund, Inc.; President, CEO and Director of Sigma American Corporation;
Director of Providentmutual Life and Annuity Company of America, Providentmutual
Investment Management Company, Providentmutual Holding Company, PML Securities
Company, Software Development Corp., and Provestco, Inc.
SUSAN M. STERNE - DIRECTOR/TRUSTEE
5 Glen Court
Greenwich, Connecticut 06830-4505
Age 50
Economic Analysis Associates, Inc. - President and Chief Economist, 1979 to
present; Sentinel Cash Management Fund, Inc. - Director, 1990 to 1993.
JOHN M. GRAB, JR., C.P.A.~ - VICE PRESIDENT
National Life Drive
Montpelier, Vermont 05604
Age 49
Sentinel Management Company - Senior Vice President, 1993 to present; Sentinel
Administrative Service Company - Senior Vice President, 1993 to present;
Sentinel Administrative Service Corporation - Senior Vice President and Chief
Financial Officer, 1988 to 1993; ESI - Senior Vice President and Chief Financial
Officer, 1988 to present; American Institute of Certified Public Accountants;
The Vermont Society of Certified Public Accountants.
MARVIN ABER~ - VICE PRESIDENT AND TREASURER
National Life Drive
Montpelier, Vermont 05604
Age 59
Sentinel Administrative Service Company - Vice President, 1993 to present; ESI
- - Vice President, 1988 to present, Treasurer, 1974 to 1988; Sentinel
Administrative Service Corporation - Vice President, 1988 to 1993; National Life
Investment Management Company, Inc., - Treasurer, 1980 to 1988; Sentinel Cash
Management Fund, Inc. - Treasurer, 1981 to 1993, Assistant Secretary, 1984 to
1993.
D. RUSSELL MORGAN~ - SECRETARY
20
<PAGE>
National Life Drive
Montpelier, Vermont 05604
Age 40
National Life - Counsel, 1994 to present; Associate Counsel, 1990 to 1994,
Assistant Counsel, 1986 to 1990, Attorney 1985 to 1986; Sentinel Cash Management
Fund, Inc. - Secretary, 1986 to 1993; ESI - Counsel, 1986 to present; Sentinel
Advisors, Inc. - Counsel, 1986 to 1993; Sentinel Advisors Company - Sentinel
Financial Services Company - Sentinel Administrative Service Company - Counsel,
1993 to present; Life Insurance Company of the Southwest - Director, 1996 to
present; LSW National Holdings, Inc. - Secretary, 1996 to present.
*As of March 1, 1995, National Life, with which Mr. Merrill is affiliated,
together with National Life's affiliates, owned of record and beneficially the
number of shares of the Funds described on pages ______ of this Statement of
Additional Information.
~"Interested Persons" (as defined in the 1940 Act).
The officers and directors/trustees of the Funds who are employees of
National Life, Provident Mutual, Penn Mutual, or their respective subsidiaries
do not receive any compensation from the Funds. The Company pays to each
director who is not an affiliate of the Advisor an annual fee of $16,000 plus
$1,500 for each meeting of the Board of Directors attended by the director, and
the Pennsylvania Fund pays to each such trustee an annual fee of $2,500 plus
$200 for each meeting of the Board of Trustees attended by such trustee. The
Company and the Pennsylvania Fund also reimburse directors/trustees for travel
and other out-of-pocket expenses incurred by them in connection with attending
such meetings. The aggregate remuneration paid by the Funds during the fiscal
year ended November 30, 1995 to the officers and directors/trustees of the Funds
as a group was $224,568.
The following table sets forth for the fiscal year ended November 30, 1995
compensation paid by the Company and by the Pennsylvania Fund to the
Directors/Trustees who are not affiliated with the Advisor:
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Compensation
Compensation Benefits from Fund
Aggregate From Accrued as and Sentinel
Name of Compensation Pennsylvania Part of Fund Pennsylvania
Trustee from Company Tax-Free Trust Expense Tax-Free Trust
- ----------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Kalman J. Cohen $19,875 $3,500 None $23,375
Richard J. Borda $19,875 $3,500 None $23,375
Richard D. Farman $17,375 $3,300 None $20,675
John D. Feerick $19,875 $3,500 None $23,375
Richard I. Johannesen $19,875 $3,500 None $23,375
Robert B. Mathias $19,875 $3,500 None $23,375
Deborah G. Miller* None None None None
Susan M. Sterne $18,875 $3,300 None $22,175
</TABLE>
* Ms. Miller was elected to the Board of Directors of the Company on November
16, 1995. She also has been nominated to run for election to the Board of
Trustees of the Pennsylvania Fund, but the shareholders of the Pennsylvania Fund
have not yet held their meeting at which her nomination will be voted upon.
21
<PAGE>
Code of Ethics
The Boards of the Funds have adopted a Code of Ethics pursuant to Rule 17j-
1 under the 1940 Act, and the Advisor has adopted a similar Code of Ethics
(together, the "Codes of Ethics"). The Codes of Ethics significantly restrict
the personal investing activities of all employees of the Advisor.
The Codes of Ethics require that all employees preclear any personal
securities transaction (with limited exceptions, such as mutual funds and
government securities). The preclearance requirement and associated procedures
are designed to identify any substantive prohibition or limitation applicable to
the proposed transaction. The substantive restrictions include a ban on
acquiring any securities in an initial public offering, and a prohibition on
profiting from short-term trading in securities. In addition, no employee may
purchase or sell any security which at the time is being purchased or sold by
any mutual fund advised by the Advisor. Furthermore, the Codes of Ethics
provide for seven day trading "blackout periods" which prohibit trading by
employees of the Advisor in proximity to periods of trading by mutual funds
managed by the Advisor in the same (or equivalent) security.
THE INVESTMENT ADVISORY CONTRACTS
The Advisor provides general supervision of the Funds' investments as well
as certain administrative and related services. As compensation in full for
services rendered under its advisory agreement, the Company will pay to the
Advisor a monthly fee determined as follows: (1) With respect to the Emerging
Growth, Growth, World and Balanced Funds: 0.70% per annum on the first $200
million of aggregate average daily net assets of such funds in the aggregate;
0.65% per annum on the next $100 million of such assets; 0.60% per annum on the
next $100 million of such assets; and 0.55% per annum on such assets in excess
of $400 million. (2) With respect to the Common Stock Fund: 0.55% per annum on
the aggregate average daily net assets of the Fund. (3) With respect to the
Bond, New York, Tax-Free Income, Government Securities and Short-Intermediate
Government Funds: 0.55% per annum on the first $200 million of aggregate average
daily net assets of such funds in the aggregate; 0.50% per annum on the next
$200 million of such assets; and 0.45% per annum on such assets in excess of
$400 million. (4) With respect to the Treasury Fund: 0.40% per annum on the
first $300 million of aggregate average daily net assets; and 0.35% per annum on
such assets in excess of $300 million. For the fiscal year ended November 30,
1995, such fees aggregated $10,156,497, for the fiscal year ended November 30,
1994, such fees aggregated $9,511,387, and for the period from March 1, 1993 to
November 30, 1993, such fees aggregated $7,158,651.
22
<PAGE>
Prior to March 1, 1993, the compensation for such services under the
Company's former advisory agreement provided for payment of a monthly fee based
on an annual rate of .5 of 1% of the aggregate average daily value of the net
assets of the Company up to $250 million, .475 of 1% of such value between $250
million and $375 million, .45 of 1% of such value between $375 million and $500
million, .425 of 1% of such value between $500 million and $750 million, and .4
of 1% of such value above $750 million. Such compensation is accrued on a daily
basis and paid monthly, and amounted to $1,170,779 for the period from December
1, 1992 through February 28, 1993.
As compensation in full for services rendered under its advisory agreement,
the Pennsylvania Fund pays to the Advisor a monthly fee of 0.55% per annum on
the first $50 million of aggregate average daily net assets of the Fund; 0.50%
per annum on the next $50 million of such assets; and 0.45% per annum on such
assets in excess of $100 million. For the fiscal year ended November 30, 1995,
the fiscal year ended November 30, 1994, and the period from March 1, 1993 to
November 30, 1993, the Pennsylvania Fund paid advisory fees of $182,103,
$182,041 and $141,868, respectively.
The Pennsylvania Fund's fee schedule prior to March 1, 1993 under its
previous advisory contract with PMMC was .5 of 1% of average net assets, and
fees amounted to $27,038 for the period from January 1, 1993 through February
28, 1993.
Under the Company's advisory agreement, fees are allocated to the various
Funds of the Company which share common fee schedules in proportion to such
Funds' net assets. Each advisory agreement provides a guarantee by the Advisor
that if expenses (including the management fee but excluding interest, taxes,
brokerage fees and, where permitted, extraordinary expenses) borne by a Fund in
any fiscal year exceed the expense limitations applicable to such Fund imposed
by various state securities regulations as such limitations may be lowered or
raised from time to time, the Advisor will reimburse such Fund for any excess.
Currently, the most stringent state expense limitation is 2.5% of the first
$30,000,000 of average net assets, 2.0% of the next $70,000,000 of average net
assets and 1.5% of the remaining average net assets of each Fund. The Advisor
has agreed to reimburse each Fund for any expenses in excess of such limitation
annually before publication of such Fund's Annual Report. Each of the Funds'
expenses during the past fiscal year were below the prescribed limitation and
therefore no reimbursement was necessary.
The Company's advisory agreement, which was approved by the Company's
shareholders on November 30, 1992, must be approved annually by vote of the
Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the applicable Fund, but in either event it
must also be approved by a vote of a majority of the directors who are not
parties to the contract, or "interested persons", as defined in the 1940 Act, of
any such party cast in person at a meeting called for the purpose of voting on
such approval. With respect to the submission of the Company's advisory
agreement for approval by the shareholders, such matters shall be deemed to be
acted upon effectively with respect to any class of the Company if a majority of
the outstanding voting securities of such class vote for approval of such
matter, notwithstanding (A) that such matter has not been approved by a majority
of the outstanding voting securities of any other class affected by such matter,
and (B) that such matter has not been approved by a vote of a majority of the
outstanding voting securities of the Company.
23
<PAGE>
The Pennsylvania Fund's advisory agreement, which was approved by the
shareholders of the Fund on February 19, 1993, must be approved annually by vote
of the Board of Trustees or by the vote of a majority of the outstanding voting
securities of the Pennsylvania Fund, but in either event it must also be
approved by a vote of a majority of the trustees who are not parties to the
contract, or "interested persons", as defined in the 1940 Act, of any such party
cast in person at a meeting called for the purpose of voting on such
approval.
Each advisory agreement will terminate automatically in the event of its
assignment and is terminable at any time without penalty by the Board, or, with
respect to a particular Fund, by a majority of the Fund's outstanding voting
securities on not more than 60 days' written notice to the Advisor and by the
Advisor on 60 days' written notice to the Fund.
As described in the Prospectus, with respect to the World Fund only, the
Advisor has entered into a sub-advisory agreement with the Sub-Advisor. In
accordance with this sub-advisory agreement, the Sub-Advisor provides the World
Fund with a continuous investment program consistent with its stated investment
objectives and policies. The Advisor pays to the Sub-Advisor a fee equal to the
greater of (i) 0.375% per annum of the World Fund's aggregate average daily net
assets up to $500 million, and 0.30% per annum of such net assets in excess of
$500 million, or (ii) $20,000 per year. Such fee is paid monthly in arrears.
The sub-advisory agreement must be approved annually in one of the same ways as
for the Company's advisory agreement as described above. The sub-advisory
agreement also may be terminated by either the Sub-Advisor or by action of the
Board of Directors of the Company or the shareholders of the World Fund on 60
days' written notice, without penalty, and terminates automatically in the event
of its assignment. The fees paid to the Sub-Advisor by the Advisor under the
sub-advisory agreement were $165,408, $122,288 and $23,413, for the fiscal years
ended November 30, 1995 and 1994 and for the period from March 1, 1993 through
November 30, 1993, respectively.
THE DISTRIBUTION CONTRACTS
SFSC acts as the principal underwriter of shares of the Funds, and the
Funds receive the net asset value, as determined for the purpose of establishing
the offering price, of each share sold. SFSC has advised the Funds that it
allows dealer concessions as shown in the Prospectus, except that items of a
promotional nature amounting in value to not more than $100 may be given from
time to time as a sales incentive to registered representatives. SFSC has
advised the Funds that its receipts from the sale of shares, before expenses and
after allowance by it of the dealer concession, were $127,814, $121,401 and
$128,378 for the fiscal years ended November 30, 1995 and 1994, and the period
from March 1, 1993 through November 30, 1993, respectively. During such periods,
ESI received reallowances of $2,332,813, $2,733,451 and $3,116,854,
respectively, PML Securities Company received reallowances of $799,854,
$1,102,934 and $866,142, respectively. During the period from March 27, 1995 to
November 30, 1995, Janney Montgomery Scott, Inc. and Hornor Townsend & Kent,
Inc. received reallowances of $148,021 and $156,325, respectively.
ESI was the principal underwriter for the Company's shares prior to March
1, 1993. ESI has advised the Company that its receipts from the sale of shares,
before expenses and after allowance by it of the dealer concession for the
period from December 1, 1992 through February 28, 1993 were $907,199.
24
<PAGE>
ProvidentMutual Financial Services, Inc. ("PMFSI") was the principal
underwriter for the Pennsylvania Fund prior to March 1, 1993. PMFSI has advised
the Pennsylvania Fund that its receipts from the sale of shares, before expenses
and after allowance by it of the dealer concession for the period from January
1, 1993 through February 28, 1993 were $1,934.
The distribution contracts of the Company and the Pennsylvania Fund may be
terminated by either party thereto on 60 days' written notice, without penalty,
and they terminate automatically in the event of their assignment. The
distribution contracts must be approved annually in one of the same ways as
described above for the advisory agreements.
THE DISTRIBUTION PLANS
The Company and the Pennsylvania Fund have adopted several plans pursuant
to Rule 12b-1 under the 1940 Act. One such plan applies to the Class A shares of
the Company's Funds (other than the Treasury Fund). In addition, the Short-
Intermediate Government Fund has a separate Supplemental Distribution Plan
applicable only to it. The Pennsylvania Fund has a Distribution Plan applicable
only to it. Finally, the Class B shares of the Emerging Growth, World, Common
Stock, Balanced, Bond and Tax-Free Income Funds have adopted a Class B
Distribution Plan, effective April 1, 1996 (all of these plans are collectively
hereinafter referred to as the "Plans"). See "Distribution Plans" in the
Prospectus.
The Class A shares of each Fund (except for the Treasury Fund) paid fees
under the Class A Plan in the amounts set forth below for the periods
indicated:
<TABLE>
<CAPTION>
FUND TOTAL 12B-1 FEES
Year Ended Year Ended March 1, 1993 to
November 30, 1995 November 30, 1994 November 30, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Common Stock $2,545,000 $1,161,000 $1,075,000
Balanced 741,076 544,500 331,000
Growth 145,000 83,500 87,300
Emerging Growth 281,355 290,100 232,338
World 132,778 96,797 21,250
Bond 196,750 141,500 98,000
Government Securities 210,478 240,000 191,400
Short-Int. Gov't (1) 48,200 - -
Tax-Free Income 211,125 211,325 136,600
New York (2) 6,666 - -
Pennsylvania 66,219 62,300 55,740
</TABLE>
25
<PAGE>
(1) Commenced operations on March 24, 1995
(2) Commenced operations on March 27, 1995
The Plan applicable to the Class B shares of the Emerging Growth, World,
Common Stock, Balanced, Bond and Tax-Free Income Funds became effective on April
1, 1996. It is expected that the amounts payable to SFSC under this Class B
Plan will be equal to 1.00% of the net assets of the Class B shares of the
relevant Funds. SFSC will use such payments to recoup the cost of commissions
paid to brokers at the time of sale of the Class B shares, service fees to
brokers with respect to the Class B shares, and the same types of other
marketing expenses for which SFSC receives reimbursement under the Plans
applicable to the Class A shares.
The Boards of the Funds believe that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and for
the Funds to take advantage of buying opportunities without having to make
unwarranted liquidations of portfolio securities. Since SFSC receives no other
compensation from the Funds, the Boards believe it would benefit the Funds to
have monies available for the direct distribution activities of SFSC in
promoting the sale of shares of the Funds.
The Plans have been approved by the Company Boards of Directors and the
Pennsylvania Fund's Board of Trustees, including all of the directors/trustees
who are not interested persons as defined in the 1940 Act. The Plans must be
renewed annually by the Boards, including a majority of the directors/trustees
who are not interested persons and who have no direct or indirect financial
interest in the operation of the Plans. It is also required that the selection
and nomination of such directors/trustees be done by the disinterested
directors/trustees. The Plans and any distribution agreement may be terminated
at any time, without penalty, by such directors/trustees on 60 days' written
notice. SFSC or any dealer may also terminate their respective distribution
agreement at any time upon written notice.
The Plans and any distribution agreement may not be amended to increase
materially the amount spent for distribution expenses or in any other material
way without approval by a majority of the Funds' outstanding shares, and all
such material amendments to any Plan or any distribution agreement also shall be
approved by a vote of a majority of the disinterested directors/trustees, cast
in person at a meeting called for the purpose of voting on any such
amendment.
SFSC is required to report in writing to the Board of Directors of the
Company and the Board of Trustees of the Pennsylvania Fund at least quarterly on
the amounts and purpose of any payments made under the Plans and any
distribution agreement, as well as to furnish the Boards with such other
information as reasonably may be requested in order to enable the Boards to make
informed determinations of whether the Plans should be continued.
THE FUND SERVICES AGREEMENTS
Sentinel Administrative Service Company ("Sentinel Service"), in accordance
with its Fund Services Agreements with the Funds, provides the Funds with
certain fund accounting, financial administration, transfer agency and
shareholder relations services. Sentinel Service performs the transfer agency
responsibilities utilizing, through Investors
26
<PAGE>
Fiduciary Trust Company ("IFTC"), the computer system of DST Systems, Inc.
("DST") on a remote basis.
For these services, the Fund Services Agreements provide for the Funds to
pay to Sentinel Service fixed fees totalling $926,500 per year for fund
accounting and financial administration services. The Agreements also provide
for an annual fee for transfer agency and shareholder relations services to the
Company and the Pennsylvania Fund of $2,563,000 and $37,000, respectively, plus
amounts equal to annual rates of $15 per shareholder account in excess of
106,500 and 1,500, respectively, in each case as of the last day of the month
preceding the installment due date. Each Fund also is responsible for the
charges for remote access to the computer system of DST. Generally, this is a
fixed annual charge per shareholder account, plus certain out-of-pocket
expenses, minus certain credits. The fixed fees are subject to increase under
inflation clauses for fiscal years beginning December 1, 1994, and thereafter,
to the extent approved by the Board of Directors or Board of Trustees. Fees
are payable monthly in arrears.
Total fees payable to Sentinel Service under the Fund Services Agreements
for the years ended November 30, 1995 and 1994 and for the period from March 1,
1993 through November 30, 1993 were $3,470,333, $3,358,000 and $2,518,500
, respectively. Total fees payable to Sentinel Service's predecessor under the
Company's prior Fund Services Agreement for the period from December 1, 1992
through February 28, 1993 were $482,239.
Sentinel Service is a Vermont general partnership of which affiliates of
National Life, Provident Mutual and Penn Mutual are the general partners.
The Company's Fund Services Agreement was approved by the Company's
shareholders on November 30, 1992, and the Pennsylvania Fund's Fund Services
Agreement was approved by that Fund's shareholders on February 19, 1993. The
agreements were approved by the Company's Board of Directors and the
Pennsylvania Fund's Board of Trustees on August 13, 1992 and August 14, 1992,
respectively. Each agreement must be approved annually by vote of the Board or
by the vote of a majority of the outstanding voting securities of each Fund, but
in either event it must also be approved by a vote of a majority of the
directors/trustees who are not parties to the contract, or interested persons,
as defined in the 1940 Act, of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Fund Services Agreements
will terminate automatically in the event of their assignment and are terminable
at any time without penalty by the applicable Board or, as to a particular Fund,
by a majority of the applicable Fund's outstanding voting securities on not more
than 60 days' written notice to Sentinel Service and by Sentinel Service on 60
days' notice to the Fund.
PORTFOLIO TRANSACTIONS
AND BROKERAGE COMMISSIONS
The Funds' policy in the case of listed securities is to place its orders
with firms that are members of a stock exchange on which such securities are
listed or traded and in the case of securities traded in the over-the-counter
market to deal directly with dealers who are primary market makers in such
securities, without the use of a broker unless the Funds can obtain better price
or execution through the use of a broker. Purchases are made for investment and
not for trading purposes, except for the Bond Fund where trading may be an
important factor. Subject to the direction and control of the Boards and in
accordance with its advisory agreements, the Advisor supervises the investments
of the Funds and, as an essential feature thereof,
27
<PAGE>
places orders for the purchase and sale of portfolio securities and supervises
their execution, including negotiating the amount of the commission rate paid,
in each case at prices it believes to be the best then available, taking into
consideration such factors as price, commission, size of order, difficulty of
execution and skill required of the executing broker-dealer as well as the
extent to which a broker capable of satisfactory execution may provide research
information and statistical and other services to the Advisor. Sales of shares
of the Funds may also be considered as a factor in the selection of broker-
dealers to execute portfolio transactions for the Funds, subject to the
conditions that commissions paid to such broker-dealers be no higher than would
otherwise be paid, and that the prices be, in the judgment of the Advisor, the
best then available.
In making such purchases and sales, the brokerage commissions are paid by
the Funds. The Funds may also buy or sell securities from, or to, dealers
acting as principals.
Section 28(e) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), which was enacted by Congress in connection with the elimination of fixed
commission rates on May 1, 1975, provides that, except as agreements such as
investment advisory contracts otherwise provide, money managers such as the
Advisor will not be deemed to have acted unlawfully or to have breached a
fiduciary duty if, subject to certain conditions, a broker-dealer is paid in
return for brokerage and research services an amount of commission for effecting
transactions for accounts, such as the Funds, in excess of the amount of
commission another broker-dealer would charge for effecting the transaction. In
order to cause the Funds to pay such greater commissions, the Advisor has to
determine in good faith that the greater commission is reasonable in relation to
the value of the brokerage and research services provided by the broker-dealer
viewed in terms of either a particular transaction or the Advisor's overall
responsibilities to the Funds and to its other clients.
Brokerage and research services, as provided in Section 28(e) of the 1934
Act, include advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts and effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement and
custody).
Although research and market and statistical information from brokers and
dealers can be useful to the Funds and to the Advisor, it is the opinion of the
management of the Funds that such information is only supplementary to the
Advisor's own research effort since the information must still be analyzed,
weighed and reviewed by the Advisor's staff.
Except for implementing the policy stated above, there is no commitment to
place portfolio transactions with brokers or dealers who provide investment
research. The Advisor has advised the Funds that it is not feasible to assign
any precise value to services provided by such brokers and dealers to it, nor
does the use of such services reduce its expense by any measurable or
significant amount. For the years ended November 30, 1995, 1994, and 1993, the
Funds paid total brokerage commissions of $1,102,148, $909,949, and $594,064,
respectively. Brokerage commissions paid by each Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
<S> <C> <C> <C>
Fund 11/30/95 11/30/94 11/30/93
Common Stock $650,368 $414,244 $291,505
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C> <C>
Balanced 109,898 115,112 69,761
Growth 108,107 105,150 20,662
Emerging Growth(1) 126,348 131,104 161,872
World(1) 107,427 144,339 50,264
Bond --- --- ---
Government Securities --- --- ---
Short-Int. Gov't (2) --- N/A N/A
Treasury (1) --- --- N/A
Tax-Free Income --- --- ---
New York (3) --- N/A N/A
Pennsylvania (4) --- --- ---
</TABLE>
(1) Commenced operations on March 1, 1993.
(2) Commenced operations on March 24, 1995.
(3) Commenced operations on March 27, 1995.
(4) For the fiscal years ended November 30, 1995 and 1994 and the eleven months
ended November 30, 1993.
Such commissions were allocated on the basis of research and statistical or
other services provided by the dealer, although selling group dealers may have
participated therein. Of the total commissions paid by the Funds, approximately
100% was allocated in 1995, 1994, and 1993 to brokers or dealers whose
furnishing of research information was a factor in their selection.
PORTFOLIO TURNOVER
Purchases for the Emerging Growth, Growth, Common Stock, World, Balanced
and Pennsylvania Funds are made for long-term investment, and not for short-term
trading profits. However, during rapidly changing conditions, there necessarily
may be more portfolio changes than in a more stable period and these may result
in short-term gains or short-term losses. The rates of portfolio turnover for
each of the Funds during the fiscal years ended November 30, 1995, 1994 and
1993, were as follows:
29
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
<S> <C> <C> <C>
Fund 11/30/95 11/30/94 11/30/93
Common Stock 22% 15% 9%
Balanced 110% 66% 72%
Growth 84% 58% 12%
Emerging Growth(1) 79% 46% 61%
World(1) 32% 30% 66%
Bond 237% 133% 147%
Government Securities 367% 149% 97%
Short-Int. Gov't(2) 77% N/A N/A
Treasury(1) N/A N/A N/A
Tax-Free Income 112% 92% 39%
New York(3) 43% N/A N/A
Pennsylvania(4) 80% 56% 23%
</TABLE>
(1) Commenced operations on March 1, 1993.
(2) Commenced operations on march 24, 1995.
(3) Commenced operations on March 27, 1995.
(4) For the fiscal years ended November 30, 1995 and 1994 and the eleven months
ended November 30, 1993.
In pursuit of the investment objectives of the Bond, Government Securities,
Short-Intermediate Government, Tax-Free Income and New York Funds, it is
expected that assets will be managed actively. In order to maximize income and
protect the income stream or improve the quality of the portfolio, in light of
market and economic conditions as interpreted or anticipated by the Advisor,
these Funds' portfolios will be monitored constantly and will be adjusted when
deemed appropriate in furtherance of the Funds' investment objectives.
Portfolio turnover is the ratio of the lesser of annual purchases or sales of
portfolio securities to average monthly market value, not including short-term
securities. One of the requirements under the Code for qualification as a
regulated investment company is that less than 30% of a Fund's gross income may
be derived from gains from the sale or disposition of securities held for less
than three months. Accordingly, a Fund may be restricted in effecting portfolio
turnover transactions with regard to items that have been held in such Fund for
less than three months.
CAPITALIZATION
Shares of the Company's common stock and shares of beneficial interest in
the Pennsylvania Fund are fully paid and non-assessable. Each such share is
freely assignable to another bona fide investor by way of pledge (as, for
example, for collateral purposes), gift, settlement of an estate and, also, by
an investor who has held such Fund shares for not less than 30 days. Each share
of the Company is entitled to one vote per dollar of net
30
<PAGE>
asset value per share, on matters on which all Funds of the Company vote as a
single class. Each share of the Pennsylvania Fund entitles the holder to one
vote for all purposes.
The proceeds from the sale of shares of each Fund or class of shares of the
Company and all income, earnings and profits therefrom irrevocably appertain to
the Fund or class of shares. Each such Fund or class of shares records all
liabilities (including accrued expenses) in respect of such Fund or class of
shares, as well as a share of such liabilities (including general liabilities of
the Company) in respect to two or more Funds or classes of shares, in proportion
to their average net assets, or in proportion to the number of their respective
shareholders. The Company's Board has adopted a "Rule 18f-3 Plan" under which
the methods of allocating income and expenses among classes of shares of each
Fund which has both Class A and Class B shares is specified, and the Company
intends to comply fully with the provisions of Rule 18f-3 under the 1940 Act in
allocating income and expenses among the classes of Funds offering both Class A
and Class B shares. If any reasonable doubt exists as to the Fund or class of
shares to which any asset or liability appertains, the Board may resolve such
doubt by resolution.
In the case of dissolution or liquidation of the Company, the shareholders
of each Fund of the Company are entitled to receive ratably per share the net
assets of such Fund, with any general assets of the Company distributed ratably
per share, regardless of the Fund.
Voting rights are non-cumulative, meaning that the holders of more than 50%
of the shares voting for the election of directors/trustees can elect 100% of
the directors/trustees being voted upon if they choose to do so, and, in such
event the holders of the remaining minority of the shares voting for the
election of directors/trustees will not be able to elect any person or persons
to the Board. As of March 1, 1996, none of the approximately _______
shareholders owns as much as 5% of the voting stock of any Fund except National
Life and its affiliates, whose holdings are set forth on page __ of this
Statement of Additional Information, and except for the following shareholders
of the New York Fund: Mr. Louis P. Dicerbo, 261 Madison Avenue, New York, New
York 10016-2303 - ______shares amounting to ___% of the class; Ms. Arlene
Federico, 39 Fruitledge Road, Brookville, New York 11545-3315 - _______ shares
amounting to ____% of the class; and Ms. Donna Bernstein, 15 Parkway Drive,
Roslyn Heights, New York 11577-2705 - _______ shares amounting to ____% of the
class.
HOW TO PURCHASE SHARES
AND
REDUCE SALES CHARGES
Shares of the Funds may be purchased at the public offering price from any
authorized investment dealer as described in the Prospectus. The public offering
price of Class A shares, which are offered by every Fund, is the sum of the
current net asset value per share plus a sales charge which ranges from 5.0% to
0% of the purchase price. The public offering price of Class B shares, which are
offered by the Common Stock, Balanced, Emerging Growth, World, Bond, and Tax-
Free Income Funds, is equal to the current net asset value per share. A
contingent deferred sales charge ("CDSC") may apply to redemptions of Class B
shares, or to redemptions of Class A shares where the initial sales charge was
zero based on a purchase of $1,000,000 or more. See "How to Purchase Shares" in
the Prospectus.
31
<PAGE>
THE GROUP PURCHASE PROGRAM - Clients of a single registered representative
--------------------------
or group of affiliated registered representatives who make purchases by opening
new accounts within a 60-day period and whose funds for such purchases all
originate from a single other source may aggregate such purchases for purposes
of determining the applicable sales charge level or CDSC schedule for such
purchases.
32
<PAGE>
ISSUANCE OF SHARES AT NET ASSET VALUE
Subject to the applicable provisions of the 1940 Act, certain investors may
purchase Class A shares of the Funds at net asset value. Such investors are
listed in the Prospectus. See "How to Purchase Shares - Reduced Sales Charges"
in the Prospectus.
HOW TO REDEEM SHARES
The Funds normally will buy back your shares on demand on any business day
(as defined below). Class A shares are repurchased at current net asset value;
a CDSC may be payable on redemptions of Class B shares, and will be deducted
from the redemption proceeds. For further information, please refer to the
Prospectus.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund or class of shares is computed
by dividing the total value of the assets of that Fund or class of shares, less
its liabilities, by the total number of such Fund's or class of shares'
outstanding shares. Equity securities which are traded on a national securities
exchange are valued at the last reported sale price each business day at the
regular close of trading, currently 4:00 p.m., Eastern time. Equity securities
for which there were no sales during the day are valued at the mean between the
latest available bid and asked prices. Fixed-income securities are valued daily
on the basis of valuations furnished by a pricing service which determines
valuations for normal institutional-sized trading units of debt securities,
without exclusive reliance upon quoted prices. These valuations by the pricing
service are believed to reflect more accurately the fair market value of such
securities. Net asset value is calculated once each business day, at 4:00 p.m.
Eastern time, and becomes effective immediately upon its determination. Orders
to purchase shares of the Funds received by dealers prior to 4:00 p.m., Eastern
time will be confirmed on the basis of such closing price, provided they are
received by the Distributor prior to the close of its business day. Orders
received by dealers after 4:00 p.m., Eastern time will be confirmed on the same
basis as previously stated with respect to the next business day. "Business day"
means a day on which the New York Stock Exchange is open. The New York Stock
Exchange is not open on New Year's Day,
33
<PAGE>
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Treasury Fund values its portfolio securities based on their amortized
cost in accordance with SEC regulations. The amortized cost method of valuation
involves valuing a security at its cost at the time of purchase and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. During such periods the yield to investors in the Treasury Fund
may differ somewhat from that obtained in a similar investment company which
uses mark-to-market value for all of its portfolio securities. For example, if
the use of amortized cost resulted in a lower (higher) aggregate portfolio value
on a particular day, a prospective investor in the Treasury Fund would be able
to obtain a somewhat higher (lower) yield than would result from investment in
such a similar company which utilizes mark-to-market values and existing
investors would receive less (more) investment income. The purpose of this
method of calculation is to attempt to maintain a constant net asset value per
share of $1.00.
In accordance with the SEC rule permitting the use of the amortized cost
method of valuation, the Treasury Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, and must purchase instruments having
remaining maturities of 397 days (13 months) or less. In addition, the
Directors of the Company have established procedures designed to stabilize, to
the extent reasonably possible, the Treasury Fund's price per share as computed
for the purpose of sales and redemptions at $1.00. The Company's Directors will
review periodically the Treasury Fund's portfolio holdings to determine whether
a deviation exists between the net asset value calculated using market
quotations and that calculated on an amortized cost basis. In the event the
directors determine that a deviation exists which may result in material
dilution or other unfair results to existing shareholders, the Treasury Fund
will take such corrective action as it regards as necessary and appropriate,
including (i) the reduction of the number of outstanding shares of the Treasury
Fund by having each shareholder proportionately contribute shares to the
Treasury Fund's capital, (ii) the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, (iii) the withholding of dividends or (iv) the establishment of a net
asset value per share by using available market quotations. If the number of
outstanding shares is reduced in order to maintain a constant net asset value of
$1.00 per share, the shareholders will contribute proportionately to the
Treasury Fund's capital the number of shares which represent the difference
between the amortized cost valuation and the market valuation of the portfolio.
Each shareholder will be deemed to have agreed to such contribution by such
shareholder's investment in the Treasury Fund.
Since the net income of the Treasury Fund is determined and declared as a
dividend immediately prior to each time the asset value of the Treasury Fund is
determined, the net asset value per share of the Treasury Fund normally remains
at $1.00 per share immediately after each such dividend declaration. Any
increase in the value of a shareholder's investment in the Treasury Fund,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares of the Treasury Fund in that shareholder's account and any
decrease in the value of a shareholder's investment may be reflected in the
number of shares in the account. See "Taxes" below.
COMPUTATION OF MAXIMUM OFFERING AND REDEMPTION PRICES
AT NOVEMBER 30, 1995
Class A Shares:
34
<PAGE>
(Reduced offering prices apply on purchases of $100,000 or more of shares of the
Funds, as described in the prospectus.)
<TABLE>
<CAPTION>
==============================================================================================
Common Emerging
Stock Balanced Growth Growth World
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net assets $1,057,943,793 $267,102,751 $60,446,369 $89,321,170 $47,701,988
Shares outstanding 30,044,511 15,864,676 3,570,991 17,190,516 3,462,116
Net asset value per
share (redemption
price) $35.21 $16.84 $16.93 $5.20 $13.78
Maximum offering
price per share* $37.06 $17.73 $17.82 $5.47 $14.51
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================
Government Short-Int.
Bond Securities Gov't. Treasury
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Net assets $108,754,551 $108,100,188 $28,416,665 $80,663,911
Shares outstanding 16,767,832 10,491,866 2,887,563 80,663,911
Net asset value per
share (redemption
price) $6.49 $10.30 $9.84 $1.00
Maximum offering price* $6.83 $10.84 $9.94 $1.00
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================
Tax-Free
Income New York Pennsylvania
Fund Fund Fund
<S> <C> <C> <C>
Net assets $110,505,745 $5,332,403 $34,975,097
Shares outstanding 8,115,609 455,023 2,610,707
Net asset value per
share (redemption
price) $13.62 $11.72 $13.40
Maximum offering price* $14.34 $12.34 $14.11
==============================================================================================
</TABLE>
35
<PAGE>
*For all Funds except the Treasury Fund and the Short-Intermediate Government
Fund, the maximum offering price is 1000/950 times the net asset value per
share. For the Treasury Fund, the maximum offering price per share is equal to
the net asset value per share. For the Short-Intermediate Government Fund, the
maximum offering price is the net asset value per share times 1000/990.
Class B Shares:
- --------------
In the case of Class B shares, which are offered for the Common Stock,
Balanced, Emerging Growth, World, Bond, Treasury and Tax-Free Income Funds, the
maximum offering price is equal to the net asset value per share.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends, as explained in the Prospectus, are paid annually for the Class
A and B shares of the Emerging Growth, World and Growth Funds, quarterly
36
<PAGE>
for the Class A and Class B shares of the Balanced and Common Stock Funds, and
monthly for the Class A and B shares of the Bond and Tax-Free Income Fund,
Government Securities, Short-Intermediate Government, Pennsylvania and
New York Funds. Distributions of any net realized gains on sales of investments
of any Fund for a fiscal year ordinarily are paid in the month of December
immediately following the November 30th fiscal year-end. Dividends for the
Treasury Fund are declared daily and paid monthly, as described in the
Prospectus.
Except where the shareholder, in the manner described below, has elected
otherwise, any income dividends or capital gains distributions of a Fund will be
made in shares of such Fund at the net asset value at the close of business on
the designated record date, resulting in the automatic reinvestment of cash
dividends and distributions. Such an acquisition of shares involves no sales
charge. Unless the shareholder is participating in a Systematic Withdrawal
Plan, the shareholder may elect to receive in cash either both income dividends
and capital gains distributions or only income dividends. Such election may be
made by written notice to Sentinel Service and will take effect for
distributions for which the record date is more than ten days after the receipt
by Sentinel Service of such written notice. The election will remain in effect
until revoked by similar notice.
TAXES
General
Each Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, a Fund will not be subject to federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to Class
A and Class B shareholders. The Company intends to distribute substantially all
of such income.
As discussed in the Prospectus, the Company consists of eleven separate
Funds. Each such Fund is treated as a separate corporation for federal income
tax purposes. Each such Fund is thus considered to be a separate entity in
determining its treatment under the rules for RICs described in the Prospectus.
Losses in one Fund do not offset gains in another Fund, and the requirements
(other than certain organizational requirements) for qualifying for RIC status
are determined at the Fund level rather than at the Company level.
Dividends paid by a Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred to
hereafter as "ordinary income dividends"), are taxable to shareholders as
ordinary income for federal income tax purposes, except that "exempt-interest
dividends" (as defined in Section 852(b)(5) of the Code) not subject to federal
income tax are expected to be paid by the Tax-Free Income Fund, "exempt-interest
dividends" not subject to either federal income tax or Pennsylvania personal
income tax are expected to be paid by the Pennsylvania Fund, and "exempt-
interest dividends" not subject to either federal income tax or New York State
and City personal income tax are expected to be paid by the New York Fund, as
described in the Prospectus. Distributions made from net long-term capital
gains over short-term capital losses (hereinafter referred to as "capital gain
dividends") are taxable to shareholders as long-term capital gains for federal
income tax purposes, regardless of the length of time the shareholder has owned
such Fund's shares. A capital gain dividend with respect to shares held for six
months or less, however, will cause any loss on a subsequent sale or exchange of
such shares to be treated as long-term capital loss to the extent of such long-
term capital gains dividend.
37
<PAGE>
Distributions in excess of a Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder for federal income
tax purposes (assuming the shares are held as a capital asset).
With the exception of exempt-interest dividends paid by the Tax-Exempt
Funds, dividends are taxable to shareholders for federal income tax purposes
even though they are reinvested in additional shares of the Funds. Not later
than 60 days after the close of its taxable year, each Fund will provide its
shareholders with a written notice designating the amount of any capital gain
dividends, tax-exempt dividends and the portion of the Fund's ordinary income
dividends eligible for the dividends received deduction allowed to corporations
under the Code. Distributions by the Tax-Exempt Funds, however, whether from
exempt-interest income, ordinary income or capital gains, will not be eligible
for the dividends received deduction allowed to corporations under the Code.
For this purpose, the Funds will allocate any dividends eligible for dividends
received deduction between the Class A and Class B shareholders according to a
method (which they believe is consistent with the 18f-3 Plan filed with the SEC)
which authorizes the issuance and sale of multiple classes of shares) that is
based on the gross income allocable to the Class A and Class B shares during the
taxable year, or such other method as the Internal Revenue Service may
prescribe. If a Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as having been paid by the RIC and received by its shareholders on December 31st
of the year in which the dividend was declared.
If the value of assets held by the Treasury Fund declines, the Board of
Directors may authorize a reduction in the number of outstanding shares in
shareholders' accounts so as to preserve a net asset value of $1.00 per share.
After such a reduction, the basis of eliminated shares will, for federal income
tax purposes, be added to the basis of shareholders' remaining Fund shares, and
any shareholders disposing of shares at that time may recognize a capital loss.
Distributions, including distributions reinvested in additional shares of the
Fund, will nonetheless be fully taxable for federal income tax purposes, even if
the number of shares in shareholders' accounts has been reduced as described
above.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Company, or who, to the
Company's knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that such investor is not otherwise subject to backup
withholding.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities,
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisors concerning the applicability of the United States withholding
tax.
Dividends and interest received by the World Fund (and to a lesser extent,
some of the other Funds) may give rise to withholding and other taxes imposed by
foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of the World Fund may
be able to claim United States foreign tax credits with respect to such taxes,
subject to certain conditions and limitations contained in the Code. If more
than 50% in value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be
38
<PAGE>
eligible, and intends, to file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include their
proportionate shares of such withholding taxes in their United States income tax
returns as gross income, treat such proportionate shares as taxes paid by them,
and deduct such proportionate shares in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their United States
income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to United
States withholding tax on the income resulting from the Fund's election
described in this paragraph but may not be able to claim a credit or deduction
against such United States tax for the foreign taxes treated as having been paid
by such shareholder. Additionally, certain retirement accounts cannot claim
foreign tax credits on investments in foreign securities held in the Fund. The
World Fund (and other Funds to the extent applicable) will report annually to
shareholders the amount per share of such withholding taxes. For this purpose,
the World Fund will allocate foreign taxes and foreign source income between the
Class A and Class B shares according to a method similar to that described above
for the allocation of dividends eligible for the dividends received
deduction.
If a shareholder exercises an Exchange Privilege as described below within
90 days of acquiring such shares, then the loss such shareholder can recognize
on the exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Company reduces any sales charge such shareholder would have
owed the Company for the shares of the new Fund in the absence of the Exchange
Privilege. Instead, such sales charge will be treated as an amount paid for the
new shares.
A loss realized on a sale or exchange of shares of a Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires each Fund to pay a non-deductible 4% excise tax to the
extent it does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains and
foreign currency gains, determined on a November 30th year end, plus certain
undistributed amounts from previous years. The Company anticipates that the
Funds will make sufficient timely distributions to avoid the imposition of the
excise tax.
At November 30, 1995, the Balanced, Bond, Tax-Free Income, New York,
Government Securities and Short-Intermediate Government Funds had capital loss
carryforwards for federal income tax purposes of $124,351, $3,436,516, $143,804,
$51,369, $3,586,497 and $1,090,062, respectively.
Tax-Exempt Funds
- ----------------
The Tax-Exempt Funds intend to continue to qualify to pay exempt-interest
dividends. The relevant Code provision states that if, at the close of each
quarter of the respective Fund's taxable year, at least 50% of the value of its
total assets consists of obligations exempt from federal income tax ("tax-exempt
obligations") under Section 103(a) of the
39
<PAGE>
Code (relating generally to obligations of a state or local governmental unit),
such Fund shall be qualified to pay exempt-interest dividends to its
shareholders. Exempt-interest dividends are dividends or any part thereof paid
by a Tax-Exempt Fund which are attributable to interest on tax-exempt
obligations and designated by the Company as exempt-interest dividends in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. For this purpose, the Tax-Free Income Fund will allocate
interest from tax-exempt obligations (as well as ordinary income, capital gains
and tax preference items discussed below) between the Class A and Class B
shareholders according to a method (which it believes is consistent with the
18f-3 Plan filed with the SEC which authorizes the issuance and sale of multiple
classes of shares) that is based on the gross income allocable to the Class A
and Class B shares during the taxable year, or such other method as the Internal
Revenue Service may prescribe. Exempt-interest dividends may be treated by
shareholders for all purposes as items of interest excludable from their federal
gross income under Code Section 103(a). Exempt-interest dividends are included,
however, in determining the portion, if any, of a person's social security
benefits and railroad retirement benefits subject to federal income taxes.
Interest on indebtedness incurred or continued to purchase or carry shares of a
RIC paying exempt-interest dividends will not be deductible by the shareholder
for federal income tax purposes to the extent attributable to exempt-interest
dividends. Each shareholder is advised to consult a tax advisor with respect to
whether exempt-interest dividends retain the exclusion under Code Section 103(a)
if such shareholder were to be treated as a "substantial user" or "related
person" under Code Section 147(a) with respect to property financed with the
proceeds of an issue of "industrial development bonds" or "private activity
bonds", if any, held by the Tax-Exempt Funds.
Under the Revenue Reconciliation Act of 1993, all or a portion of the Tax-
Exempt Funds' gain from the sale or redemption of tax-exempt obligations
purchased at a market discount will be treated as ordinary income rather than
capital gain. This rule may increase the amount of ordinary income dividends
received by shareholders of these Funds. In addition, any loss upon the sale or
exchange of Tax-Exempt Fund shares held for six months or less will be
disallowed to the extent of any exempt-interest dividends received by the
shareholder.
The Code subjects interest received on certain otherwise tax-exempt
securities to an AMT. The AMT applies to interest received on private activity
bonds issued after August 7, 1986. Private activity bonds are bonds which,
although tax-exempt, are used for purposes other than those generally performed
by governmental units and which benefit non-governmental entities (e.g., bonds
used for industrial development or housing purposes). Income received on such
bonds is classified as an item of "tax preference" which could subject investors
in such bonds, including shareholders of the Funds, to an AMT. The Tax-Exempt
Funds may purchase such private activity bonds, and will report to shareholders
within 60 days after the Tax-Exempt Funds' respective taxable year-ends the
portion of such Fund's dividends declared during the year which constitutes an
item of tax preference for AMT purposes. The Code further provides that
corporations are subject to an AMT based, in part, on certain differences
between taxable income as adjusted for other tax preferences and the
corporation's "adjusted current earnings", which more closely reflect a
corporation's economic income. Because an exempt-interest dividend paid by a
Tax-Exempt Fund will be included in adjusted current earnings, a corporate
shareholder may be required to pay the AMT on exempt-interest dividends paid by
such Funds.
40
<PAGE>
The Code provides that every person required to file a tax return must
include on such return the amount of exempt-interest dividends received from the
Tax-Exempt Funds during the taxable year.
The Code imposes a deductible tax (the "Environmental Tax") on a
corporation's AMT income (computed without regard to the alternative tax net
operating loss deduction) at a rate of $12 per $10,000 (0.12%) of AMT income in
excess of $2,000,000. The tax is imposed for taxable years beginning after
December 31, 1986 and before January 1, 1996, unless extended. The tax will be
imposed even if the corporation is not required to pay an AMT because the
corporation's regular income tax liability exceeds its minimum tax liability.
The Code provides, however, that RICs (such as the Tax-Exempt Funds) are not
subject to the Environmental Tax. However, exempt-interest dividends paid by
the Tax-Exempt Funds that create alternative minimum taxable income for
corporate shareholders (as described above) may subject corporate shareholders
of such Funds to the Environmental Tax.
Tax Treatment of Options and Futures Transactions
- -------------------------------------------------
The Tax-Exempt Funds may purchase or sell financial futures contracts and
call and put options on financial futures contracts. In general, unless an
election is available to a fund or an exception applies, such options and
futures contracts that are "Section 1256 contracts" will be "marked to market"
for federal income tax purposes at the end of each taxable year, i.e., each such
option or financial futures contract will be treated as having been sold for its
fair market value on the last day of the taxable year, and any gain or loss
attributable to Section 1256 contracts will be 60% long-term and 40% short-term
capital gain or loss. Application of these rules to Section 1256 contracts held
by the Funds may alter the timing and character of distributions to
shareholders. The mark-to-market rules outlined above, however, will not apply
to certain transactions entered into by the Funds solely to reduce the risk of
changes in price or interest rates with respect to its investments.
A forward foreign exchange contract held by the World Fund that is a
Section 1256 contract will be marked to market, as described above. However, the
character of gain or loss from such a contract will generally be ordinary under
Code Section 988. The World Fund may, nonetheless, elect to treat the gain or
loss from certain forward foreign exchange contracts as capital. In this case,
gain or loss realized in connection with a forward foreign exchange contract
that is a Section 1256 contract will be characterized as 60% long-term and 40%
short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Tax-Exempt Funds' transactions in financial futures contracts or
options thereon andthe World Fund's transactions in forward foreign exchange
contracts. Under Section 1092, the Tax-Exempt Funds may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in financial futures contracts or options thereon. The World Fund likewise may
be required to postpone recognition of losses in connection with its forward
foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Tax-Exempt
Funds may be restricted in effecting closing transactions within three months
after entering into an options or financial futures contract.
Foreign Currency Transactions
- -----------------------------
41
<PAGE>
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether a Fund qualifies as a RIC.
It is currently unclear, however, who will be treated as the issuer of a foreign
currency instrument or how foreign currency options, foreign currency futures
and forward foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the World Fund.
Under the Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U. S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the World Fund may
elect capital gain or loss treatment for such transactions. In general,
however, Code Section 988 gains or losses will increase or decrease the amount
of the World Fund's investment company taxable income available to be
distributed to shareholders as ordinary income. Additionally, if Code Section
988 losses exceed other investment company taxable income during a taxable year,
the World Fund would not be able to make any ordinary income dividend
distributions, and any distributions made before the losses were realized but in
the same taxable year would be recharacterized as a return of capital to
shareholders, and resulting in a capital gain for any shareholder who received a
distribution greater than such shareholder's basis in World Fund shares
(assuming the shares were held as a capital asset). These rules, however, will
not apply to certain transactions entered into by the World Fund solely to
reduce the risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code section and
the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
that are derived from interest on U.S. Government Securities. State law varies
as to whether dividend income attributable to U.S. Government Securities is
exempt from state income taxes.
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment in
the Funds.
SHAREHOLDER SERVICES
--------------------
Open Account An open account is established automatically for each new
------------
investor, unless elected otherwise, in which all income dividends and any
capital gains distributions are reinvested in additional shares, without charge,
at the then current net asset value. Purchases made in this account will be
made at the offering price on the day federal funds are available to the Funds
as described in the Prospectus.
42
<PAGE>
The Funds reserve the right at any time to vary the initial and subsequent
investment minimums of any Fund and to reject any purchase order.
Policyowners of National Life, Provident Mutual or Penn Mutual who invest
policy dividends may open an account in any of the Funds with a minimum initial
purchase of $50 or more of policy dividends and subsequent assignment of
dividends to the Funds.
Stock certificates will be issued upon written request and without charge.
Except for confirmation of purchases made under the Open Account, the cost
of these shareholder services are borne by the Funds.
Automated Clearing House ("ACH") The ACH Network expedites the transfer of
--------------------------------
monies by electronically transmitting funds between member financial
institutions. To take advantage of this convenient fund transfer method, you
must provide Sentinel Service with a pre-designated destination. There is no
charge for this service.
Distribution Options Shareholders of the Funds may elect to reinvest
--------------------
automatically their income dividends and any capital gains distributions in
additional full and fractional shares of any one of the other Funds at the net
asset value of the selected Fund at the close of business on the valuation date
for the dividend, without the payment of any charge. Before exercising this
option, shareholders should read the portions of the Prospectus relating to the
selected Fund's objectives and policies. The target and original accounts for
dividends must be in different Funds.
Automatic Investment Plan See the Prospectus for information and an
-------------------------
application. The minimum initial investment and subsequent investment is $50.
Telephone Investment Service See the Prospectus for information and an
----------------------------
application.
43
<PAGE>
Check Writing Service (Bond, Government Securities, Short-Intermediate
----------------------------------------------------------------------
Government, Treasury, Tax-Free Income, New York and Pennsylvania Funds) A
- -----------------------------------------------------------------------
special feature of the Class A shares of these Funds is the Check Writing
privilege available through IFTC. Any shareholder who would like to draw checks
on his account should check the box on the application captioned "Check Writing
Service" or subsequently, make a written request to the Funds. Checks then will
be provided by IFTC. These checks may be made payable in any amount not less
than $500, except for the Treasury Fund which has a minimum amount of not less
than $250. Withdrawals by check may not be made until shares have been in the
account for at least fifteen (15) days. The price at which shares will be
redeemed to cover a check will be the net asset value determined on the day the
check clears. Potential fluctuations in net asset value of the Funds' shares
should be taken into account when writing checks. If a dividend or capital
gains distribution is paid during the period between writing and clearing of a
check, the shareholder will be entitled to the dividend or distribution, but the
net asset value of the shares will be reduced by the amount of the dividend
payment. Because shareholders cannot determine the exact redemption price of
their shares at the time a check is written, closing an account through check
writing is not possible.
There is no fee for check writing, but, upon notice, a fee for this service
may be charged in the future. Fees are charged for stop payments, insufficient
funds or other valid reasons.
Exchange Privilege Any shareholder may redeem an investment, in whole or
------------------
in part, at any time and simultaneously use the proceeds to purchase the same
class of shares of another of the Funds, without paying an additional sales
charge, provided the shares to be redeemed have been registered in the
shareholder's
44
<PAGE>
name, the shares being exchanged have been in the account for a minimum of 15
days (90 days, in the case of funds of less than $1 million initially invested
in the Short-Intermediate Government Fund or exchanged into such Fund from funds
initially invested in the Treasury Fund), and the minimum initial purchase
requirement of the Fund to be purchased is met. This privilege also permits a
shareholder whose financial needs have changed to transfer an investment from a
National Life Variable Annuity account (presently the only such entity in the
Variable Annuity Account I). Such transfers from a National Life Variable
Annuity account are made without a sales charge on the basis of respective net
asset values after payment of a fee of $75 (in addition to any applicable
transfer taxes) to Sentinel Service for such transfer.
An exchange is a taxable transaction for income tax purposes and any gain
or loss realized is recognizable for such purposes.
Reinstatement Privilege Shareholders who have redeemed all or part of
-----------------------
their shares may reinvest all or part of the redemption proceeds at the current
net asset value without charge if a written request is received or is postmarked
within one year after the redemption. Short-Intermediate Government Fund
shareholders who have held their shares for 90 days or less, however, may only
use the reinstatement privilege to reinvest in the Short-Intermediate Government
Fund. The privilege may be exercised only once by a shareholder as to any of the
Funds except where the sole purpose of the transaction is to transfer the
shareholder's interest or a portion thereof in the Funds to a trustee or
custodian for such shareholder's Self-Employed Retirement Plan or IRA. If the
shareholder realizes a gain on redemption, the transaction is taxable and
reinvestment will not alter any capital gains tax payable. If the shareholder
realizes a loss on redemption and subsequently uses the reinstatement privilege,
some or all of the loss may not be allowed as a tax deduction depending upon the
amount reinvested.
If the reinstatement is made for the purpose of effecting a rollover into
an IRA, as described in Section 408(d)(3) of the Code, of a distribution from a
tax sheltered retirement plan which had been invested in shares of the Funds,
such reinvestment of redemption proceeds may be made any time within 60 days
from the date on which the investor received the distribution.
TAX-DEFERRED RETIREMENT PLANS
IRAs Section 408 of the Code permits certain taxpayers having earned income
to deduct up to $2,000 per year for contributions to an IRA. Consultation with
an attorney or qualified tax advisor is recommended. All dividends and
distributions are reinvested in additional shares at the net asset value.
Distribution may begin at age 59 1/2 and must begin by April 1st of the year
following the year in which you reach age 70 1/2. If distribution, other than
for death or disability, is made from the account before age 59 1/2, the amount
of a distribution is subject to a penalty tax, as is failure to commence
distribution as previously discussed. Distributions received are subject to
ordinary income tax.
To establish an IRA, you may request American Guaranty & Trust Company
("AG&T"), a Delaware trust company which is an affiliate of the Advisor, to act
as Custodian and to purchase shares of the Funds. This may be done by using
Internal Revenue Service Form 5305-A as adapted for this purpose, available from
SFSC. Shares of the Company also may be purchased under other IRA's which
qualify under Section 408 of the Code.
An IRA may be established with an initial contribution of $1,000.
Subsequent contributions may be made in amounts of $50 or more. The
Custodian's basic annual fee
45
<PAGE>
per participant account is $15 which can be paid in cash or will be deducted
from the account.
Prototype Pension and Profit-Sharing Plans for Corporations Corporations
-----------------------------------------------------------
and associations taxable as corporations may establish retirement plans which
qualify for special tax treatment under Section 401(a) of the Code. The
employer adopting such Prototype Plans names the trustees. Consultation with an
attorney regarding these plans is recommended.
Retirement Plan for Employees of Educational and Charitable Organizations
-------------------------------------------------------------------------
The Employee Retirement Income Security Act of 1974 permits an employee of a
public school system or certain types of charitable organizations to enter into
a deferred compensation arrangement, in accordance with Section 403(b) of the
Code. To fund this arrangement mutual fund shares may be held in a custodial
account. For those employees who wish to purchase shares of the Company in
conjunction with such an arrangement, SFSC offers a Custodial Agreement with
services furnished by AG&T and its agent, Sentinel Service. These entities in
the aggregate receive an annual fee of $15.00 per participant account which can
be paid in cash or deducted from the account. Sentinel Service, acting as agent
in performing certain administrative functions, will receive from AG&T $12 of
the $15 annual fee. The minimum initial investment must be at least $50 for
each member of the group, and subsequent contributions for each group member
must be made in amounts of $50 or more. Dividends and distributions
automatically are reinvested. For further details, including tax consequences
and redemption information, see the Custodial Agreement and related information
available through SFSC.
TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD INFORMATION
Each of the Funds (except the Treasury Fund) from time to time may include
its average annual total return in advertisements or information furnished to
present or prospective shareholders. The average annual total return for each
of the Funds for the one, five and ten year periods ended November 30, 1995
were:
Average Annual Total Return for the
-----------------------------------
<TABLE>
<CAPTION>
One Year Ended Five Years Ended Ten Years Ended
November 30, 1995 November 30, 1995 November 30, 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Common Stock Fund 26.18% 13.75% 13.03%
Balanced Fund 18.20% 10.53% 10.44%
Growth Fund 18.62% 9.03% 9.52%
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C>
Emerging
Growth Fund 6.54% 5.24%(1) N/A
World Fund 4.71% 13.12%(1) N/A
Bond Fund 12.81% 9.07% 9.13%
Government
Securities Fund 12.02% 7.85% 7.67%(2)
Short-Intermediate
Government Fund 5.25%(3) N/A N/A
Tax-Free Income Fund 10.20% 7.25% 7.64%(4)
New York Fund 2.68%(5) N/A N/A
Pennsylvania Fund 9.00 6.30% 6.36%(6)
</TABLE>
(1) For the period from March 1, 1993 (commencement of operations) through
November 30, 1995.
(2) For the period from September 2, 1986, when Sentinel Government Securities
Fund commenced operations, through November 30, 1995.
(3) For the period from March 24, 1995 (commencement of operations) through
November 30, 1995.
(4) For the period from October 1, 1990, when Sentinel Tax-Free Income Fund
commenced operations, through November 30, 1995.
(5) For the period from March 27, 1995 (commencement of operations) through
November 30, 1995.
(6) For the period from October 14, 1986 (commencement of operations) through
November 30, 1995.
The above amounts were computed by assuming a hypothetical initial payment
of $1,000. From this $1,000 the maximum sales load of $50 (5.0% of the public
offering price) was deducted (except for the Short-Intermediate Government,
where the maximum sales load is 1.0% of the public offering price). It then was
assumed that all of the dividends and distributions by each of the Funds over
the relevant time period were reinvested. It then was assumed that at the end of
the one-, five- or ten-year period, after taking into account all applicable
recurring and nonrecurring expenses, the entire amount was redeemed. The average
annual total return then was calculated by calculating the annual rate required
for the initial payment to grow to the amount which would have been received
upon redemption (i.e., the average annual compound rate of return).
Each Fund's average annual total return and current yield will vary
depending upon market conditions, the securities comprising such Fund's
portfolio, such Fund's operating expenses and the amount of net capital gains or
losses realized by such Fund during the
47
<PAGE>
period. An investment in any of the Funds will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
Each of the Funds also from time to time may advertise its total return for
specified periods without subtracting the sales load, to illustrate better the
performance of money already invested in the Fund during those periods.
On occasion, the Funds may compare their average annual total return
figures to mutual fund averages such as those compiled by Lipper Analytical
Services, Inc., and to market indices such as the Dow Jones Industrial Average,
the Standard & Poor's 500, and the Shearson Lehman Aggregate Bond Index.
The Bond, Tax-Free Income, Pennsylvania, New York, Government Securities
and Short-Intermediate Government Funds' annualized yields for the 30-day period
ended November 30, 1995 were 5.79%, 4.07%, 4.20%, 3.75%, 4.75% and 5.94%,
respectively. The average daily number of shares outstanding during the period
that were eligible to receive dividends were 16,781,554, 8,109,471, 2,607,725,
459,595, 10,437,064 and 2,702,350 respectively. Income was computed by totalling
the interest earned on all debt obligations during the 30-day period and
subtracting from that amount the total of all recurring expenses incurred during
the period. The 30-day yield then was annualized on a bond equivalent basis
assuming semi-annual reinvestment and compounding of net investment income.
These Funds may also show yield to those already invested in the Funds by
using the net asset value per share instead of the maximum offering price per
share in the above calculations, which has the effect of raising the quoted
yields. Using net asset values, the yields of the Bond, Tax-Free Income,
Pennsylvania, New York, Government Securities and Short-Intermediate Government
Funds as of November 30, 1995 were 6.09%, 4.29%, 4.42%, 3.95%, 5.00%, and
6.00%, respectively. In addition, the Tax-Free Income, Pennsylvania and New
York Funds may quote tax-equivalent yield in advertisements. The calculation of
tax-equivalent yield is described in the Prospectus. As of November 30, 1995,
the tax-equivalent yield of the Tax-Free Income Fund was 6.70%, the tax-
equivalent yield of the Pennsylvania Fund was 7.10%, and the tax-equivalent
yield of the New York Fund was 6.98%. For purposes of the above tax-equivalent
yield calculations the assumed federal tax rate is 36%.
The Treasury Fund normally computes its annualized yield by determining the
net income for a seven-day base period for a hypothetical pre-existing account
having a balance of one share at the beginning of the base period, dividing the
net income by the net asset value of the account at the beginning of the base
period to obtain the base period return, multiplying the result by 365 and then
dividing by seven. In accordance with regulations adopted by the SEC, the
Treasury Fund is required to disclose its annualized yield for certain seven-day
base periods in a standardized manner which does not take into consideration any
realized or unrealized gains or losses on portfolio securities. The SEC also
permits the calculation of a standardized effective or compounded yield. This
is computed by compounding the unannualized base period return which is done by
adding one to the base period return, raising the sum to a power equal to 365
divided by seven and subtracting one from the result.
The yield quoted should not be considered a representation of the yield of
the Treasury Fund in the future since the yield is not fixed. Actual yields
will depend not only on the type, quality and maturities of the investments held
by the Treasury Fund and changes in interest rates on such investments, but also
on changes in the Treasury Fund's expenses during the period.
48
<PAGE>
Yield information may be useful in reviewing the performance of the
Treasury Fund and for providing a basis for comparison with other investment
alternatives. However, the Treasury Fund's yield fluctuates, unlike bank
deposits or other investments which typically pay a fixed yield for a stated
period of time.
GENERAL INFORMATION
Copies of the Articles of Incorporation and the By-Laws of the Company, the
Declaration of Trust and the Code of Regulations of the Pennsylvania Fund, and
various agreements referred to in the Prospectus and this Statement of
Additional Information are filed with the registration statement at the SEC to
which reference is made for their full terms. Such documents and other
information filed with the SEC may be obtained from the SEC upon payment of the
fees prescribed by the Rules of the SEC. All cash and securities of the Funds,
except for U.S. Government Securities which are represented only in book entry
form at the Federal Reserve Bank, are held by IFTC or in a central depository
system in the name of Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, Missouri 64105 as the Funds' Custodian. IFTC is also Dividend
Disbursing Agent for the Funds' shares. Sentinel Service is Transfer Agent and
Registrar for the Funds' shares. All correspondence regarding the Funds should
be mailed to Sentinel Administrative Service Company, P.O. Box 1499, Montpelier,
VT 05601-1499.
The independent accountants for the Funds are Price Waterhouse LLP, located
at 1177 Avenue of the Americas, New York, New York 10036. The independent
accountants are responsible for auditing the annual financial statements of the
Company and the Pennsylvania Fund.
Counsel for the Funds is Brown & Wood, One World Trade Center, New York,
New York 10048-0557.
FINANCIAL STATEMENTS
Audited financial statements for the Company and for the Pennsylvania Fund
are incorporated by reference to the Funds' 1995 Annual Report to
Shareholders.
49
<PAGE>
APPENDIX A
Description of Bond Ratings -
---------------------------
Moody's describes its ratings for corporate and municipal bonds as
follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
`gilt edge'. Interest payments are protected by a large or an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
to a high degree. Such issues often are in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Rating Requirements: Moody's may apply numerical modifiers 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
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A Standard & Poor's municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard and Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
The ratings are based, in varying degrees, on the following
considerations:
I. - Likelihood of default capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II - Nature of and provisions of the obligation;
III - Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy or other laws affecting creditors' rights.
Standard & Poor's describes its ratings for corporate and municipal bonds
as follows:
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than are bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher- rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds likely will have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely
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interest and principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
---------
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
-------------------
used to cover a situation where a bankruptcy petition has been filed, but debt
- ------------------------------------------------------------------------------
service payments are continued.
- ------------------------------
CI - The rating CI is reserved to income bonds on which no interest is
being paid.
D - Debt rated D is in default. The D rating category is also used when
interest payments or principal repayments are expected to be in default at the
payment date, and payment of interest and/or repayment of principal is in
arrears. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
NR - Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Indicates that continuance of the rating is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
Provisional Ratings - The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
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Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the Legal Investment Laws of various states may impose certain rating or other
--------------------- ---
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
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APPENDIX B
Economic Conditions in New York
The information set forth below is derived from the official statements
prepared in connection with the issuance of New York Obligations and other
sources that are generally available to investors. The following information is
provided as general information intended to give a recent historical description
and is not intended to indicate future or continuing trends in the financial or
other conditions of New York City (the "City ") or New York State (the "State "
or "New York "). The New York Fund has not independently verified this
information.
In recent years, the State, some of its agencies, instrumentalities, and
public authorities and certain of its municipalities have faced serious
financial difficulties that could have an adverse effect on the sources of
payment for or the market value of the New York Obligations in which the New
York Fund invests.
NEW YORK CITY
General. More than any other municipality, the fiscal health of the City
has a significant effect on the fiscal health of the State. The national
economic downturn which began in July 1990 adversely affected the local economy,
which had been declining since late 1989. As a result, the City experienced job
losses in 1990 and 1991 and real Gross City Product ("GCP") fell in those two
years. Beginning in calendar year 1992, the improvement in the national economy
helped stabilize conditions in the City. Employment losses moderated toward
year-end and real GCP increased, boosted by strong wage gains. However, after
noticeable improvements in the City's economy during the calendar year 1994, the
City's current four-year financial plan assumes that economic growth will slow
in calendar years 1995 and 1996 with local employment increasing modestly.
During the 1995 fiscal year, the City experienced substantial shortfalls in
payments of non-property taxes from those forecasted.
For each of the 1981 through 1995 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
recent fiscal years in order to maintain balanced operating results. For the
City's 1995 fiscal year, the City adopted a budget which halted the trend in
recent years of substantial increases in City spending from one year to the
next. There can be no assurance that the City will continue to maintain a
balanced budget as required by State law without additional reductions in City
services or entitlement programs or tax or other revenue increases which could
adversely affect the City's economic base.
Pursuant to the laws of the State, the Mayor is responsible for preparing
the City's four-year financial plan, including the City's current financial plan
for the 1996 through 1999 fiscal years (the "1996-1999 Financial Plan" or "City
Financial Plan"). The City's projections set forth in the City Financial Plan
are based on various assumptions and contingencies which are uncertain and which
may not materialize. Changes in major assumptions could significantly affect
the City's ability to balance its budget as required by State law and to meet
its annual cash flow and financing requirements.
Implementation of the City Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates the
issuance of $11 billion of
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general obligation bonds primarily to reconstruct and rehabilitate the City's
infrastructure and physical assets and to make capital investments. In addition,
the City issues revenue notes and tax anticipation notes to finance its seasonal
working capital requirements. The success of projected public sales of City
bonds and notes will be subject to prevailing market conditions, and no
assurance can be given that such sales will be completed. If the City were
unable to sell its general obligation bonds and notes, it would be prevented
from meeting its planned operating and capital expenditures.
1996-1999 Financial Plan. On November 29, 1995, the City published the
City Financial Plan for the 1996 through 1999 fiscal years, which is a proposed
modification to the City Financial Plan submitted by the City to the New York
State Financial Control Board (the "Control Board") on July 11, 1995 (the "July
Financial Plan"). The July Financial Plan set forth proposed actions by the
City including spending reductions for its Medicaid and welfare programs, City
agency spending reductions, additional State and federal aid, revenue
initiatives and labor, pension and debt service savings to close a previously
projected gap of approximately $3.1 billion for the 1996 fiscal year (July 1,
1995-June 30, 1996). The City Financial Plan published on November 29, 1995
takes into account actual receipts and expenditures and changes in forecast
revenues and expenditures since the July Financial Plan and projects revenues
and expenditures for the 1996 fiscal year balanced in accordance with GAAP.
Changes to the July Financial Plan made in the City Financial Plan for the 1996
fiscal year include actions to offset increases in projected City expenditures
and an increase in the City's General Reserve. The additional gap closing
measures for the 1996 fiscal year include additional expenditure reductions and
debt service savings. The City Financial Plan also sets forth projections for
the 1997 through 1999 fiscal years and outlines a proposed gap-closing program
to close projected budget gaps of $1.4 billion, $2.3 billion and $2.7 billion
for the 1997 through 1999 fiscal years, respectively, after successful
implementation of the gap-closing program for the 1996 fiscal year.
The City's projections set forth in the City Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, employment growth, wage increases
for City employees consistent with those assumed in the City Financial Plan,
continuation of interest earnings assumptions for pension fund assets, the
ability of the City's hospital and education entities to maintain balanced
budgets, provision of State and federal aid and mandate relief, the impact of
proposed federal and State welfare reforms on City revenues and adoption of the
budget by the City Council in substantially the form submitted by the
Mayor.
The City Financial Plan is also subject to the ability of the City to
implement the expenditure reductions and to obtain the savings outlined in the
City Financial Plan. In addition, the City may incur expenditures which exceed
those projected in the City Financial Plan. There can be no assurance that
additional gap-closing measures will not be required to enable the City to
achieve a balanced budget in a particular fiscal year. Certain of the proposed
actions are subject to negotiation with the City's municipal unions. Various
other actions proposed for the 1997 through 1999 fiscal years are subject to
approval by the Governor and the State Legislature and the proposed reductions
in spending for entitlement programs may be subject to legal challenge.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during its 1995-
1996 fiscal year or subsequent fiscal years, such developments could result in
reductions in anticipated State aid to the City. In addition, there can be no
assurance that State budgets in future fiscal years will
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be adopted by the April 1 statutory deadline and that there will not be adverse
effects on the City's cash flow and additional City expenditures as a result of
such reductions or delays.
The City's financial plans have been the subject of extensive public
comment and criticism. On December 14, 1995 the City Comptroller issued a
report stating that the City Financial Plan includes budget risks of up to $989
million for the 1996 fiscal year. The City Comptroller's report also identified
budget risks of $2.3 billion, $3.3 billion and $3.7 billion for the City's 1997,
1998 and 1999 fiscal years, respectively, not including the impact of probable
State and federal reductions in aid, the extent of which are currently unknown.
On December 14, 1995, the Control Board issued a report on the City Financial
Plan which identified budget risks of $509 million, $1.9 billion, $2.8 billion
and $3.1 billion for the 1996 through 1999 fiscal years, respectively. On
December 21, 1995, the Office of the State Deputy Comptroller of New York (OSDC)
issued a report which reviewed the City Financial Plan and concluded that a
budget gap of $239 million and potential budget risks of $755 million exist for
the 1996 fiscal year. The OSDC report stated that projected budget gaps could
exceed $2 billion in the 1997 fiscal year and approach $3.5 billion in the 1999
fiscal year. It is reasonable to expect that such reports will continue to be
issued and to engender public comment.
Ratings. As of November 2, 1995, Moody's rated the City's outstanding general
obligation bonds "Baal", Standard & Poor's rated such bonds "BBB+" and Fitch
Investors Service, Inc. ("Fitch") rated such bonds "A-". On July 10, 1995,
Standard and Poor's revised downwards its ratings on outstanding general
obligation bonds of the City from " A-" to " BBB+. Standard & Poor's stated
that the downgrade was a reflection of the City's inability to eliminate a
structural budget imbalance due to persistent softness in the City's economy,
weak job growth, a trend of using nonrecurring budget devices, optimistic
projections of State and federal aid and high levels of debt service. Such
ratings reflect only the view of Moody's, Standard & Poor's and Fitch, from
which an explanation of the significance of such ratings may be obtained. There
is no assurance that such ratings will continue for any given period of time or
that they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of City
bonds.
Outstanding Indebtedness. As of September 30, 1995 the City had
approximately $24.2 billion of long-term debt and as of June 30, 1994, the New
York City Municipal Water Finance Authority (the "Water Authority") has
approximately $5.6 billion of net long-term debt.
Debt service on Water Authority obligations is secured by fees and charges
collected from the users of the City's water and sewer system. State and
federal regulations require the City's water supply to meet certain standards to
avoid filtration. The City's water supply now meets all technical standards and
the City's current efforts are directed toward protection of the watershed area.
The City has taken the position that increased regulatory, enforcement and other
efforts to protect its water supply, relating to such matters as land use and
sewage treatment, will preserve the high quality of water in the upstate water
supply system and prevent the need for filtration. The U.S. Environmental
Protection Agency has granted the City a waiver of filtration regulations
through 1996. If filtration of the City's water supply is ultimately required,
the capital expenditure required could be between $4 billion and $5 billion.
Such an expenditure could cause significant increases in City water and sewer
charges.
Litigation. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, routine litigation incidental
to the performance of its governmental and other functions, actions commenced
and claims asserted against the City arising out of alleged constitutional
violations, alleged torts, alleged breaches of contracts and other alleged
violations of law and condemnation proceedings and other tax
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and miscellaneous actions. While the ultimate outcome and fiscal impact, if any,
on the proceedings and claims are not currently predictable, adverse
determination in certain of them might have a material adverse effect upon the
City's ability to carry out the City Financial Plan. As of June 30, 1995, the
City estimated its potential future liability on account of all outstanding
claims to be approximately $2.5 billion.
NEW YORK STATE
Current Economic Outlook. The national economy began to expand in 1991 and has
added over 7 million jobs since early 1992. Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer
and instrument manufacturing, utility, defense and banking industries.
The State expected New York's economy to continue to expand modestly during
1995, but there was expected to be a pronounced slow-down during the course of
the year. On an average annual basis, employment growth was expected to be
about the same as 1994. Both personal income and wages were expected to record
moderate gains in 1995. The annual rates of job growth and growth in personal
income and wages are expected to slow gradually during 1996.
State Financial Plan for the 1995-1996 Fiscal Year. The State's budget for
its 19951996 fiscal year (April 1, 1995-March 31, 1996) was enacted by the State
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the State Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including all necessary appropriations for debt service.
The 1995-1996 fiscal year budget includes a planned three-year 20% reduction in
the State's personal income tax and is the first budget in over 50 years which
projects a decline in General Fund disbursements and spending on State
operations. On June 20, 1995, the State published the State Financial Plan for
the 1995-1996 fiscal year based on the enacted 1995-1996 budget and issued its
first and second quarterly updates of the State Financial Plan in July and
October 1995, respectively (the "State Financial Plan").
The State Financial Plan projects a General Fund balanced on a cash basis
with total projected receipts of $32.788 billion and total projected
disbursements of $32.774 billion. The State Financial Plan includes gap-closing
actions to offset a previously projected budget gap of $5 billion, the largest
in the State's history. Such gap-closing actions include, among others,
substantial reductions in social and medical entitlement programs, reductions in
State services and capital programs and increased lottery revenues. There can
be no assurance that additional gap-closing measures will not be required and
there is no assurance that any such measures will enable the State to achieve a
balanced budget for its 1995-1996 fiscal year.
On December 15, 1995, the Governor released the Executive Budget for the
State's 1996-1997 fiscal year (the "Executive Budget") which the State
Legislature must enact and the Governor must sign in order to become law. The
Executive Budget projects balance on a cash basis but identifies a potential
budget gap of approximately $3.9 billion due primarily to the effect of current
and prior year tax reductions and the use of nonrecurring revenues in the 1995-
1996 State Financial Plan. Proposed gap-closing actions in the Executive Budget
include cost containment and spending reductions in State Medicaid, welfare,
health, mental health and education programs. The Executive Budget also
anticipates a significant increase in federal aid to the State related to
changes in the Medicaid program that are expected to be enacted by Congress and
approved by the President. There can be no assurance that the Executive Budget
be will enacted as proposed, the cost containment and spending reduction
programs can be implemented as proposed or the anticipated increase in federal
aid will materialize as expected.
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The State Financial Plan and the Executive Budget are based upon forecasts
of national and State economic activity. Economic forecasts have frequently
failed to predict accurately the timing and magnitude of changes in the national
and State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, federal
financial and monetary policies, the availability of credit and the condition of
the world economy, which could have an adverse effect on the State. There can
be no assurance that the State economy will not experience worse-than-predicted
results in the 1995-1996 and 1996-1997 fiscal years, with corresponding material
and adverse effects on the State's projections of receipts and
disbursements.
Owing to these and other factors, the State may face substantial potential
budget gaps in future years resulting from a significant disparity between tax
revenues projected from a lower recurring receipts base and the spending
required to maintain State programs at required levels. Any such recurring
imbalance would be exacerbated by the use by the State of nonrecurring resources
to achieve budgetary balance in a particular fiscal year. To correct any
recurring budgetary imbalance, the State would need to take significant actions
to align recurring receipts and disbursements in future fiscal years. There can
be no assurance, however, that the State's actions will be sufficient to
preserve budget balances in the then current or future fiscal years.
The State Financial Plan contains actions that provide nonrecurring
resources or savings as well as actions that impose baseline losses of receipts.
The Division of the Budget estimates the net amount of nonrecurring resources
used in the State Financial Plan to be at least $600 million. In addition to
these nonrecurring actions, the adoption of the three-year 20% reduction in the
State's personal income tax in combination with business tax reductions enacted
in 1994 will reduce State tax receipts by as much as $5.5 billion by the 1997-
1998 fiscal year.
Uncertainties with regard to both the economy and potential decisions at
the federal level add further pressure on future budget balance in New York
State. Specific budget proposals being discussed at the federal level but not
included in the State's current economic forecast would (if enacted) have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states.
The State anticipates that its capital programs will be financed, in part,
by State and public authorities borrowings in the 1995-1996 fiscal year. The
State expects to issue $248 million in general obligations bonds (including $70
million for purposes of redeeming outstanding Bond Anticipation Notes ("BANs")),
$186 million in general obligation commercial paper and up to $47 million in
certificates of participation during the State's 1995-1996 fiscal year for
equipment purchases. Borrowings by public authorities pursuant to lease-
purchase and contractual-obligation financings for capital programs of the State
are projected to total $2.7 billion. Additionally, the Local Government
Assistance Corporation ("LGAC") issued net proceeds of $529 million during the
State's 1995-1996 fiscal year.
1994-1995 Fiscal Year. In July, 1995, the State Comptroller issued its
audit of the State's 1994-1995 fiscal year prepared in accordance with generally
accepted auditing standards. The State completed its 1994-1995 fiscal year with
a General Fund operating deficit of $1.426 billion, as compared with an
operating surplus of $914 million for the previous fiscal year. The 1994-1995
fiscal year deficit was caused by several factors, including the use of $1.026
billion of the 1993-1994 fiscal year surplus in the 1994-1995 fiscal year and
the adoption of changes in accounting methodologies by the State
Comptroller.
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Local Government Assistance Corporation. In 1990, as part of a state
fiscal reform program, legislation was enacted creating LGAC, a public benefit
corporation empowered to issue long-term obligations to fund certain payments to
local governments traditionally funded through the State's annual seasonal
borrowing. As of June 1995, LGAC has issued bonds to provide net proceeds of
$4.7 billion completing the program. The impact of LGAC's borrowing is that the
State is able to meet its cash flow needs without relying on short-term seasonal
borrowing.
Financing Activities. State financing activities include general
obligation debt of the State and State-guaranteed debt, to which the FULL faith
and credit of the State has been pledged, as well as lease-purchase and
contractual-obligation financings, moral obligation financings and other
financings through public authorities and municipalities, where the State's
obligation to make payments for debt service is generally subject to annual
appropriation by the State Legislature.
As of March 31, 1995, the total amount of outstanding general obligation
debt was approximately $5.181 billion, including $149 million in BANs; the total
amount of moral obligation debt was approximately $7.01 billion; and $17.98
billion of bonds issued primarily in connection with lease-purchase and
contractual-obligation financing of State capital programs were
outstanding.
Public Authorities. The fiscal stability of the State is related, in part,
to the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to the State itself, and may issue bonds and notes within the amounts of, and as
otherwise restricted by, their legislative authorization. As of September 30,
1994, the latest data available, there were 18 public authorities that had
outstanding debt of $100 million or more and the aggregate outstanding debt,
including refunding bonds, of these 18 public authorities was $70.3 billion.
The State's access to the public credit markets could be impaired and the market
price of its outstanding debt may be adversely affected, if any of its public
authorities were to default in their respective obligations.
Ratings. Currently, Moody's, Standard & Poor's and Fitch rate New York
State's outstanding general obligation bonds " A ", " A - " and " A + ",
respectively. Ratings reflect only the respective views of such organizations,
and explanation of the significance of such ratings must be obtained from the
rating agency furnishing the same. There is no assurance that a particular
rating will continue for any given period of time or that any such rating will
not be revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the New York State Obligations in which the New York Fund
invests.
Litigation. The State is a defendant in numerous legal proceedings
including, but not limited to, claims asserted against the State arising from
alleged torts, alleged breaches of contracts, condemnation proceedings and other
alleged violations of State and federal laws.
Several cases challenge the rationality and the retroactive application of
State regulations recalibrating nursing home Medicaid rates. In 1994, the New
York Court of Appeals held invalid the State Department of Health's retroactive
application to rate years 1989 through 1991 of the nursing home Medicaid
reimbursements rate recalibration adjustment. A case challenging the new
recalibration regulations for rate years commencing 1992 is pending.
In Trustees of and The Pension, Hospitalization Benefit Plan of the
Electrical Industry, et al., v. Cuomo, et al., commenced November 25, 1992 in
the United States District Court for the Eastern District of New York, plaintiff
employee welfare benefit plans
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seek a declaratory judgment nullifying on the ground of Federal preemption
provisions of Section 2807-c of the Public Health Law and implementing
regulations which impose a bad debt and charity care allowance on all hospital
bills and a 13 percent surcharge on inpatient bills paid by employee welfare
benefit plans. By order and stipulation of the District Court dated September
21, 1995, the action has been discontinued.
In Music, Cigarette & Amusement Association, Inc., et al. v. Lynch, et al.
(Supreme Court, Kings County, commenced August 1995) and Trump v. Perlee, et al.
(Supreme Court, New York County, commenced August 1995), petitioners challenge
as unconstitutional and seek to enjoin "Quick Draw," a game of the State
Division of the Lottery. Petitioners contend that Section 94-a through 94-g of
Ch. 2 L. 1995, which authorize "Quick Draw," violate Article I (S)9 of the State
Constitution. This constitutional provision bars gambling but allows lotteries
operated by the State. Petitioners contend that "Quick Draw" is not a lottery
as contemplated by Article 1 (S)9.
In McCall, et al. v. State of New York, et al., commenced July 5, 1995 (Supreme
Court, Albany County), an action for a declaratory judgment and injunctive
relief, plaintiffs (including the State Comptroller) contend that certain
provisions of Ch. 119 L. 1995 are unconstitutional. Ch. 119 L. 1995 provides
enhanced supplemental pension allowances for members of the State and local
retirement systems. Plaintiffs contend that Section 13 of Ch. 119 L. 1995,
which provides that money in a Supplemental Reserve Fund shall be used as a
credit in the State's 1995-96 fiscal year against prior State and local pension
contributions, violates Article V (S)7 of the State Constitution. This
constitutional provision bars the diminishment or impairment of benefits of
membership in the retirement systems.
Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced State
Financial Plan. The State believes that the State Financial Plan includes
sufficient reserves for the payment of judgments that may be required during the
1995-1996 fiscal year. There can be no assurance, however, that an adverse
decision in any of these proceedings would not exceed the amount of the State
Financial Plan reserves for the payment of judgments and, therefore, could
affect the ability of the State to maintain a balanced State Financial
Plan.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1995-1996 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1995-1996 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for Yonkers (the "Yonkers Board")
by the State in 1984. The Yonkers Board is charged with oversight of the fiscal
affairs of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State resources in
amounts that cannot yet be determined.
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APPENDIX C
Economic Conditions in Pennsylvania
The information set forth below is derived from official statements
prepared in connection with the issuance of bonds and notes of the Commonwealth
of Pennsylvania (the "Commonwealth") and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to indicate
future or continuing trends in the financial or other positions of the
Commonwealth or of local government units located in the Commonwealth. The Fund
has not independently verified this information.
Because the Fund invests at least 80% of its assets in Pennsylvania
Obligations, its net asset value is particularly sensitive to changes in the
economic condition and governmental policies of the Commonwealth. For example,
the economic condition of a significant industry within Pennsylvania may have a
corresponding effect on specific issuers within Pennsylvania or on anticipated
revenue to the Commonwealth.
Many factors affect the financial condition of the Commonwealth and its
political subdivisions, such as social, environmental and economic conditions,
many of which are not within the control of such entities. Pennsylvania and
certain of its counties, cities and school districts and public bodies (most
notably the City of Philadelphia) have from time to time in the past encountered
financial difficulties which have adversely affected their respective credit
standings. Such difficulties could affect outstanding obligations of such
entities, including obligations held by the Fund.
The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority of the Commonwealth's
operating and administrative expenses are payable from the General Fund. Debt
service on all bonded indebtedness of the Commonwealth, except that issued for
highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund.
Financial conditions during the fiscal years 1990 through 1994 were
distinguished by slow economic growth and a rapid expansion of the costs of
certain governmental programs that together produced a significant stress on the
Commonwealth's budget. This period was marked by public health and welfare
costs growing at a rate double the growth rate for all state expenditures.
During this period, public health and welfare costs rose by an average annual
rate of 9.4% while tax revenues were growing at an average annual rate of 5.8%.
Consequently, spending on other budget programs was restrained to a growth rate
of 4.7% and sources of revenues other than taxes (including transfers from other
Commonwealth funds and hospital and nursing home pooling of contributions to use
as federal matching funds) became larger components of fund revenues.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in the fiscal year-end unappropriated balance. The fiscal
1995 unappropriated surplus (prior to reserves for transfer to the Tax
Stabilization Fund) was $540 million, an increase of $204.2 million over the
fiscal 1994 unappropriated surplus (prior to transfers). Commonwealth revenues
totalled $16,224.6 million, $459.4 million (2.9%) above the estimate of revenues
used at the time the budget was enacted. The higher than estimated revenues from
tax sources were due to faster economic growth in the national and state economy
than had been projected when the budget was adopted. Expenditures from
Commonwealth revenues (excluding pooled financing expenditures), including $65.5
million of supplemental appropriations enacted at the close of the 1995 fiscal
year, totalled $15,674 million, representing an increase of 5% over spending
during fiscal 1994.
61
<PAGE>
The enacted fiscal 1996 budget provides for expenditures from Commonwealth
revenues of $16,161.7 million, a 2.7% increase over total appropriations from
Commonwealth revenues in fiscal 1995. The fiscal 1996 budget is based on
anticipated Commonwealth revenues, net of enacted tax changes but prior to tax
refunds, of $16.27 billion, an increase over actual fiscal 1995 Commonwealth
revenues of .3%. Excluding the estimated effects of the tax changes enacted in
1994 and 1995, Commonwealth revenues for fiscal 1996 are estimated to increase
by approximately 2.9%. Tax changes (reductions) enacted with the fiscal 1996
budget totalled $282.9 million, representing an approximate 1.7% of base
revenues. The largest dollar value changes were in the corporate net income tax
where the scheduled 1997 reduction of the tax rate to 9.99% was accelerated to
the 1995 tax year; a double weighing was provided for the sales factor of the
corporate net income tax apportionment calculation; and the maximum allowance
for the net operating loss deduction was increased from $500,000 to $1 million.
The fiscal 1996 cost of these corporate net income tax changes is estimated to
be $210.8 million. Other major components of the tax reduction include a $12.1
million decrease for the capital stock and franchise tax from an increase in the
exemption amount; $24.7 million from the repeal of the tax on annuities; and
$27.9 million from an acceleration of the scheduled phase-out of the inheritance
tax on transfers of certain property to a surviving spouse. A 90 day amnesty
program was also authorized in the tax bill and will be available to taxpayers
from mid-October 1995 through mid-January 1996.
Pennsylvania has historically been identified as a heavy industry state
although that reputation has changed recently as the industrial composition of
the Commonwealth diversified when the coal, steel and railroad industries began
to decline. A more diversified economy was necessary as the traditionally
strong industries in the Commonwealth declined due to a long-term shift in jobs,
investment and workers away from the northeast part of the nation. The major
sources of growth in Pennsylvania are in the service sector, including trade,
medical and the health services, education and financial institutions.
Nonagricultural employment in the Commonwealth declined by 5.1% during the
recessionary period from 1980 to 1983. In 1984, the declining trend was
reversed as employment grew by 2.9% over 1983 levels. From 1983 to 1990,
Commonwealth employment continued to grow each year, increasing an additional
14.3%. For the last three years, employment in the Commonwealth has increased
2.0%. The unemployment rate in Pennsylvania as of October, 1995 stood at a
seasonally adjusted rate of 5.1%. The seasonally adjusted national unemployment
rate for October, 1995 was 5.5%.
The current Constitutional provisions pertaining to Commonwealth debt
permit the issuance of the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster, (ii) electorate-
approved debt, (iii) debt for capital projects subject to an aggregate debt
limit of 1.75 times the annual average tax revenues of the preceding five fiscal
years and (iv) tax anticipation notes payable in the fiscal year of issuance.
All debt except tax anticipation notes must be amortized in substantial and
regular amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that issued
for highway purposes or the benefit of other special revenue funds, is payable
from Pennsylvania's General Fund, which receives all Commonwealth revenues that
are not specified by law to be deposited elsewhere. As of June 30, 1995, the
Commonwealth had $5,045 million of general obligation debt outstanding.
Other state-related obligations include "moral obligations". Moral
obligation indebtedness may be issued by the Pennsylvania Housing Finance Agency
("PHFA"), a state agency which provides financing for housing for lower and
moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally retarded. PHFA's
62
<PAGE>
bonds, but not its notes, are partially secured by a capital reserve fund
required to be maintained by PHFA in an amount equal to the maximum annual debt
service on its outstanding bonds in any succeeding calendar year. PHFA is not
permitted to borrow additional funds as long as any deficiency exists in the
capital reserve fund.
Certain state-created agencies have statutory authorization to incur debt
for which state appropriations to pay debt service thereon is not required. The
debt of these agencies is supported by assets of, or revenues derived from, the
various projects financed and is not an obligation of the Commonwealth. Some of
these agencies, however, are indirectly dependent on Pennsylvania
appropriations. In addition, the Commonwealth maintains pension plans covering
state employees, public school employees and employees of certain state-related
organizations. For their fiscal years ended in 1994 the State Employees'
Retirement System had a $249 million surplus and the Public School Employees'
Retirement System had a total unfunded actuarial accrued liability of $3,797
million.
The City of Philadelphia is the largest city in the Commonwealth with an
estimated population of 1,585,577 according to the 1990 Census. Legislation
providing for the establishment of Pennsylvania Intergovernmental Cooperation
Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was
enacted by the Pennsylvania General Assembly and approved by the Governor in
June, 1991. PICA is designed to provide assistance through the issuance of
funding debt and to make factual findings and recommendations to Philadelphia
concerning its budgetary and fiscal affairs. At this time, Philadelphia is
operating under a five year fiscal plan approved by PICA on April 17, 1995, as
modified in July, 1995.
To date, PICA has issued $1.42 billion of its Special Tax Revenue Bonds.
This financial assistance has included the refunding of certain general
obligation bonds, funding of capital projects and the liquidation of the
cumulative General Fund balance deficit as of June 30, 1992 of $224.9 million.
The audited General Fund balance of Philadelphia as of June 30, 1994 reflects a
surplus of approximately $15.4 million, up from approximately $3 million as of
June 30, 1993. Preliminary unaudited financial statements as of June 30, 1995
projected a surplus approximating $59.6 million and published news accounts
indicate that the official surplus was $80.5 million.
There is various litigation pending against the Commonwealth, its officers
and employees. In 1978, the Pennsylvania General Assembly approved a limited
waiver of sovereign immunity. Damages for any loss are limited to $250,000 for
each person and $1 million for each accident. The Supreme Court held that this
limitation is constitutional. Approximately 3,500 suits against the
Commonwealth are pending, some of which, if decided adversely to the
Commonwealth, could have a material adverse impact on governmental
operations.
63
<PAGE>
PART C
Other Information
Item 24 Financial Statements and Exhibits
(a) Financial Statements:
--------------------
Included in Part A:
- Selected Per Data and Ratios for the ten years ended November 30,
1995
INCORPORATED BY REFERENCE in Part B:
- Selected Per Share Data and Ratios for the five years ended November
30, 1995*
- Statement of Assets and Liabilities at November 30, 1995*
- Statement of Operations for the year ended November 30, 1995*
- Statement of Changes in Net Assets for the years ended November 30,
1995 and 1994*
- Notes to Financial Statements*
- Report of Independent Accountants*
* Incorporated by reference to the Registrant's 1995 Annual Report to
shareholders filed with the Securities and Exchange Commission for the year
ended November 30, 1995 pursuant to Rule 30b2-1 under the Investment
Company Act 1940, as amended ("1940 ACT").
(b) Exhibits:
--------
1. Amended and Restated Articles of Incorporation of the
Registrant.
2. By-Laws of the Registrant, as amended.(1)
3. None.
4.(a) Portion of the Articles of Incorporation and the By-Laws of the
Registrant defining the rights of holders of Class A and Class
B shares of each Fund as series of the Registrant.(2)
(b) Form of Stock Certificate.(1)
5. Investment Advisory Agreement between the Registrant and
Sentinel Advisors Company (the "Advisor"), dated as of March 1,
1993.(3)
6. Distribution Agreement between the Registrant and Sentinel
Financial Services Company ("SFSC"), dated as of March 1,
1993.(3)
7. None.
8. Custody Agreement between the Registrant and Investors
Fiduciary Trust Company ("IFTC"), dated December 1, 1989.(1)
9.(a) Dividend Paying Agent Agreement between the Registrant and
IFTC, dated December 1, 1989.(1)
(b) Service Agreement between Sentinel Administrative Service
Corporation and IFTC, dated December 1, 1989.(1)
(c) Administrative Services Agreement between Sentinel
Administrative Service
C-1
<PAGE>
Corporation and IFTC, dated December 1, 1989.(1)
(d) Fund Services Agreement between the Registrant and Sentinel
Administrative Services Company ("SASC"), dated as of March
1, 1993.(3)
10. Opinion of Brown & Wood, counsel to the Registrant.
11. Consent of Price Waterhouse LLP, independent accountants for
the Registrant.
12. None.
13. None.
14. (a) Master Form of Keogh Plan.(1)
(b) Master Form of IRA.(1)
(c) Master Form of Prototype Pension Plan.(1)
(d) Master Form of Prototype Profit Sharing Plan.(1)
(e) Master Form of 403(b) Plan.(1)
15. (a) Class A Distribution Plan pursuant to Rule 12b-1 under the
1940 Act.(1)
(b) Class B Distribution Plan pursuant to Rule 12b-1 under the
1940 Act.
16. Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22.(1)
17. Financial Data Schedules.
18. Plan pursuant to Rule 18f-3 under the 1940 Act.
_________________________
(1) Incorporated by reference to the Exhibit of the same number to Post-
Effective Amendments No. 54, 55, 56, 57, and 58 of the Registrant on Form
N-1 and Post-Effective Amendments No. 61, 62, 63, 64, 67, 68, 71 and 72 of
the Registrant on form N-1A.
(2) Reference is made to Articles Fifth, Sixth, Seventh and Eighth of the
Registrant's Articles of Incorporation, previously filed as Exhibit 1 to
the Registration Statement; and to Paragraphs 4 through 12, 35 through 39,
43 through 45, 50 and 52 through 54 of the Registrant's By-Laws, previously
filed as Exhibit 2 to the Registration Statement.
(3) Incorporated by reference to Exhibits 4, 6(b), 7(b), 13(b) and 13(g) to
the Registration Statement of the Registrant on Form N-14, File No. 33-
55000.
(4) Incorporated by reference to Appendix I to the Prospectus contained in the
Registration Statement of the Registration on Form N-14 filed with the
Commission on January 6, 1995, File No. 33-88326.
Item 25. Persons Controlled by or under Common Control With The
Registrant.
None.
C-2
<PAGE>
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of December 29, 1995
-------------- ------------------------
<S> <C>
Sentinel Emerging Growth Fund 11,624
Sentinel Growth Fund 6,623
Sentinel World Fund 4,168
Sentinel Common Stock Fund 44,722
Sentinel Balanced Fund 13,742
Sentinel Bond Fund 4,000
Sentinel New York Tax-Free Income Fund 101
Sentinel Tax-Free Income Fund 3,000
Sentinel Government Securities Fund 973
Sentinel Short-Intermediate Government Fund 4,607
Sentinel U.S. Treasury Money Market Fund 1,290
</TABLE>
Item 27. Indemnification
See paragraphs 3, 4, 5 and 6 of Article SEVENTH of the Articles of
Amendment to the Registrant's Articles of Incorporation, incorporated
by reference to Exhibit 1(c) to this Registration Statement.
The existing Advisory Agreement (Exhibit 5(b) hereof) provides that in
the absence of willful malfeasance, bad faith, gross negligence or
reckless disregard of the obligations or duties thereunder on the part
of the Advisor, the Advisor shall not be liable to the Registrant or
to any shareholder of the Registrant for any act or omission in the
course of, or connected with rendering services thereunder or for any
losses that may be sustained in the purchase, holding or selling of
any security.
In addition, the Registrant maintains a directors and officers
liability insurance policy with maximum coverage of $15 million under
which the directors and officers of the Registrant are named insureds.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted
to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the 1933 Act and therefore is unenforceable. In the event that a
claim for indemnification against such liabilities (other than for
expenses paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant, unless the matter has been settled by controlling
precedent in the opinion of its counsel, will submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public
C-3
<PAGE>
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of the Investment Adviser
Information on the Advisor is incorporated by reference to the
Prospectus included in this Registration Statement.
Partners of the Advisor
-----------------------
Sentinel Management Co. - Managing General Partner
Sentinel Advisors, Inc. - General Partner
Provident Mutual Management Co., Inc. - General Partner
HTK of Delaware, Inc. - General Partner
Officers of the Advisor
-----------------------
Keniston P. Merrill, Chief Executive Officer
Rodney A. Buck, Senior Vice President
Richard D. Temple, Vice President
David M. Brownlee, Vice President
Robert L. Lee, Vice President
Kenneth J. Hart, Vice President
Richard A. Pender, Vice President
Bruce R. Bottamini, Vice President
Dean R. Howe, Vice President and Treasurer
Lisa M. Pettrey, Secretary
Each of the above officers, except for Mr. Merrill, is also an officer
or employee of National Life Insurance Company or its subsidiary,
National Life Investment Management Company, Inc. The principal
business address of each such company is National Life Drive,
Montpelier, Vermont 05604.
C-4
<PAGE>
Item 29. Principal Underwriters
(a) The Registrant's principal underwriter, SFSC, also serves as
principal underwriter for Sentinel Pennsylvania Tax-Free Trust.
(b) As to each officer of SFSC:
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address with SFSC the Registrant
- ------------------ --------------------- --------------
<S> <C> <C>
Joseph M. Rob Chief Executive Officer President
Jeffrey R. Lauterbach President and Chief None
Operating Officer
John M. Grab, Jr. Senior Vice President Vice President
and Chief Financial
Officer
Douglas G. Newman Vice President None
Julie A. Hendrickson Vice President None
Brian K. Martin Treasurer None
</TABLE>
The principal business address of all such persons is National Life Drive,
Montpelier, Vermont 05604.
(c) Not applicable
Item 30. Location of Accounts and Records
The following maintain physical possession of each account book or other
documents required by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder.
(a) Sentinel Administrative Service Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(a)
Rule 31a-1(b)(1)(2)(3)(4)(5)(6)(7)(8)
Rule 31a-2(a)(b)(c)(f)
C-5
<PAGE>
(b) Sentinel Advisors Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(a)(9)(10)(11)
Rule 31a-1(d)(f)
Rule 31a-2(a)(c)(f)
(c) Sentinel Financial Services Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(d)
Rule 31a-2(c)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Montpelier
and State of Vermont, on the 19th day of January, 1996.
SENTINEL GROUP FUNDS, INC.
(Registrant)
By: /s/ Keniston P. Merrill
---------------------------
Keniston P. Merrill
Chairman
As required by the Securities Act of 1933, this post-effective amendment
to the Registration Statement has been signed by the following persons in the
capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Keniston P. Merrill Chairman January 19, 1996
- -----------------------
Keniston P. Merrill (Chief Executive
Officer)
Richard J. Borda* Director
- -----------------
Richard J. Borda
Kalman J. Cohen* Director
- ---------------
Kalman J. Cohen
Richard D. Farman* Director
- ------------------
Richard D. Farman
John D. Feerick*
- ---------------- Director
John D. Feerick
Richard I. Johannesen, Jr.* Director
- --------------------------
Richard I. Johannesen, Jr.
Robert B. Mathias* Director
- ------------------
Robert B. Mathias
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Deborah G. Miller* Director
- ------------------
Deborah G. Miller
Stanley R. Reber* Director
- -----------------
Stanley R. Reber
Susan M. Sterne*
- ----------------
Susan M. Sterne Director
/s/ John M. Grab, Jr. Vice President January 19, 1996
- ---------------------
John M. Grab, Jr. and Principal Financial
and Accounting Officer
*By /s/ Keniston P. Merrill January 19, 1996
-----------------------
Keniston P. Merrill,
Attorney-in-Fact
</TABLE>
<PAGE>
SENTINEL GROUP FUNDS, INC.
Power of Attorney
-----------------
I, Deborah G. Miller, hereby authorize Keniston P. Merrill or Joseph M.
Rob, or either of them, as attorney-in-fact, to sign on my behalf, individually
and in my capacity as a Director of Sentinel Group Funds, Inc. (the "Company"),
the Company's Registration Statement on Form N-1A (including any post-effective
amendments thereto), and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
Dated: January 19, 1996
/s/ Deborah G. Miller
---------------------
Deborah G. Miller
<PAGE>
SENTINEL GROUP FUNDS, INC.
Power of Attorney
-----------------
I, Stanley R. Reber, hereby authorize Keniston P. Merrill or Joseph M. Rob,
or either of them, as attorney-in-fact, to sign on my behalf, individually and
in my capacity as a Director of Sentinel Group Funds, Inc. (the "Fund"), the
Fund's Registration Statement on Form N-1A (including any post-effective
amendments thereto), and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
Dated: January 19, 1996
/s/ Stanley R. Reber
-------------------------------
Stanley R. Reber
<PAGE>
Exhibit Index
Exhibit
Number
- ------
1 Amended and Restated Articles of Incorporation of the Registrant
10 Opinion of Brown & Wood, counsel to the Registrant
11 Consent of Price Waterhouse LLP, independent accountants to the
Registrant
15(b) Class B Distribution Plan pursuant to Rule 12b-1 under the 1940
Act
17 Financial Data Schedules
18 Plan pursuant to Rule 18f-3 under the 1940 Act
<PAGE>
SGFCHAR
01/05/96
rev. 1/11/96
PROPOSED CHARTER AS AMENDED AND RESTATED
OF
SENTINEL GROUP FUNDS, INC.
Sentinel Group Funds, Inc. desires to amend and completely restate its Charter
to read as set forth below:
For the purpose of forming a stock corporation for one or more lawful
purposes under the provisions of ARTICLE 23 of the Annotated Code of Maryland
(hereinafter sometimes referred to as the "General Corporation Law"), the
natural person hereinafter named as the person acting as the incorporator of the
said corporation does hereby adopt and sign the following Articles of
Incorporation of the Corporation and does hereby acknowledge that his adoption
and signing thereof are his act:
FIRST: 1. The name and post office address of the incorporator is HAROLD X.
SCHREDER, 125 Maiden Lane, New York, New York 10038.
2. The said incorporator is at least twenty-one years of age.
3. The said incorporator is forming the corporation named in these
Articles of Incorporation under the general laws of the State of
Maryland.
SECOND: The name of the Corporation is
SENTINEL GROUP FUNDS, INC.
THIRD: The Corporation is formed for the following purposes:
1. To purchase or otherwise acquire, invest and reinvest in, own,
hold, sell, or otherwise dispose of securities or any interests
therein.
2. To create diversified investments in groups of securities and to
provide centralized management and investment supervision
thereof.
3. To exercise any and all rights, powers or privileges of
individual ownership or interest in respect of securities owned
by it or in which it has any interest.
4. To do any and all acts and things and to exercise any further
powers as may seem necessary, appropriate or desirable for the
accomplishment of the foregoing objects or purposes.
The foregoing provisions of this Article THIRD shall be construed both as
purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specific purposes and powers shall not be held to
limit or restrict in any manner the purposes and powers of the Corporation,
and the purposes and powers herein specified shall, except when otherwise
provided in this Article THIRD, be in no
<PAGE>
wise limited or restricted by reference to, or inference from, the terms of
any provision of this or any other Article of these Articles of
Incorporation; provided, that the Corporation shall not conduct any
business, promote any purpose, or exercise any power or privilege within or
without the State of Maryland which, under the laws thereof, the
Corporation may not lawfully conduct, promote, or exercise.
FOURTH: The post office address of the principal office of the Corporation
within the State of Maryland is 11 East Chase Street, Baltimore,
Maryland 21202, c/o The Prentice-Hall Corporation System, Maryland.
The name and the post office address of the resident agent of the
Corporation within the State of Maryland are The Prentice-Hall
Corporation System, Maryland, 11 East Chase Street, Baltimore,
Maryland 21202. The said resident agent is a corporation of the
State of Maryland.
FIFTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is two billion
(2,000,000,000). All shares of each class shall have a par value of
one cent ($.0l) each, with the aggregate par value of all shares
authorized hereby being Twenty Million Dollars ($20,000,000). One
billion three hundred forty million (1,340,000,000) of such shares
have been classified and divided into the following classes, each
class comprising the number of shares and having the designations
indicated, subject, however, to the authority to increase and decrease
the number of shares within a class or to reclassify unissued shares
hereinafter granted to the Board of Directors:
<TABLE>
<CAPTION>
Number of Shares
Class Presently Allocated
- ----- -------------------
<S> <C>
Sentinel Aggressive Growth Fund 50,000,000
Sentinel World Fund 15,000,000
Sentinel U.S.Treasury Money Market Fund 1,000,000,000
Sentinel Balanced Fund 40,000,000
Sentinel Bond Fund 30,000,000
Sentinel Common Stock Fund 75,000,000
Sentinel Growth Fund 25,000,000
Sentinel Government Securities Fund 40,000,000
Sentinel Tax-Free Income Fund 25,000,000
Sentinel Short-Intermediate Government Fund 20,000,000
Sentinel New York Tax-Free Income Fund 20,000,000
</TABLE>
SIXTH: (1) Subject to the power of the Board of Directors to classify and
reclassify unissued shares, the shares of each class of stock of
the Corporation shall have the following preferences, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption:
<PAGE>
(a) The assets of the Corporation received as consideration for
the issue or sale of shares of each class, together with
all income, earnings, profits and proceeds thereof, shall
be invested in a diversified portfolio of securities which
in the judgment of the Board of Directors are appropriate
for such class and also may be held as may be reasonably
necessary or appropriate in deposits in any bank, savings
bank or trust company provided that any such bank or trust
company shall have capital, surplus and undivided profits
of not less than Two Million Dollars ($2,000,000), in
obligations of the United States Government and any agency
thereof and in short term municipal or corporate
obligations, all in accordance with the objects and
purposes of this Corporation. Such assets of the
Corporation and the income, earnings and profits derived
therefrom, and any proceeds derived from the sale or other
liquidation thereof and any assets derived from any
reinvestment of such proceeds, in whatever form the same
may be, shall irrevocably appertain to the class of shares
in exchange for which such assets were received by the
Corporation for all purposes, subject only to the rights of
creditors, and shall be so entered upon the books of
account. Such assets, income, earnings and profits derived
therefrom, and such proceeds and assets obtained by the
reinvestment thereof are hereinafter referred to as "assets
appertaining to such class." The assets appertaining to any
class of stock shall be charged with the liabilities
(including, in the discretion of the Board of Directors,
accrued expenses and reserves) in respect of such class,
and shall also be charged with a share of such liabilities
(including general liabilities of the Corporation) in
respect of any two or more classes, in proportion to the
asset value of the respective classes determined as
hereinafter provided. The determination of the Board of
Directors shall be conclusive as to which of such
liabilities are allocable to a given class and as to which
of the same are general or allocable to two or more
classes.
(b) In case of the dissolution or other liquidation of the
Corporation, the shareholders of each class shall be
entitled to receive, as a class, out of the assets of the
Corporation available for distribution to shareholders
(other than general assets not appertaining to any
particular class of stock) the assets appertaining to such
class (not including such general assets); and the assets
so distributable to the shareholders of any class shall be
distributed among such shareholders in proportion to the
number of shares of such class held by them respectively.
In the event that there are any general assets not
appertaining to any particular class of stock and available
for distribution, such distribution shall be made among the
holders of stock of all classes, each share of stock
sharing equally with every other share regardless of class.
(c) The holders of the outstanding shares of each class shall
be entitled to receive out of the earned or paid-in surplus
of the Corporation applicable to such class, as dividends,
when and as declared by the Board of Directors payable in
cash and/or stock,
<PAGE>
an amount substantially equivalent to the income received
by the Corporation in the form of interest or dividends
upon the assets appertaining to such class, after deducting
therefrom the expenses (including in the discretion of the
Board of Directors accrued expenses and reserves) allocable
to such class, and after making any adjustments therein
that may be necessary in the case of any particular
dividend, when the number of outstanding shares of such
class has increased or decreased since the previous
dividend, in order to make the amount thereof payable on
each share the same as it would have been in the absence of
such increase or decrease.
(d) Extra dividends on the shares of any class may be declared
by the Board of Directors at any time payable in cash
and/or stock of the same class out of the earned or paid-in
surplus of the Corporation applicable to such class in such
amounts as the Board of Directors in their discretion may
deem advisable, but not exceeding the greater of (A) the
earned surplus, if any, applicable to such class, or (B)
any net profits applicable to such class realized during
the then current or the prior fiscal year. In the
computation of the amount available for any particular
dividend, the Board of Directors may, when the number of
outstanding shares of such class has increased or
decreased, make any adjustments with respect thereto which
may be necessary in order to make the amount available for
such dividend the same per share as it would have been in
the absence of such increase or decrease.
(2) Upon surrender of any properly endorsed certificate for shares
of any class of its capital stock by the record holder thereof
or legal representative of such holder, the Corporation shall
purchase the number of shares represented thereby which is
designated by said holder at the asset value of said shares
determined as of the close of business on the next day after
such surrender on which the New York Stock Exchange shall be
open, or as of such other time as may be required by any rule or
regulation of the Securities and Exchange Commission. The
Corporation shall utilize for this purpose the earned and paid-
in surplus applicable to such class, in such proportion from
each as in the judgment of the Board of Directors will maintain
the same proportionate interest therein of the shares of such
class outstanding after such purchase. Payments shall be made by
the Corporation as soon as is reasonably possible but not later
than the next following day on which a settlement would be made
in accordance with the rules of the New York Stock Exchange with
respect to the sale of any security sold on such Exchange on the
next business day after such surrender of such certificate
representing shares of capital stock of the Corporation. The
Corporation may suspend the foregoing right of redemption or
postpone the date of payment upon redemption of its shares for
more than seven (7) days after the surrender or tender of such
shares to the Corporation or its agent designated for that
purpose for redemption (A) for any period (i) during which the
New York Stock Exchange is closed other than customary weekend
and holiday closings or (ii) during which trading on the New
York Stock Exchange is restricted; (B) for any period during
which an emergency exists as a result of which (i) disposal by
the
<PAGE>
Corporation of securities owned by it is not reasonably
practicable or (ii) it is not reasonably practicable for the
Corporation fairly to determine the value of its net assets; or
(C) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of the
shareholders of the Corporation.
(3) Any holder of shares of stock of the Corporation, or any legal
representative of any holder, or any purchaser thereof on
execution or at any judicial sale, or any pledgee thereof
desirous of selling or transferring the same or any part
thereof, shall first offer the same to the Corporation for
purchase as above provided, and shares of stock of the
Corporation shall not be assignable or transferable (except by
way of pledge) without the written consent of the Corporation,
the granting of which consent shall be in its absolute
discretion, unless such offer shall first be made.
(4) Asset Value, as used herein, shall be determined by or under
authority of the Board of Directors of the Corporation on each
day on which the New York Stock Exchange is open for
unrestricted trading and as of such times as may from time to
time be fixed by the Board of Directors. The power and duty to
determine the asset value of each class may be delegated by the
Board of Directors, from time to time, to any one or more
officers of the Corporation or to the investment adviser of the
Corporation. Such determination shall be made in the following
manner:
a) All securities owned by the Corporation shall be valued at
market value, or in the absence of readily available market
quotations or where a security is deemed restricted as to
resale, at fair value, in all cases as determined by or in
accordance with methods approved and adopted by, the Board
of Directors.
b) All other assets of the Corporation shall be valued at the
fair value thereof as determined by the Board of Directors
in accordance with generally accepted accounting
principles, except that no value shall be assigned to
goodwill, records, or other non-current assets other than
real estate, furniture and computer equipment.
c) Amounts receivable for shares which have been sold but have
not been issued, shall be included in the valuation of
assets.
From the value so determined of all assets appertaining to
each class shall be deducted the liabilities allocated to
such class.
(The liabilities of each class shall be calculated by including
therein all debts and such other accrued liabilities including
declared and unpaid distributions, and such reserves for federal and
state taxes and other contingencies as may be determined by or under
the authority of the Board of Directors to be proper in accordance
with generally accepted accounting principles. The result of the
deduction of liabilities from assets appertaining to each such class
shall be the asset value of such class. Such asset value of each
class shall become effective at such time as may from time to time be
fixed by the Board of Directors and shall remain in effect until a new
asset value for the class shall be determined
<PAGE>
and become effective. The asset value of any class divided by the
number of shares of said class issued and outstanding (including
shares which have been sold, but have not been issued) shall be the
asset value of any one share of said class. The Corporation, however,
shall adjust the actual asset value per share to the next higher or
the next lower cent per share as it may from time to time and at any
time determine. Determinations of asset value per share made in good
faith pursuant to this Paragraph 4 of Article SIXTH by the Board of
Directors, or by persons pursuant to authority granted by the Board of
Directors, shall be final, conclusive and binding upon all parties
concerned.
(5) No shares of any of the classes of stock of the Corporation
shall at any time be sold by the Corporation (or otherwise
issued except as stock dividends) unless the Corporation shall
receive as the net price of each share sold (after deducting
selling costs) a sum in cash and/or securities (valued in the
manner above provided) not less than the asset value of the
shares of such class (as determined in the manner above
provided) except that the initial sale of shares of each class
of stock may be made for such consideration not less than the
par value thereof as may be fixed by the Board of Directors at
its discretion.
(6) A class may be invested with one or more other classes in a
common investment portfolio. Notwithstanding the provisions of
Paragraph (1) of this Article SIXTH, if two or more classes are
invested in a common investment portfolio, the shares of each
such class of stock of the Corporation shall be subject to the
following preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption, and, if
there are other classes of stock invested in a different
investment portfolio, shall also be subject to the provisions of
Paragraph (1) of this Article SIXTH at the portfolio level as if
the classes invested in the common investment portfolio were one
class:
(a) The income and expenses of the investment portfolio shall
be allocated among the classes invested in the investment
portfolio in accordance with the number of shares
outstanding of each such class or as otherwise determined
by the Board of Directors.
(b) As more fully set forth in this Paragraph (6) of Article
SIXTH, the liabilities and expenses of the classes invested
in the same investment portfolio may differ and shall be
determined separately from those of each other class.
Accordingly, the net asset value, the dividends and
distributions payable to holders, and the amounts
distributable in the event of liquidation of the
Corporation to holders of shares of the Corporation's stock
may vary from class to class invested in the same
investment portfolio. Except for these differences and
certain other differences set forth in this Paragraph (6)
of Article SIXTH or elsewhere in the Charter of the
Corporation, the classes invested in the same investment
portfolio shall have the same preferences, conversion and
other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of
redemption.
<PAGE>
(c) The dividends and distributions of investment income and
capital gains with respect to the classes invested in the
same investment portfolio shall be in such amounts as may
be declared from time to time by the Board of Directors,
and such dividends and distributions may vary among the
classes invested in the same investment portfolio to
reflect differing allocations of the liabilities and
expenses of the Corporation among the classes and any
resultant differences between the net asset values per
share of the classes, to such extent and for such purposes
as the Board of Directors may deem appropriate. The
allocation of investment income, capital gains, expenses
and liabilities of the Corporation among the classes shall
be determined by the Board of Directors in a manner that is
consistent with applicable law.
(7) All holders of shares of stock shall vote as a single class
except as may be required pursuant to any applicable order,
rule, regulation or interpretation issued by the Securities and
Exchange Commission or by applicable law, and except with
respect to any matter which affects only one or more (but less
than all) classes of stock, in which case only the holders of
shares of the class or classes affected shall be entitled to
vote. Holders of shares of each class shall be entitled to one
(1) vote for each dollar of net asset value per share of such
class for each share held.
(8) The proceeds of the redemption of the shares of any class of
stock of the Corporation may be reduced by the amount of any
contingent deferred sales charge or other charge payable on such
redemption pursuant to the terms of issuance of such shares, all
in accordance with the Investment Company Act of 1940 and
applicable rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD"). Such charges may vary within
and among the classes to the extent determined by the Board of
Directors and set forth in the registration statement of the
Corporation that is effective at the time of issuance of the
applicable shares (the "Corporation's Current Registration
Statement").
(9) At such times as may be determined by the Board of Directors (or
with the authorization of the Board of Directors, by the
officers of the Corporation) in accordance with the Investment
Company Act of 1940, applicable rules and regulations thereunder
and applicable rules and regulations of the NASD and reflected
in the Corporation's Current Registration Statement, shares of a
particular class of stock of the Corporation may be
automatically converted into shares of another class of stock of
the Corporation based on the relative net asset values of such
classes at the time of conversion, subject, however, to any
conditions of conversion that may be imposed by the Board of
Directors (or with the authorization of the Board of Directors,
by the officers of the Corporation ) and reflected in the
Corporation's Current Registration Statement as aforesaid. The
conditions of such conversion may vary within and among the
classes to the extent determined by the Board of Directors (or
with the authorization of the Board of Directors, by the
officers of the Corporation ) and set forth in the Corporation's
Current Registration Statement.
(10) The Board of Directors may classify and reclassify any unissued
shares of capital stock of any class into one or more additional
or other classes
<PAGE>
as may be established from time to time by setting or changing
in any one or more respects the designations, preferences,
conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to
such classification or reclassification to increase or decrease
the number of authorized shares of any existing class.
(11) The Board of Directors is authorized, from time to time, to fix
the price or the minimum price or the consideration or minimum
consideration for, and to authorize the issuance of, the shares
of stock of the Corporation and securities convertible into
shares of stock of the Corporation.
SEVENTH: The following additional provisions are inserted for the management of
the business and for the conduct of the affairs of this Corporation
and its directors and stockholders:
(1) No stockholder of the Corporation shall have any preemptive or
other right to purchase or subscribe for any shares of the
capital stock of the Corporation which it may issue or sell,
whether now or hereafter authorized, other than such right, if
any, as the Board of Directors of this Corporation in its
discretion from time to time may determine.
(2) The Corporation reserves the right to take any lawful action and
to make any amendment of its Charter, including the right to
make any amendment which changes the terms of any outstanding
shares of the capital stock of the Corporation of any class now
or hereafter authorized by classification, reclassification, or
otherwise, and to make any sale, lease, exchange or transfer of
the property and assets of the Corporation as an entirety, or
substantially as an entirety, with or without its good will and
franchise, if the holders of a majority of the votes of
shareholders entitled to be cast vote in favor of any such
action or amendment, and reserves the right to make any
amendment of its Charter in any form, manner or substance now or
hereafter authorized or permitted by law.
(3) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall
have any liability to the Corporation or its stockholders for
damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability is
asserted.
(4) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent
that the indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation shall
indemnify and advance expenses to its officers to the same
extent as its directors and may do so to such further extent as
is consistent with laws. The Board of Directors may by law,
resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to
the fullest extent permitted by the Maryland General Corporation
Law.
<PAGE>
EXHIBIT 10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
January 19, 1996
Sentinel Group Funds, Inc.
National Life Drive
Montpelier, Vermont 05604
Ladies and Gentlemen:
This opinion is furnished in connection with the registration by Sentinel
Group Funds, Inc., a Maryland corporation (the "Company"), of shares of its
common stock, par value $.01 per share (the "Common Stock"), under the
Securities Act of 1933, as amended, pursuant to a registration statement on Form
N-1A (File No. 2-10685), as amended (the "Registration Statement"), in the
amounts set forth under "Amount Being Registered" on the facing page of the
Registration Statement. The shares of Common Stock being registered (the
"Shares") consist of the following existing classes of Common Stock of the
Company: Sentinel Emerging Growth Fund, Sentinel Growth Fund, Sentinel World
Fund, Sentinel Common Stock Fund, Sentinel Balanced Fund, Sentinel Bond Fund,
Sentinel Tax-Free Income Fund, Sentinel New York Tax-Free Income Fund, Sentinel
Government Securities Fund, Sentinel Short-Intermediate Government Fund, and
Sentinel U.S. Treasury Money Market Fund.
As counsel for the Company, we are familiar with the
<PAGE>
proceedings taken by it in connection with the authorization, issuance and
sale of the Shares. In addition, we have examined and are familiar with the
Articles of Incorporation of the Fund, the By-Laws of the Fund, and such other
documents as we have deemed appropriate for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement, for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of Common Stock of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus and
statement of additional information constituting parts thereof.
Very truly yours,
/s/ Brown & Wood
2
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post Effective
Amendment No. 75 to the registration statement on Form N1-A (the "Registration
Statement") of our report dated December 20, 1995, relating to the financial
statements and financials highlights appearing in the November 30, 1995, Annual
Report to Shareholders of Sentinel Group Funds, Inc. and Sentinel Pennsylvania
Tax-Free Trust, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the heading "Financial
Highlights" in the Prospectus and under the heading "General Information" in the
Statement of Additional Information.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
January 19, 1996
<PAGE>
CLASS B DISTRIBUTION PLAN
of
SENTINEL GROUP FUNDS, INC.
Pursuant to Rule 12b-1
Class B Distribution Plan (the "Plan") dated as of the 25th day of March,
1996, of Sentinel Group Funds, Inc., a Maryland corporation (the "Company") and
Sentinel Financial Services Company (the "Distributor").
WITNESSETH:
WHEREAS, the Company is engaged in business as a series open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, the Distributor is a securities firm engaged in the business of
marketing shares of investment companies through other securities firms; and
WHEREAS, the Company has entered into a Distribution Agreement with the
Distributor, pursuant to which the Distributor acts as the primary distributor
of the Company's shares, and the sole distributor and representative of the
Company in the offer and sale through independent broker-dealers of the common
stock, par value $.01 per share, of each Fund of the Company, including in
particular the Class B shares of each of the following investment portfolios of
the Company:
Sentinel Emerging Growth Fund
Sentinel World Fund
Sentinel Common Stock Fund
Sentinel Balanced Fund
Sentinel Bond Fund
Sentinel Tax-Free Income Fund
(such classes being hereinafter referred to as the "Class B Classes"); and
WHEREAS, the Company desires to adopt the Plan pursuant to Rule 12b-1 under
the Investment Company Act, pursuant to which the Company will pay certain fees
to the Distributor with respect to the shares of the Company's Class B Classes;
and
WHEREAS, the Directors of the Company have determined that there is a
reasonable likelihood that adoption of the Plan will benefit each Class B Class
and its shareholders.
NOW, THEREFORE, the Company hereby adopts, and the Distributor hereby
agrees to the terms of, the Plan in accordance with Rule 12b-1 under the
Investment Company Act on the following terms and conditions:
1. The Company shall, for the purpose and on the further terms and
conditions set forth herein, pay to the Distributor an amount equal to the
aggregate of the distribution expenditures relating to the sale of the shares of
common stock of each Class B Class of the Company, up to a
<PAGE>
maximum of 1.00% per annum of average daily net assets of each Class B Class,
and each class B class that may be authorized for issuance and sale in the
future by the Board of Directors of the Company. Of such amount, up to 0.25%
shall be allocated to service fees to broker-dealers, and up to 0.75% may be
allocated to other expenses described below. The U.S. Treasury Money Market
Fund, Class B is not a "Class B Class" as such term is used herein, and will not
be a participant in the Plan.
2. The Company shall reimburse the Distributor for expenses actually
incurred by the Distributor for: (a) service fees with respect to Class B
Classes paid to securities broker-dealers who have executed a Dealer Agreement
with the Distributor; (b) recovery of front-end sales commissions paid by the
Distributor to securities broker-dealers who have executed a Dealer Agreement
with the Distributor with respect to sales of shares of the Class B Classes,
together with the costs of financing such payments incurred by the Distributor,
except to the extent such costs are recovered through contingent deferred sales
charges collected by the Distributor; (c) salaries and expenses of the
Distributor's wholesale sales force, and the Distributor's home office
management and marketing personnel; (d) expenses incurred by the Distributor for
the occupancy of its office space in Montpelier, Vermont; (e) expenses incurred
by the Distributor with respect to equipment and supplies; (f) expenses incurred
for the preparation, printing and distribution of sales literature used in
connection with the offering of the Company's Class B Classes to the public; (g)
expenses incurred in advertising, promoting and selling shares of the Company's
Class B Classes to the public; (h) expenses incurred for the preparation,
printing and distribution of the prospectus and statement of additional
information of the Company, and any supplement thereto used in connection with
the offering of the Company's Class B shares to the public; and (i) expenses
incurred for the printing of additional copies for use by the Distributor as
sales literature of reports and other communications which were prepared by the
Company for distribution to existing shareholders. Reimbursements contemplated
under clauses (b) through (i), above, shall be paid monthly upon receipt by the
Company of a written expense report detailing the expenses qualifying for such
reimbursement and purposes thereof. In the event that for any Class B Class or
Classes the aggregate of these reimbursable expenses exceeds the maximums set
forth in paragraph 1 above, then the expenses described in clause (a) of this
paragraph 2 shall have priority over those reimbursements to be made to the
Distributor under clauses (b) through (i) of this paragraph 2. In such event,
the Distributor will not be reimbursed for any unreimbursed eligible expenses
from any other Class B Class, or in any future year.
3. The Distributor shall prepare reports to the Board of Directors of the
Company on a quarterly basis summarizing all payments made by it pursuant to the
Plan and the Dealer Agreements contemplated hereby, the purposes for which such
payments were made and such other information as the Board of Directors or the
Directors who are not interested persons may reasonably request from time to
time.
4. The Plan shall become effective as to each Class B Class upon its
approval by (a) a majority of the outstanding voting securities (as such phrase
is defined in the Investment Company Act) of such Class, and (b) a majority of
the members of the Board of Directors of the Company, including a majority of
the members of the Board of Directors who are not interested persons of the
Class B Classes and have no direct or indirect financial interest in the
operation of the Plan, with votes cast in person at a meeting called for the
purpose of voting on the Plan, and (c) upon the effectiveness of a Post-
Effective Amendment to the Company's Registration Statement reflecting this
Plan, filed with the U.S. Securities and Exchange Commission under the
Securities Act of 1933. The date on which the last of (a), (b) and (c) occurs
with respect to a Class B Class shall be the "Effective Date" with respect to
such Class B Class.
- 2 -
<PAGE>
5. Upon receipt of the approvals required by paragraph 4 above, the Plan
and the Dealer Agreements contemplated hereby shall continue in effect with
respect to any Class B Class beyond the first anniversary of its adoption by the
Board of Directors of the Company only so long as (a) its continuation is
approved at least annually in the manner set forth in either clause (a) or
clause (b) of paragraph 4 above and (b) the selection and nomination of those
Directors of the Company who are not interested persons of the Company are
committed to the discretion of such Directors.
6. The Plan or any agreement related to the Plan may be terminated without
penalty at any time by a majority of those Directors of the Company who are not
interested persons of the Company and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
or with respect to any Class B Class, by the holders of a majority of the
outstanding voting securities of such Class B Class.
7. This Plan may not be amended to increase the maximum amount permitted to
be expended hereunder except with the approval of the holders of a majority of
the outstanding voting securities of any affected Class B Class, and may not be
amended in any other material respect except with the approval of the majority
of the members of the Board of Directors of the Company who are not interested
persons of the Company and have no direct or indirect financial interest in the
operation of the Plan. Amendments required to conform to changes in the Rule
shall not be deemed to be material amendments. The Plan or any agreement related
to the Plan will terminate automatically in the event of its assignment.
8. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or reports,
as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this Distribution Plan
as of the date first above written.
SENTINEL GROUP FUNDS, INC.
by_________________________
Keniston P. Merrill
Chairman
SENTINEL FINANCIAL SERVICES COMPANY
by__________________________
Joseph M. Rob
Chief Executive Officer
- 3 -
<PAGE>
EXHIBIT 18
SENTINEL GROUP FUNDS, INC.
RULE 18-F-3 PLAN
Rule 18f-3 under the Investment Company Act of 1940 (the "Investment
Company Act") permits mutual funds to issue multiple classes of shares. Under
Rule 18f-3(d), each mutual fund that seeks to rely upon Rule 18f-3 is required
to (i) create a plan (the "Plan") setting forth the differences among each class
of shares, (ii) receive the approval of a majority of the Board of Directors of
the fund (including a majority of the non-interested directors) that the Plan,
including the expense allocation between each class of shares, is in the best
interests of each class individually and the fund as a whole, and (iii) file a
copy of the Plan with the Securities and Exchange Commission (the "Commission")
as an exhibit to the fund's registration statement. The following Plan describes
the differences among the classes of shares for certain series of Sentinel Group
Funds, Inc. (the "Company"), namely: Sentinel Balanced Fund; Sentinel Bond Fund;
Sentinel Common Stock Fund; Sentinel Aggressive Growth Fund (doing business as
"Sentinel Emerging Growth Fund"); Sentinel Tax-Free Income Fund; Sentinel U.S.
Treasury Money Market Fund and Sentinel World Fund (individually, a "Fund," and
collectively, the "Funds").
Each Fund is advised by Sentinel Advisors Company (the "Advisor") and
offers two classes of shares. The shares of each class may be purchased at a
price equal to the next determined net asset value per share subject to the
sales charges and ongoing fee arrangements described below, except that Class B
shares of Sentinel U.S. Treasury Money Market Fund (the "Money Market Fund") may
be acquired only through exchanges and may not be purchased directly, as
described below. Class A shares are sold to investors choosing the initial
sales charge alternative and Class B shares are sold to investors choosing the
deferred sales charge alternative. Initial sales charges, contingent deferred
sales charges ("CDSCs"), fees ("Rule 12b-1 fees") payable under the Company's
distribution plans pursuant to Rule 12b-1 under the Investment Company Act (each
a "Rule 12b-1 Plan"), conversion periods and rights of accumulation for each of
the Funds are as set forth in the current prospectus and statement of additional
information for the Company.
Each Class A and Class B share of a Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights, except that
Class B shares bear the expenses of higher ongoing Rule 12b-1 fees and the
additional incremental transfer agency costs resulting from the additional
recordkeeping required by the deferred sales charge arrangement. Each class of
shares has exclusive voting rights with respect to the Rule 12b-1 Plan
applicable to that class. The Rule 12b-1 fees that are imposed on the Class A
and Class B shares of a Fund and the deferred sales charges that are imposed on
the Class B shares of
<PAGE>
that Fund are imposed directly against that class and not against all assets of
the Fund and, accordingly, such charges will not affect the net asset value of
any other class or have any impact on investors choosing another sales charge
option. Dividends paid by a Fund for each class of shares will be calculated in
the same manner at the same time and will differ only to the extent that Rule
12b-1 fees and any incremental transfer agency costs relating to a particular
class are borne exclusively by that class.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear ongoing Rule 12b-1 fees. Class A shares will be issued upon
reinvestment of dividends of outstanding Class A shares. Investors
purchasing in the aggregate shares in the amount $1 million or more
will be offered Class A shares only.
Class A investors may qualify for reduced initial sales charges
through the purchase of certain minimum amounts of Class A shares of a
Fund, as described in the Appendix hereto. In cases in which no
initial sales charge is imposed, a CDSC of up to 1% will be imposed on
redemptions of Class A shares within two years of purchase, as
described in the Appendix hereto.
Class B: Class B shares are sold on a deferred sales charge basis. Class B
shares do not incur a sales charge when they are purchased, but they
are subject to ongoing Rule 12b-1 fees that are higher than the Rule
12b-1 fees imposed on Class A shares and a CDSC for periods of up to
six years as described in the Appendix hereto. Once the CDSC period
has expired, Class B shares will convert automatically to Class A
shares at a specified time as described below. Class B shares are
available only to investors whose share holdings aggregate less than
$1 million.
Exchange Privilege. Shareholders of each class of shares of a Fund have an
exchange privilege with the other Funds. There is currently no limitation on
the number of times a shareholder may exercise the exchange privilege. The
exchange privilege may be modified or terminated in accordance with the rules of
the Commission.
Class A and Class B shares of each Fund are exchangeable with shares of the
same class of the other Funds. Class A shares are also exchangeable for shares
of Sentinel Government Securities Fund, Sentinel Growth Fund, Sentinel New York
Tax-Free Income Fund and Sentinel Short-Intermediate Government Fund, each
2
<PAGE>
a series of the Company, and for shares of Sentinel Pennsylvania Tax-Free Trust
(the "Single Class Funds").
Shares of a Fund or a Single Class Fund are exchangeable on the basis of
relative net asset value per share without the payment of any CDSC that might
otherwise be due upon redemption of the shares of such fund. For purposes of
computing the CDSC that may be payable upon a disposition of the shares acquired
in the exchange, the holding period for the previously owned shares of a Fund is
"tacked" to the holding period of the newly acquired shares of the second Fund.
Class A shares of the Money Market Fund may be acquired either through a
purchase or through an exchange of Class A shares of another Fund or Single
Class Fund; Class B shares of the Money Market Fund may not be purchased
directly or acquired in exchange of shares of a Single Class Fund and may be
acquired only in exchange for Class B shares of another Fund. The period of time
that shares are held in Class B shares of the Money Market Fund, however, will
not count toward satisfaction of the holding period requirement for reduction of
any CDSC imposed on such shares.
Right of Accumulation. The right of accumulation for each class of shares
for each of the Funds is as set forth in the current prospectus and statement of
additional information for the Company.
Allocation of Income, Gains, Losses and Expenses. Allocation of income,
gains and losses of each Fund shall be allocated pro rata according to the net
assets of each class. Allocation of expenses not allocated to a specific class
of each Fund other than the Money Market Fund shall be allocated according to
the net assets or number of shareholder accounts, each on a pro rata basis, of
each class. Allocations in the case of the Money Market Fund shall be made (i)
to each share without regard to class, provided that the Fund has received
undertakings from the Advisor or any other provider of services to the Fund,
agreeing to waive or reimburse the Fund for payments to such service provider by
one or more classes, as allocated as described above, to the extent necessary to
assure that all classes of the Funds maintain the same net asset value per
share, or (ii) on the basis of relative net asset value.
Amending Rule 12b-1 Plans. No fund will implement any amendment to the
Company's Class A or Class B Rule 12b-1 Plan that would materially increase the
amount that may be borne by each class of shares unless the holders of such
class of shares, voting separately as a class, approve the proposal.
If the amount of expenses, including payments authorized under the Company's
Class A Share Rule 12b-1 Plan, for the Class
3
<PAGE>
A shares is increased materially without approval of the Class B shareholders,
the Company will establish a new class of Class A shares for the Class B shares
to convert into on the same terms as applied to the Class A shares before that
increase.
Conversion of Class B Shares to Class A Shares. After the applicable CDSC
period has expired, Class B shares and shares purchased through reinvestment of
dividends on those converting Class B shares of a Fund will automatically
convert into Class A shares of the same Fund on the basis of relative net asset
value per share of the two classes without the imposition of any sales load, fee
or other charge. For purposes of computing the period for conversion of Class B
shares to Class A shares, the holding period for the previously owned shares of
a Fund is "tacked" to the holding period of the newly acquired shares of the
second Fund. The period of time that shares are held in the Money Market Fund,
however, will not count toward satisfaction of the holding period necessary to
convert Class B shares to Class A shares. As a condition to the conversion of
Class B shares to Class A shares, the Company will ensure the continuing
availability of a Ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will be a tax-free conversion for shareholders.
However, shareholders holding Class B shares in certificate form will not
receive Class A share certificates until the shareholder tenders the Class B
share certificate(s) to the Fund's Transfer Agent. Until Class B share
certificates are exchanged for Class A share certificates, the Class B share
certificates will represent the shareholder's interest in the Class A shares
received upon conversion.
4
<PAGE>
APPENDIX
CLASS A SHARES
- --------------
<TABLE>
<CAPTION>
================================================================================
SENTINEL BALANCED FUND, SENTINEL BOND FUND, SENTINEL COMMON STOCK FUND, SENTINEL
AGGRESSIVE GROWTH FUND (DOING BUSINESS AS "SENTINEL EMERGING GROWTH FUND"),
SENTINEL TAX-FREE INCOME FUND AND SENTINEL WORLD FUND
- --------------------------------------------------------------------------------
SALE SIZE INITIAL SALES CHARGE
- --------------------------------------------------------------------------------
<S> <C>
$0 to $99,999 5.0%
- --------------------------------------------------------------------------------
$100,000 to $249,999 4.0%
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.5%
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.0%
- --------------------------------------------------------------------------------
$1,000,000 or more 0.0%
================================================================================
</TABLE>
There is no initial sales charge for purchases of Class A shares of the
Money Market Fund. Initial sales charges for the Single Class Funds are as set
forth in the current prospectus and statement of additional information for the
Company.
In cases in which there is no sales charge because the sale is in an amount
of $1,000,000 or more, if the Class A shares purchased are redeemed within one
year of the purchase, a CDSC will be imposed in the amount of 1.0%. If the
Class A shares are redeemed during the second year after the purchase, a CDSC of
0.5% will be imposed. After the second year, no CDSC will apply. The CDSC is
imposed on the lower of the cost or the current net asset value of the shares
redeemed. In determining whether a CDSC is payable, a Fund will first redeem
shares not subject to any sales charge.
Class A shares otherwise subject to a CDSC and owned by certain tax-exempt
qualified retirement plans may be redeemed without charge to pay benefits. In
addition, any shares acquired by reinvestment of dividends will be redeemable
without a CDSC. In determining whether a CDSC is payable, the Funds and Single
Class Funds will first redeem shares not subject to any charge.
<PAGE>
CLASS B SHARES
- --------------
<TABLE>
<CAPTION>
================================================================================
ALL FUNDS
- --------------------------------------------------------------------------------
SALE SIZE YEAR CDSC
================================================================================
<S> <C> <C>
$0 to $249,999 1 4.0%
- --------------------------------------------------------------------------------
2 4.0%
- --------------------------------------------------------------------------------
3 3.0%
- --------------------------------------------------------------------------------
4 2.0%
- --------------------------------------------------------------------------------
5 2.0%
- --------------------------------------------------------------------------------
6 1.0%
================================================================================
$250,000 to $499,999 1 3.5%
- --------------------------------------------------------------------------------
2 3.0%
- --------------------------------------------------------------------------------
3 2.0%
- --------------------------------------------------------------------------------
4 1.0%
- --------------------------------------------------------------------------------
5 1.0%
================================================================================
$500,000 to $1,000,000 1 3.0%
- --------------------------------------------------------------------------------
2 2.0%
- --------------------------------------------------------------------------------
3 1.0%
- --------------------------------------------------------------------------------
4 1.0%
================================================================================
</TABLE>
CDSCs payable on redemptions of Class B shares will be waived in the
following circumstances:
. Redemptions of shares issued as a result of reinvestment of dividends and
capital gains
. Redemptions upon the death of the shareholder
. Redemptions to effect distributions required by the Employee Retirement
Income Security Act of 1974, as amended, or regulations of the Internal
Revenue Service
. Redemptions to distribute proceeds of loans made to employees of not-for-
profit organizations ((S)501(c)(3) companies) against shares held in
retirement plan accounts ((S)403(b)(7) accounts)
. Redemptions made pursuant to a systematic withdrawal plan in amounts up to
10% of the account's then current value annually
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> COMMON STOCK
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 571,255,283
<INVESTMENTS-AT-VALUE> 1,056,559,830
<RECEIVABLES> 4,642,881
<ASSETS-OTHER> 2,243,537
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,063,446,248
<PAYABLE-FOR-SECURITIES> 3,084,574
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,417,881
<TOTAL-LIABILITIES> 5,502,455
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 486,519,292
<SHARES-COMMON-STOCK> 30,044,511
<SHARES-COMMON-PRIOR> 29,707,322
<ACCUMULATED-NII-CURRENT> 3,337,344
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 82,782,610
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 485,304,547
<NET-ASSETS> 1,057,943,793
<DIVIDEND-INCOME> 29,106,658
<INTEREST-INCOME> 3,119,081
<OTHER-INCOME> 0
<EXPENSES-NET> 10,402,900
<NET-INVESTMENT-INCOME> 21,822,839
<REALIZED-GAINS-CURRENT> 83,681,019
<APPREC-INCREASE-CURRENT> 164,928,158
<NET-CHANGE-FROM-OPS> 270,432,016
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,427,518
<DISTRIBUTIONS-OF-GAINS> 32,779,992
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,015,451
<NUMBER-OF-SHARES-REDEEMED> 5,212,198
<SHARES-REINVESTED> 1,533,936
<NET-CHANGE-IN-ASSETS> 218,608,529
<ACCUMULATED-NII-PRIOR> 3,942,023
<ACCUMULATED-GAINS-PRIOR> 32,552,715
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,243,009
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,497,422
<AVERAGE-NET-ASSETS> 952,096,342
<PER-SHARE-NAV-BEGIN> 28.25
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> 8.09
<PER-SHARE-DIVIDEND> 0.74
<PER-SHARE-DISTRIBUTIONS> 1.11
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 35.21
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 230,353,162
<INVESTMENTS-AT-VALUE> 279,856,458
<RECEIVABLES> 5,435,324
<ASSETS-OTHER> 443,302
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 285,735,084
<PAYABLE-FOR-SECURITIES> 17,856,854
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 775,479
<TOTAL-LIABILITIES> 18,632,333
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 209,907,062
<SHARES-COMMON-STOCK> 15,864,676
<SHARES-COMMON-PRIOR> 16,079,332
<ACCUMULATED-NII-CURRENT> 1,220,591
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,471,802
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,503,296
<NET-ASSETS> 267,102,751
<DIVIDEND-INCOME> 4,180,753
<INTEREST-INCOME> 8,274,153
<OTHER-INCOME> 0
<EXPENSES-NET> 3,144,925
<NET-INVESTMENT-INCOME> 9,309,981
<REALIZED-GAINS-CURRENT> 6,896,018
<APPREC-INCREASE-CURRENT> 37,588,953
<NET-CHANGE-FROM-OPS> 53,794,952
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,440,483
<DISTRIBUTIONS-OF-GAINS> 143,043
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,607,150
<NUMBER-OF-SHARES-REDEEMED> 3,386,737
<SHARES-REINVESTED> 564,931
<NET-CHANGE-IN-ASSETS> 40,774,297
<ACCUMULATED-NII-PRIOR> 1,378,850
<ACCUMULATED-GAINS-PRIOR> 5,792
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,611,633
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,194,657
<AVERAGE-NET-ASSETS> 246,830,237
<PER-SHARE-NAV-BEGIN> 14.08
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 2.78
<PER-SHARE-DIVIDEND> 0.59
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.84
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 48,979,313
<INVESTMENTS-AT-VALUE> 60,266,371
<RECEIVABLES> 124,641
<ASSETS-OTHER> 213,822
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,604,834
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158,465
<TOTAL-LIABILITIES> 158,465
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,938,632
<SHARES-COMMON-STOCK> 3,570,991
<SHARES-COMMON-PRIOR> 3,123,603
<ACCUMULATED-NII-CURRENT> 182,378
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,038,301
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,287,058
<NET-ASSETS> 60,446,369
<DIVIDEND-INCOME> 881,157
<INTEREST-INCOME> 162,895
<OTHER-INCOME> 0
<EXPENSES-NET> 815,125
<NET-INVESTMENT-INCOME> 228,927
<REALIZED-GAINS-CURRENT> 9,038,335
<APPREC-INCREASE-CURRENT> 2,732,693
<NET-CHANGE-FROM-OPS> 11,999,955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 139,887
<DISTRIBUTIONS-OF-GAINS> 7,982,066
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 381,710
<NUMBER-OF-SHARES-REDEEMED> 464,496
<SHARES-REINVESTED> 530,174
<NET-CHANGE-IN-ASSETS> 9,999,794
<ACCUMULATED-NII-PRIOR> 93,338
<ACCUMULATED-GAINS-PRIOR> 7,982,032
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 355,614
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 837,702
<AVERAGE-NET-ASSETS> 54,489,765
<PER-SHARE-NAV-BEGIN> 16.15
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 3.33
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 2.57
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.93
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> EMERGING GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 87,624,787
<INVESTMENTS-AT-VALUE> 89,974,020
<RECEIVABLES> 43,635
<ASSETS-OTHER> 373,504
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90,391,159
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,069,989
<TOTAL-LIABILITIES> 1,069,989
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,480,295
<SHARES-COMMON-STOCK> 17,190,516
<SHARES-COMMON-PRIOR> 15,999,712
<ACCUMULATED-NII-CURRENT> 247,950
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,243,692
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,349,233
<NET-ASSETS> 89,321,170
<DIVIDEND-INCOME> 533,941
<INTEREST-INCOME> 1,173,559
<OTHER-INCOME> 0
<EXPENSES-NET> 1,088,550
<NET-INVESTMENT-INCOME> 247,950
<REALIZED-GAINS-CURRENT> 16,243,662
<APPREC-INCREASE-CURRENT> (5,901,668)
<NET-CHANGE-FROM-OPS> 10,589,944
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 14,411,597
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,765,224
<NUMBER-OF-SHARES-REDEEMED> 4,369,276
<SHARES-REINVESTED> 2,794,856
<NET-CHANGE-IN-ASSETS> 901,562
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 14,411,627
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 611,863
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,501,829
<AVERAGE-NET-ASSETS> 93,658,372
<PER-SHARE-NAV-BEGIN> 5.53
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.56
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.91
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 5.20
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 005
<NAME> WORLD FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 41,565,239
<INVESTMENTS-AT-VALUE> 46,059,016
<RECEIVABLES> 748,318
<ASSETS-OTHER> 1,023,014
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,830,348
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 128,360
<TOTAL-LIABILITIES> 128,360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,557,390
<SHARES-COMMON-STOCK> 3,462,116
<SHARES-COMMON-PRIOR> 3,294,208
<ACCUMULATED-NII-CURRENT> 475,738
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 196,654
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,472,206
<NET-ASSETS> 47,701,988
<DIVIDEND-INCOME> 1,000,863
<INTEREST-INCOME> 37,096
<OTHER-INCOME> 0
<EXPENSES-NET> 688,891
<NET-INVESTMENT-INCOME> 349,068
<REALIZED-GAINS-CURRENT> 355,098
<APPREC-INCREASE-CURRENT> 3,563,174
<NET-CHANGE-FROM-OPS> 4,267,340
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 286,485
<DISTRIBUTIONS-OF-GAINS> 505,083
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,216,644
<NUMBER-OF-SHARES-REDEEMED> 1,110,080
<SHARES-REINVESTED> 61,344
<NET-CHANGE-IN-ASSETS> 5,731,583
<ACCUMULATED-NII-PRIOR> 254,707
<ACCUMULATED-GAINS-PRIOR> 505,087
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 288,808
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 719,937
<AVERAGE-NET-ASSETS> 44,300,235
<PER-SHARE-NAV-BEGIN> 12.74
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 1.14
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.78
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 006
<NAME> BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 113,082,221
<INVESTMENTS-AT-VALUE> 116,472,873
<RECEIVABLES> 4,675,658
<ASSETS-OTHER> 158,991
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 121,307,522
<PAYABLE-FOR-SECURITIES> 12,243,111
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309,860
<TOTAL-LIABILITIES> 12,552,971
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,809,019
<SHARES-COMMON-STOCK> 16,767,832
<SHARES-COMMON-PRIOR> 13,754,445
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 8,604
<ACCUMULATED-NET-GAINS> (3,436,516)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,390,652
<NET-ASSETS> 108,754,551
<DIVIDEND-INCOME> 49,156
<INTEREST-INCOME> 7,616,677
<OTHER-INCOME> 0
<EXPENSES-NET> 976,382
<NET-INVESTMENT-INCOME> 6,689,451
<REALIZED-GAINS-CURRENT> 1,989,093
<APPREC-INCREASE-CURRENT> 8,007,845
<NET-CHANGE-FROM-OPS> 16,686,389
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,677,766
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,221,653
<NUMBER-OF-SHARES-REDEEMED> 6,008,278
<SHARES-REINVESTED> 800,012
<NET-CHANGE-IN-ASSETS> 28,267,503
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,155,656)
<OVERDISTRIB-NII-PRIOR> 22,172
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 522,173
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,013,227
<AVERAGE-NET-ASSETS> 98,190,896
<PER-SHARE-NAV-BEGIN> 5.85
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 0.64
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 6.49
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 007
<NAME> GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 171,585,926
<INVESTMENTS-AT-VALUE> 173,466,699
<RECEIVABLES> 6,718,735
<ASSETS-OTHER> 7,862
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,193,296
<PAYABLE-FOR-SECURITIES> 71,920,161
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 172,947
<TOTAL-LIABILITIES> 72,093,108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109,808,089
<SHARES-COMMON-STOCK> 10,491,866
<SHARES-COMMON-PRIOR> 11,222,280
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 2,180
<ACCUMULATED-NET-GAINS> (3,586,494)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,880,773
<NET-ASSETS> 108,100,188
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,931,818
<OTHER-INCOME> 0
<EXPENSES-NET> 1,088,525
<NET-INVESTMENT-INCOME> 6,843,293
<REALIZED-GAINS-CURRENT> 3,976,086
<APPREC-INCREASE-CURRENT> 6,533,082
<NET-CHANGE-FROM-OPS> 17,352,461
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,684,083
<DISTRIBUTIONS-OF-GAINS> 0
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 008
<NAME> SHORT INTERMEDIATE GOVERNMENT FUND
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 009
<NAME> TREASURY FUND
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 010
<NAME> TAX FREE INCOME FUND
<S> <C>
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<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> NEW YORK TAX FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> 8-MOS
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