<PAGE>
Sentinel Family of Funds
Annual Report
November 30, 1996
[PICTURE OF ROLLING HILLS APPEARS HERE]
<PAGE>
[LOGO OF SENTINEL
GROUP FUNDS, INC.
APPEARS HERE] Sentinel Group Funds, Inc. (SGF)
Sentinel Pennsylvania
Tax-Free Trust (PA)
National Life Drive,
Montpelier, Vermont 05604
(800) 282-FUND(3863)
-----------------------------------------------------
Table of Contents
2 Message to Shareholders
4 Sentinel Investment Team
5 Financial Statements and Financial Highlights
5 Sentinel Emerging Growth Fund
11 Sentinel Growth Fund
17 Sentinel World Fund
22 Sentinel Common Stock Fund
28 Sentinel Balanced Fund
35 Sentinel Bond Fund
41 Sentinel Tax-Free Income Fund
47 Sentinel New York Tax-Free Income Fund
52 Sentinel Government Securities Fund
58 Sentinel Short-Intermediate Government Fund
64 Sentinel U.S. Treasury Money Market Fund
69 SGF Notes to Financial Statements
74 SGF-Report of Independent Accountants
75 Financial Statements and Financial Highlights
75 Sentinel Pennsylvania Tax-Free Trust
80 PA Notes to Financial Statements
82 PA-Report of Independent Accountants
83 Federal Tax Status of Dividends and Distributions
83 Privileges, Plans and Services for Shareholders
86 Directors/Trustees and Officers
88 A Brief History
Cover: Original oil by Douglas Fryer
1
<PAGE>
Message to Shareholders
[PICTURE OF KENISTON P. MERRILL APPEARS HERE]
CHAIRMAN
[PICTURE OF JOSEPH M. ROB APPEARS HERE]
DIRECTOR/PRESIDENT
Dear Shareholder:
We are pleased to submit our annual report of the twelve months ended November
30, 1996.
The Economy
The key economic statistics for 1996 look very similar to those for 1995,
although the pattern of growth was reversed. This year, economic growth was
faster than expected (at about 3.5% in real GDP) in the first half before
slowing to a more comfortable 2.0-2.5% pace in the second half.
In spite of the fast pace of growth in the first half, inflation remained well
under control and appears likely to end the year up about 2.3% as compared to a
rise of 2.0% last year. Intense worldwide competition, a stronger dollar, and
slow growth in overseas economies helped to keep a lid on most prices while
continued gains in productivity and the increased use of temporary workers
helped contain gains in unit labor costs.
The U.S. economy continues to benefit from a rare and very favorable confluence
of events. Slow growth, low inflation, declining government budget deficits, and
the absence of surprises in the November election results have all been very
positive for financial assets. The stock market continued to respond to the
flood of good news by setting a series of new highs.
Looking forward, we expect some slowing in the pace of growth in 1997 to about
2% in real GDP. The main reasons for our expectations of slower growth are the
constraints on consumer spending caused by high debt levels and a continuation
of the current slowdown in capital spending. Inflation is expected to remain low
at around 3.0%, but seems likely to rise slightly from this year's level as a
result of continued labor market tightness and somewhat smaller productivity
gains. We expect corporate profits to rise marginally over 1996 levels, although
the rate of increase is likely to slow due to contracting profit margins.
The Financial Markets
Returns on financial assets were positive (especially for stocks) for the second
year in a row. The Lehman Brothers Aggregate Bond Index, a widely used measure
of overall bond market performance, produced a total return of 6.1% for the
fiscal year ending November 30, 1996.
This twelve-month period can be categorized as one of high volatility in the
fixed-income markets. Interest rates initially surged higher as U.S. economic
growth rebounded from the lackluster pace experienced in 1995, only to fall
precipitously as growth slowed in the second half of the year. By the close of
our fiscal year, interest rates were up a modest 20-to-30 basis points from
their year-ago levels. Bond returns were mixed as short- and intermediate-
maturity securities basically returned their coupons, while long-maturity bonds
returned about half. Mortgage-backed securities outperformed both U.S.
Treasuries and corporate bonds over the year as income proved to be the largest
contributor to returns.
Looking forward, we expect volatility to remain high in the fixed-income markets
over the next twelve months. Bond market psychology has changed abruptly from
one economic release to the next and inflation, dormant for most of 1996, may be
poised to begin to increase as a result of continued labor market tightness and
slower productivity gains. In this environment, our investment strategy will
continue to adhere to our fixed-income funds' goals of high current income and
the preservation of our shareholders' capital.
2
<PAGE>
Common stocks produced spectacular returns during our fiscal year, with the
Standard & Poor's 500 Index earning a total return of almost 28%. Cost-cutting
and productivity improvements instituted in prior years produced positive
leverage and led to surprisingly strong corporate profit growth. Low inflation,
volatile but low interest rates, and a torrent of new money flowing into mutual
funds all contributed to a further expansion in price-earnings multiples.
Our equity portfolios benefited once again from significant gains in financial
sector stocks and, to a lesser degree, from our holdings in energy service and
retail stocks. The portfolios also benefited from significant underweightings in
utility stocks.
Consensus estimates for S&P 500 profits in 1997 are on the order of $42-44 per
share. Based on those estimates, the current price-earnings multiple on 1997
earnings is 17-18 times. Clearly, the market can no longer be considered
inexpensive, although current price-earnings multiples are not significantly
out-of-line with their levels in prior periods of low inflation. Shareholders
should be cautious, however, about extrapolating the extraordinary returns of
the last two years into the future.
We appreciate your support and look forward to continuing to help you achieve
your long-term investment goals.
Sincerely,
/s/ Keniston P. Merrill
Keniston P. Merrill
Chairman
/s/ Joseph M. Rob
Joseph M. Rob
Director/President
December 5, 1996
================================================================================
Fund Performance
Performance data for each Sentinel Fund is provided in this table. Financial
data is contained in the following pages.
<TABLE>
<CAPTION>
11/30/95 -11/30/96
------------------------------------------------------------------
11/30/96
Net Asset Capital
Sentinel Value Per Income Gain Total Lipper
Fund Share Dividends Distributions Return* Average**
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth "A" Shares $ 5.17 $.03 $ .96 22.0% 19.8%
- --------------------------------------------------------------------------------------------------------------------
# "B" Shares 5.12 -- -- 6.2 --
- --------------------------------------------------------------------------------------------------------------------
Growth 17.57 .07 2.55 22.6 21.1
- --------------------------------------------------------------------------------------------------------------------
World "A" Shares 15.69 .13 0.07 15.5 14.5
- --------------------------------------------------------------------------------------------------------------------
# "B" Shares 15.58 -- -- 7.5 --
- --------------------------------------------------------------------------------------------------------------------
Common Stock "A" Shares 40.60 .61 2.77 27.2 23.8
- --------------------------------------------------------------------------------------------------------------------
# "B" Shares 40.57 .13 -- 14.9 --
- --------------------------------------------------------------------------------------------------------------------
Balanced "A" Shares 18.55 .54 0.42 16.6 16.4
- --------------------------------------------------------------------------------------------------------------------
# "B" Shares 18.58 .14 -- 9.6 --
- --------------------------------------------------------------------------------------------------------------------
Bond "A" Shares 6.35 .41 -- 4.5 5.2
- --------------------------------------------------------------------------------------------------------------------
# "B" Shares 6.36 .21 -- 4.5 --
- --------------------------------------------------------------------------------------------------------------------
Government Securities 10.00 .61 -- 3.2 4.4
- --------------------------------------------------------------------------------------------------------------------
Tax-Free Income "A" Shares 13.53 .65 -- 4.3 4.9
- --------------------------------------------------------------------------------------------------------------------
# "B" Shares 13.54 .32 -- 4.5 --
- --------------------------------------------------------------------------------------------------------------------
PA Tax-Free Trust 13.29 .66 0.08 5.0 4.7
- --------------------------------------------------------------------------------------------------------------------
Short-Intermediate Government 9.81 .57 -- 5.6 5.1
- --------------------------------------------------------------------------------------------------------------------
NY Tax-Free Income 11.72 .53 -- 4.8 4.8
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Market "A" Shares 1.00 .04 -- 4.6 --
- --------------------------------------------------------------------------------------------------------------------
# "B" Shares 1.00 .03 -- 3.0 --
- --------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500/+/ -- -- -- 27.9 --
- --------------------------------------------------------------------------------------------------------------------
Lehman Aggregate Bond Index/++/ -- -- -- 6.1 --
- --------------------------------------------------------------------------------------------------------------------
Lehman Municipal Bond Index/+++/ -- -- -- 5.9 --
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 net asset value during the period, and a redemption of the
last day of the period. Initial sales charge is not reflected in the
calculation of total investment return. Past performance is no guarantee of
future results.
** Average performance of category of funds with similar investment
objectives as tracked by Lipper Analytical Services.
+ An unmanaged index of stocks reflecting average prices in the stock
market.
++ An unmanaged index of bonds reflecting average prices in the bond
market.
+++ An unmanaged index of bonds reflecting average prices in the municipal
bond market.
# Data for "B" shares for 8 month period since 4/1/96 inception.
3
<PAGE>
The Sentinel Investment Team
[PICUTE OF SENTINEL INVESTMENT TEAM APPEARS HERE]
While recognizing the investment process is never easy, we believe that it is
too often made unnecessarily complex. We concentrate on what we believe to be
the key fundamental considerations, filtering out extraneous factors which, over
the long run, have little or no bearing on the true value of an investment.
As a result, Sentinel's management has been characterized as "patient." Over the
years, this approach has provided Sentinel investors with a high level of
consistency of results, with an equally high level of downside protection.
Keniston P. Merrill
Standing, left to right: Thomas H. Brownell, CFA, Vice President &Portfolio
Manager; Robert L. Lee, CFA, Manager - Sentinel Growth Fund & Director of
Equity Research; Kenneth J. Hart, Vice President & Manager - Sentinel Tax-Free
Income Fund, New York Tax-Free Income Fund and Pennsylvania Tax-Free Trust;
Daniel J. Manion, CFA, Assistant Vice President & Portfolio Manager/Analyst;
Charles C. Schwartz, Assistant Equity Analyst; Scott T. Brayman, CFA, Assistant
Vice President & Portfolio Manager/Analyst; Bruce R. Bottamini, CFA, Vice
President & Director of Fixed Income Research; Richard D. Temple, Vice
President & Manager - Sentinel Bond Fund; David M. Brownlee, CFA, Vice
President & Manager - Sentinel Government Securities Fund and Short-Intermediate
Government Fund.
Seated, left to right: Richard A. Pender, CFA, Vice President & Portfolio
Manager; Darlene A. Coppola, Money Market Trader - Sentinel U.S. Treasury
Money Market Fund; Keniston P. Merrill, Chairman & CEO, Sentinel Advisors
Company; Rodney A. Buck, CFA, Senior Vice President, Sentinel Advisors Company
& Manager - Sentinel Balanced Fund.
Not pictured: Erik B. Granade, CFA, Manager - Sentinel World Fund; William C.
Kane, CFA, Vice President & Portfolio Manager.
4
<PAGE>
Sentinel Emerging Growth Fund seeks maximum long-term growth of capital
through primary investments in a diversified portfolio of
common stocks issued by small and medium-sized companies.
Sentinel Emerging Growth Fund
We like to see strong net operating cash flows, and we like to know that a
company has adequate financial resources to support anticipated growth.
Importantly, we want to invest in companies with credible and properly motivated
management.
This past fiscal year was a relatively good one for the Sentinel Emerging Growth
Fund. We are pleased to report that your Fund outperformed both the Russell 2000
Index (a proxy for small company stocks) and most small company mutual funds.
For the twelve month period ended November 30, 1996, Sentinel Emerging Growth
Fund A Shares returned 22% as compared to 16.5% for the Russell 2000 and 19.8%
for the average Lipper small company fund. This performance placed the Fund in
the top third of similar funds for this same period.
Some notable positive events this year with respect to the Fund's holdings
included USA Waste's acquisition of Western Waste, Conseco's acquisition of
American Travellers, and Halliburton's acquisition of Landmark Graphics. The
Fund's exposure to the energy services industry via Smith International, test
equipment for communication systems via Dynatech, fiber optic and network
connection systems via Methode Electronics, and the growing demand for security
services via ADT, Ltd. also contributed to this year's favorable results. The
Fund benefited from its exposure to affluent baby boomers, and its investment in
Ethan Allen Interiors was particularly rewarding.
Looking forward to 1997, we continue to envisage relatively strong prices for
oil and gas. Accordingly, we still favor the energy services industry. We are
also quite optimistic about prospects for various health care sectors, such as
drug delivery systems. We believe that our preference for shares of small
companies that have developed, or are developing, strong brand names and
attractive franchises will prove to be a successful investment strategy.
To help shareholders better assess the Fund's outlook, we thought it might be
helpful to highlight some additional aspects of the management team's investment
approach. Our investment process begins with the identification of broad,
potentially rewarding trends or themes. Subsequently, we seek out those
companies that appear to be well-positioned to exploit these trends. We look for
companies whose futures appear to be more promising than the market
<TABLE>
<CAPTION>
================================================================================
Sentinel Emerging Growth Fund Performance
3/1/93 inception through 11/30/96
- ----------------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 15.9% 22.0%
- ----------------------------------------
Since
Inception* 9.5% 11.0%
- ----------------------------------------
*3/1/93
+Sales charge applicable to year of initial investment.
</TABLE>
[LINE GRAPH APPEARS HERE]
Emerging Growth Fund
<TABLE>
<CAPTION>
Emerging Growth Fund Lipper's Small Co. Russell 2000
with/load Growth Fund Ave. Index
--------- ---------------- -----
<C> <S> <C> <C> <C>
0 3/1/93 9,500 10,000 10,000
1 11/30/93 10,056 11,244 11,384
2 11/30/94 10,259 11,265 11,257
3 11/30/95 11,505 14,790 14,465
4 11/30/96 14,036 17,713 16,854
</TABLE>
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in expenses paid with respect to
each class of shares.
Chart Ending Values
& Legend
3/1/93 inception
through 11/30/96
_____ Sentinel $14,036
Emerging
Growth Fund
- - - - Russell 2000 $16,854
Index*
- -- .. Lipper Small $17,713
Company
Growth Fund
Average
*An unmanaged stock index of small capitalization companies which includes the
reinvestment of all income.
5
<PAGE>
currently believes. Those companies that are so identified are subject to the
traditional fundamental analysis that is the hallmark of Sentinel Advisors. In
addition to an assessment of long-term growth prospects, our analysis is focused
on valuation, quality of earnings, and financial strength. We like to see strong
net operating cash flows, and we like to know that a company has adequate
financial resources to support anticipated growth. Importantly, we want to
invest in companies with credible and properly motivated management. This often
means that the key operators of the business have a significant ownership stake
in the company.
Admittedly, our approach is not original. It is also rather simplistic and a bit
old-fashioned when compared to the growth-at-any-price and momentum-oriented
investment approaches that some funds have used in recent years. Yet, history
suggests that an approach such as ours will serve investors well over the long-
term. Accordingly, we are confident that the results of our efforts will
continue to be worthy of your confidence.
/s/ Keniston P. Merrill
Keniston P. Merrill
/s/ Richard A. Pender
Richard A. Pender, CFA
/s/ Scott T. Brayman
Scott T. Brayman, CFA
6
<PAGE>
Sentinel Emerging Growth Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 83.6%
Auto Parts & Repair 2.0%
Pep Boys -
Manny, Moe & Jack 56,000 $2,051,000
------------
Beverages 1.2%
* Robert Mondavi 'A' 33,000 1,204,500
------------
Communications 3.3%
* Dynatech Corp. 41,000 1,916,750
* Verifone Inc. 43,800 1,478,250
------------
3,395,000
------------
Drug - Drug Delivery 2.6%
* Scherer (R.P.) 56,600 2,589,450
------------
Electronics 4.1%
Harman Int'l Industries 35,150 1,792,650
Methode Electronics 'A' 121,600 2,340,800
------------
4,133,450
------------
Energy 3.7%
* CalEnergy Inc. 125,000 3,734,375
------------
Environmental Control 8.6%
Calgon Carbon 190,000 2,208,750
Donaldson Co. 70,000 2,135,000
* USA Waste Service 75,900 2,447,775
* Waste Management Int'l. plc 218,000 1,962,000
------------
8,753,525
------------
Financial 7.5%
Duff & Phelps Credit Rating 42,700 987,438
First Commerce 20,000 787,500
Mercantile Bankshares 36,000 1,188,000
ROC Communities 89,300 2,210,175
Wilmington Trust Corp. 59,900 2,440,925
------------
7,614,038
------------
Food & Food Distributors 6.9%
GoodMark Foods 87,800 1,498,088
Hannaford Brothers 50,100 1,615,725
Smart & Final Inc. 82,500 1,784,062
Tootsie Roll Industries 54,337 2,085,182
------------
6,983,057
------------
Healthcare Providers 1.8%
* Genesis Health Ventures 64,950 1,810,481
------------
Industrial & Commercial Services 5.2%
Analysts Int'l. 50,000 1,350,000
* Healthcare Services Group 172,000 1,666,250
Kelly Services 'A' 52,100 1,367,625
Olsten Corp. 62,500 851,562
------------
5,235,437
------------
Industrial - Diversified 6.6%
* Bush Boake Allen 102,000 $ 2,601,000
Lawter Int'l. 165,000 1,980,000
* Material Sciences 125,200 2,081,450
------------
6,662,450
------------
Insurance 3.5%
* American Travellers 99,750 3,522,422
------------
Medical - Equipment & Supplies 8.0%
Allergan, Inc. 65,400 2,100,975
Ballard Medical Products 55,000 1,031,250
Hillenbrand Industries 59,000 2,175,625
Minntech Corp. 88,400 972,400
* Research Medical 75,000 1,546,875
* Respironics Inc. 18,700 275,825
------------
8,102,950
------------
Oil Field Equipment & Services 7.2%
Halliburton Co. 45,920 2,766,680
* Smith International 110,100 4,500,338
------------
7,267,018
------------
Restaurants 1.8%
Sbarro, Inc. 70,200 1,833,975
------------
Retail 4.5%
Ethan Allen Interiors 75,000 2,493,750
Talbots Inc. 72,700 2,099,213
------------
4,592,963
------------
Security Services 2.6%
* ADT Ltd. 129,500 2,654,750
------------
Software 2.5%
* FileNet Corp. 40,000 1,440,000
Sterling Commerce 35,000 1,102,500
------------
2,542,500
------------
Total Common Stocks
(Cost $64,752,142) 84,683,341
------------
Preferred Stock 0.2%
Phoenix Duff & Phelps Cl A
(Cost $403,571) 10,000 251,250
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Corporate Short-Term Notes 15.6%
Assoc. Corp. of NA 5.26%,
12/05/96 3500M $ 3,497,954
Beneficial Corp. 5.26%,
12/23/96 3500M 3,488,750
Commercial Credit Corp. 5.26%,
12/02/96 1500M 1,499,781
G.E. Capital Corp. 5.25%,
12/18/96 2300M 2,294,298
IBM Credit Corp. 5.26%,
12/13/96 3000M 2,994,740
Norwest Financial, Inc. 5.25%,
12/10/96 2000M 1,997,375
------------
Total Corporate Short-Term Notes
(Cost $15,772,898) 15,772,898
------------
Total Investments
(Cost $80,928,611)** 100,707,489
Excess of Other Assets
Over Liabilities 0.6% 628,246
------------
Net Assets $101,335,735
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** Also cost for federal income tax purposes.
At November 30, 1996, net unrealized appreciation for federal income tax
purposes aggregated $19,778,878 of which $22,201,118 related to appreciated
securities and $2,422,240 related to depreciated securities.
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
Sentinel Emerging Growth Fund
Statement of Assets and Liabilities
at November 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Assets
Investments at value $100,707,489
Cash and cash equivalents 697,976
Receivable for fund shares sold 90,595
Receivable for dividends and interest 63,372
---------------
Total Assets 101,559,432
---------------
Liabilities
Payable for fund shares repurchased 40,812
Accrued expenses 47,275
Management fee payable 51,837
Distribution fee payable (Class A Shares) 54,246
Distribution fee payable (Class B Shares) 1,513
Fund service fee payable 28,014
---------------
Total Liabilities 223,697
---------------
Net Assets Applicable to Outstanding Shares $101,335,735
===============
Net Asset Value and Offering Price per Share
Class A Shares
$99,392,706 / 19,207,900 shares outstanding $ 5.17
Sales Charge -- 5.00% of offering price 0.27
---------------
Maximum Offering Price $ 5.44
===============
Class B Shares
$1,943,029 / 379,304 shares outstanding $ 5.12
===============
Net Assets Represent
Capital stock at par value $ 195,872
Paid-in capital 80,562,087
Accumulated undistributed net investment income 26,447
Accumulated undistributed net realized gain
on investments 772,451
Unrealized appreciation of investments 19,778,878
---------------
Net Assets $101,335,735
===============
Investments at Cost $ 80,928,611
===============
</TABLE>
<TABLE>
<CAPTION>
Sentinel Emerging Growth Fund
Statement of Operations
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Investment Income
Income:
Dividends $ 701,340
Interest 909,012
---------------
Total Income 1,610,352
Expenses:
Management advisory fee 599,236
Transfer agent and custodian 410,925
Distribution expense (Class A Shares) 278,965
Distribution expense (Class B Shares) 6,630
Accounting services 39,110
Professional fees 15,725
Reports and notices to shareholders 27,258
Directors' fees and expenses 10,720
Other 34,738
---------------
Total Expenses 1,423,307
Expense Offset (29,645)
---------------
Net Expenses 1,393,662
---------------
Net Investment Income 216,690
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 772,415
Net change in unrealized appreciation 17,429,645
---------------
Net Realized and Unrealized Gain on Investments 18,202,060
Net Increase in Net Assets from Operations $18,418,750
===============
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Sentinel Emerging Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
------------ ------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 216,690 $ 247,950
Net realized gain on sales of investments 772,415 16,243,662
Net change in unrealized appreciation 17,429,645 (5,901,668)
------------ ------------
Net increase in net assets from operations 18,418,750 10,589,944
------------ ------------
Distributions to Shareholders
From net investment income
Class A Shares (438,193) -
Class B Shares - -
From realized gain on investments
Class A Shares (16,243,656) (14,411,597)
Class B Shares - -
------------ ------------
Total distributions to shareholders (16,681,849) (14,411,597)
------------ ------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 14,896,129 13,979,568
Class B Shares 1,943,806 -
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 15,171,070 13,135,828
Class B Shares - -
------------ ------------
32,011,005 27,115,396
Less: Payments for shares reacquired
Class A Shares (21,663,864) (22,392,181)
Class B Shares (69,477) -
------------ ------------
Increase in net assets from capital share
transactions 10,277,664 4,723,215
------------ ------------
Total Increase in Net Assets for period 12,014,565 901,562
Net Assets: Beginning of period 89,321,170 88,419,608
------------ ------------
Net Assets: End of period $101,335,735 $ 89,321,170
============ ============
Undistributed Net Investment Income
at End of Period $ 26,447 $ 247,950
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Sentinel Emerging Growth Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine
Year Ended Year Ended Year Ended Months Ended
Class A Shares 11/30/96 11/30/95 11/30/94 11/30/93(A)
<S> <C> <C> <C> <C>
---------- ---------- ---------- ------------
Net asset value at beginning of period $ 5.20 $ 5.53 $ 6.87 $ 6.49
Income from Investment Operations
Net investment income (loss) 0.01 0.02 (0.04) (0.06)
Net realized and unrealized gain on investments 0.95 0.56 0.18 0.44
---------- ---------- ---------- ------------
Total from investment operations 0.96 0.58 0.14 0.38
---------- ---------- ---------- ------------
Less Distributions
Dividends from net investment income 0.03 - - -
Distributions from realized gains on investments 0.96 0.91 1.48 -
---------- ---------- ---------- ------------
Total Distributions 0.99 0.91 1.48 -
---------- ---------- ---------- ------------
Net asset value at end of period $ 5.17 $ 5.20 $ 5.53 $ 6.87
========== ========== ========== ============
Total Return (%) * 22.0 12.2 2.0 5.9++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.47 1.56 1.58 1.52 +
Ratio of expenses to average net assets before
expense reductions (%) ** 1.51 1.60 1.58 1.52 +
Ratio of net investment income to average net assets (%) 0.23 0.26 (0.74) (1.01)+
Portfolio turnover rate (%) 60 79 46 61
Average commission rate paid per share $ .0600 N/A N/A N/A
Net assets at end of period (000 omitted) $ 99,393 $ 89,321 $ 88,420 $105,176
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months
Class B Shares Ended 11/30/96(B)
-----------------
<S> <C>
Net asset value at beginning of period $ 4.82
-----------------
Income from Investment Operations
Net investment loss (0.03)
Net realized and unrealized gain on investments 0.33
-----------------
Total from investment operations 0.30
-----------------
Less Distributions
Dividends from net investment income -
Distributions from realized gains on investments -
-----------------
Total Distributions -
-----------------
Net asset value at end of period $ 5.12
=================
Total Return (%) * 6.2 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.62 +
Ratio of expenses to average net assets before
expense reductions (%) ** 2.64 +
Ratio of net investment income to average net assets (%) (0.91)+
Portfolio turnover rate (%) 60
Average commission rate paid per share $.0600
Net assets at end of period (000 omitted) $1,943
</TABLE>
(A) Commenced operations March 1, 1993.
(B) Commenced operations April 1, 1996.
+ Annualized
++ Not 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 return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earnings credits as described in Notes (2)
and (1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
10
<PAGE>
Sentinel Growth Fund seeks long-term growth of capital through intensively
managed
primary investments in companies with seasoned, yet aggressive managements.
Sentinel Growth Fund
The Sentinel Growth Fund has undergone a significant restructuring over the last
three years. That restructuring has emphasized taking major positions in market
leaders capable of earning high returns on capital in growth industries such as
biotechnology, energy services, pollution control and semiconductors.
The Sentinel Growth Fund earned a total return of 22.6% during the fiscal year
ended November 30, 1996, while the S&P 500 produced a 27.9% return and the
average fund in the Lipper Growth Fund universe earned a 21.1% return. Large
capitalization stocks, which dominate the return on the S&P 500, outperformed
medium and small cap stocks by a wide margin during the year. The strong
performance of large cap stocks accelerated following the minor market
correction that occurred in July. From that point through the end of November,
investors favored large cap stocks as they sought out investments offering a
high degree of liquidity and earnings predictability. The Sentinel Growth Fund,
which is comprised mainly of medium-size stocks, benefited from the strong
second-half surge in selected large cap holdings such as Intel, Microsoft,
Schlumberger, Pfizer, and First Union Corporation.
Financial, retail, energy service, and technology stocks were among the
strongest performing sectors for the year. The Fund benefited from good stock
selection and participation in all four sectors . . . though our financial
sector weighting was modest. Overweighted positions in the consumer and
healthcare sectors hindered performance as a small number of companies in those
sectors reported disappointing earnings growth, which penalized investors
severely.
The Sentinel Growth Fund has undergone a significant restructuring over the last
three years. That restructuring has emphasized taking major positions in market
leaders capable of earning high returns on capital in growth industries such as
biotechnology, energy services, pollution control and semiconductors. We are
gratified that the results for the latest fiscal year show the Fund
outperforming the average portfolio in the Lipper universe of growth funds.
While the overall stock market can no longer be described as inexpensive, an
environment of slow economic growth and low interest rates is generally positive
for growth stocks. Slow growth favors companies that are able to deliver
predictable earnings growth, and low interest rates limit the risk of a decline
in price-earnings ratios. The Fund is well-positioned for such an environment
with a significant weighting in
<TABLE>
<CAPTION>
- ------------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 16.5% 22.6%
- ------------------------------------
5 Years 10.4% 11.5%
- ------------------------------------
10 Years 9.5% 10.1%
- ------------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Growth Fund Performance
Ten Years Ended 11/30/96
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth Fund
Growth Fund Lipper's Growth S&P
with/load Fund Avg. 500
--------- --------- ---
<S> <C> <C> <C>
0 Nov.'86 9,500 10,000 10,000
1 Nov.'87 8,888 9,306 9,531
2 Nov.'88 9,928 11,295 11,746
3 Nov.'89 12,682 14,565 15,364
4 Nov.'90 12,509 13,601 14,832
5 Nov.'91 14,410 17,276 17,845
6 Nov.'92 17,359 20,769 21,135
7 Nov.'93 17,130 22,386 23,264
8 Nov.'94 16,249 22,337 23,514
9 Nov.'95 20,290 30,076 32,194
10 Nov.'96 24,876 36,419 41,162
</TABLE>
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
Chart Ending Values
& Legend
Ten Years ended 11/30/96
- --------Sentinel $24,876
Growth
Fund
- - - - - Standard & $41,162
Poor's 500
Stock Index*
- --- - - Lipper $36,419
Growth
Fund Average
*An unmanaged index of stocks reflecting average prices in the stock market.
11
<PAGE>
market leading companies that we believe will deliver predictable, above-average
growth. Risk is limited by the Fund's broad diversification across all major
sectors and an aggregate price/earnings multiple that is close to that of the
overall market.
We appreciate your continued support and look forward to helping you achieve
your goal of long-term capital appreciation.
/s/ Robert L. Lee
Robert L. Lee, CFA
12
<PAGE>
Sentinel Growth Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Shares Value
(Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 98.3%
Auto Parts & Repair - 2.0%
Pep Boys -
Manny Moe & Jack 37,500 $ 1,373,438
-----------
Banks - 1.6%
First Union Corp 15,000 1,145,625
-----------
Biotechnology - 4.4%
* Amgen Inc 26,000 1,582,750
* Biogen Inc 14,600 558,450
* Centocor Inc 10,100 279,012
* Chiron Corp 17,600 341,000
Genzyme Corp 14,000 318,500
-----------
3,079,712
-----------
Building Materials - 2.4%
Sherwin Williams 30,000 1,702,500
-----------
Computers - 1.1%
Hewlett Packard 14,000 754,250
-----------
Business Services - 7.0%
Electronic Data Systems 30,000 1,451,250
First Data Corp 24,000 957,000
Omnicom Group 48,000 2,448,000
-----------
4,856,250
-----------
Consumer Services - 1.0%
Hillenbrand Industries 16,900 623,187
-----------
Drugs - 5.8%
American Home Products 21,100 1,355,675
Pfizer Inc 14,500 1,299,563
Schering Plough Corp 20,000 1,425,000
-----------
4,080,238
-----------
Electronics - 1.8%
Methode Electronics 25,000 481,250
Motorola 14,000 775,250
-----------
1,256,500
-----------
Energy - 1.9%
Enron Corp 15,000 686,250
Union Pacific Resources 21,986 656,832
-----------
1,343,082
-----------
Environmental Control - 3.4%
Donaldson Co 55,000 1,677,500
* US Filter Corp 20,900 715,825
-----------
2,393,325
-----------
Financial - 5.6%
American Express Co 26,800 1,400,300
Student Loan Marketing 26,000 2,499,250
-----------
3,899,550
-----------
Restaurants - 1.0%
* Outback Steakhouse 25,000 721,875
-----------
Healthcare Providers - 8.2%
Columbia/HCA Healthcare 31,500 1,260,000
Integrated Health Services 51,000 1,122,000
* Medpartners Inc 87,600 1,992,900
* Renal Treatment Centers 15,000 390,000
United Healthcare Corp 23,000 991,875
-----------
5,756,775
-----------
Industrial - Diversified - 2.4%
Crown Cork & Seal 14,000 $ 742,000
Grace (W.R.) 18,000 951,750
-----------
1,693,750
-----------
Insurance - 1.2%
Equitable of Iowa 19,000 850,250
-----------
Medical - Equipment & Supplies - 3.5%
Dentsply International 30,000 1,395,000
Johnson & Johnson 20,000 1,062,500
-----------
2,457,500
-----------
Oil Field Equipment - 6.6%
Halliburton Co 12,300 741,075
Schlumberger Ltd 19,000 1,976,000
Smith International 46,600 1,904,775
-----------
4,621,850
-----------
Retail - 14.2%
Ethan Allen Interiors 65,000 2,161,250
Home Depot Inc 35,500 1,850,437
Nordstrom Inc 17,000 739,500
Sears Roebuck 25,000 1,243,750
* Staples Inc 48,000 948,000
TJX Companies 65,000 2,933,125
-----------
9,876,062
-----------
Semiconductors &
Semiconductor Equipment - 11.1%
* Applied Materials Inc 53,000 2,020,625
Intel 23,100 2,930,813
* KLA Instruments 22,000 781,000
* LAM Research Corp 18,000 645,750
* Novellus Systems Inc 10,800 621,000
* Tencor Instruments 27,000 718,875
-----------
7,718,063
-----------
Software - 4.1%
* Microsoft Corp 18,000 2,823,750
-----------
Telecommunications - 4.7%
* Airtouch Communications 25,000 640,625
* Worldcom Inc 115,000 2,659,375
-----------
3,300,000
-----------
Tobacco - 3.3%
Philip Morris 22,000 2,268,750
-----------
<CAPTION>
- ----------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
Total Common Stocks
(Cost $55,434,202) 68,596,282
-----------
Corporate Short-Term Notes 1.3%
Prudential Funding Corp. 5.23%,
12/02/96
(Cost $949,862) 950M $ 949,862
-----------
Total Investments
(Cost $56,384,064)** 69,546,144
Excess of Other Assets
Over Liabilities 0.4% 270,137
-----------
Net Assets $69,816,281
===========
</TABLE>
- ------------------------------------------------------
* Non-income producing.
** Also cost for federal income tax purposes. At November 30, 1996, net
unrealized appreciation for federal income tax purposes aggregated
$13,162,080 of which $14,170,094 related to appreciated securities and
$1,008,014 related to depreciated securities.
See Notes to Financial Statements.
13
<PAGE>
Sentinel Growth Fund
Statement of Assets and Liabilities
at November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $69,546,144
Cash and cash equivalents 347,040
Receivable for fund shares sold 3,044
Receivable for dividends 59,851
Total Assets 69,956,079
Liabilities
Payable for fund shares repurchased 4,335
Accrued expenses 49,712
Management fee payable 35,146
Distribution fee payable 34,317
Fund service fee payable 16,288
-----------
Total Liabilities 139,798
===========
Net Assets Applicable to Outstanding Shares $69,816,281
===========
Net Asset Value and Offering Price Per Share
$69,816,281 / 3,974,158 shares outstanding $17.57
Sales Charge--5.00% of Offering Price 0.92
-----------
Maximum Offering Price Per Share $18.49
===========
Net Assets Represent
Capital stock at par value $ 39,742
Paid-in capital 45,441,055
Accumulated undistributed net investment income 21,641
Accumulated undistributed net realized gain
on investments 11,151,763
Unrealized appreciation of investments 13,162,080
-----------
Net Assets $69,816,281
===========
Investments at Cost $56,384,064
===========
</TABLE>
<TABLE>
<CAPTION>
Sentinel Growth Fund
Statement of Operations
For the Year Ended November 30, 1996
- --------------------------------------------------------------
<S> <C>
Investment Income
Income:
Dividends $ 877,768
Interest 109,819
-----------
Total Income 987,587
===========
Expenses:
Management advisory fee 404,738
Transfer agent and custodian 235,646
Distribution expense 189,755
Accounting services 26,425
Professional fees 11,350
Reports and notices to shareholders 13,678
Directors' fees and expenses 7,242
Other 21,212
Total Expenses 910,046
Expense Offset (20,536)
-----------
Net Expenses 889,510
-----------
Net Investment Income 98,077
-----------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 11,151,783
Net change in unrealized appreciation 1,875,022
-----------
Net Realized and Unrealized Gain on Investments 13,026,805
-----------
Net Increase in Net Assets from Operations $13,124,882
===========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
Sentinel Growth Fund
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/96 11/30/95
----------- -----------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 98,077 $ 228,927
Net realized gain on sales of investments 11,151,783 9,038,335
Net change in unrealized appreciation 1,875,022 2,732,693
----------- -----------
Net increase in net assets from operations 13,124,882 11,999,955
----------- -----------
Distributions to Shareholders
From net investment income (258,814) (139,887)
From net realized gain on investments (9,038,321) (7,982,066)
----------- -----------
Total distributions to shareholders (9,297,135) (8,121,953)
----------- -----------
From Capital Share Transactions
Net proceeds from sales of shares 6,445,280 5,940,101
Net asset value of shares in reinvestment
of dividends and distributions 8,450,217 7,247,471
----------- -----------
14,895,497 13,187,572
Less: Payments for shares reacquired (9,353,332) (7,065,780)
----------- -----------
Increase in net assets from capital share
transactions 5,542,165 6,121,792
----------- -----------
Total Increase in Net Assets for period 9,369,912 9,999,794
Net Assets: Beginning of period 60,446,369 50,446,575
----------- -----------
Net Assets: End of period $69,816,281 $60,446,369
=========== ===========
Undistributed Net Investment Income
at End of Period $ 21,641 $ 182,378
=========== ===========
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Sentinel Growth Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
11/30/96 11/30/95 11/30/94 11/30/93 11/30/92
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 16.93 $ 16.15 $ 17.51 $ 18.56 $ 15.99
---------- ---------- ---------- ---------- ----------
Income from Investment
Operations
Net investment income 0.03 0.07 0.05 0.04 0.11
Net realized and
unrealized gain (loss)
on investments 3.23 3.33 (0.92) (0.28) 3.07
---------- ---------- ---------- ---------- ----------
Total from investment
operations 3.26 3.40 (0.87) (0.24) 3.18
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends from net
investment income 0.07 0.05 0.03 0.04 0.16
Distributions from
realized gains on
investments 2.55 2.57 0.46 0.77 0.45
---------- ---------- ---------- ---------- ----------
Total Distributions 2.62 2.62 0.49 0.81 0.61
---------- ---------- ---------- ---------- ----------
Net asset value at end of
period $ 17.57 $ 16.93 $ 16.15 $ 17.51 $ 18.56
========== ========== ========== ========== ==========
Total Return (%) * 22.6 24.9 (5.1) (1.3) 20.5
Ratios/Supplemental Data
Ratio of net expenses to
average net assets (%) 1.40 1.50 1.43 1.31 1.05
Ratio of expenses to
average net assets before
expense reductions (%) ** 1.43 1.54 1.43 1.31 1.05
Ratio of net investment
income to average net
assets (%) 0.16 0.42 0.30 0.22 0.63
Portfolio turnover rate (%) 98 84 58 12 28
Average commission rate
paid per share $ .0600 N/A N/A N/A N/A
Net assets at end of
period (000 omitted) $ 69,816 $ 60,446 $ 50,447 $ 57,833 $63,664
</TABLE>
* 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 return.
** Expense reductions are comprised of the voluntary expense reimbursements and
include, effective 1995, the earning credits as described in Notes (2) and
(1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
16
<PAGE>
Sentinel 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 World Fund
Regionally, we still find the greatest preponderance of attractive investments
to be in Europe, where managements have become increasingly focused on
delivering shareholder value.
During the twelve months ended November 30, 1996, the Sentinel World Fund
provided a return of 15.5%, exceeding the 12.1% generated by the Europe,
Australia, and Far East (EAFE) Index as well as the 14.5% gain for the average
international equity fund in the Lipper universe. Relative performance was aided
by favorable stock selection in addition to the fund's underweighting in Japan,
a poor performing market in the period.
Global equity markets were boosted once again by strong performance from U.S.
stocks, which rose by 28% due to contained inflation, moderate economic growth,
and large inflows to mutual funds. Although Europe and the smaller markets in
the Pacific Rim were generally able to keep pace, Japanese stocks produced an
unsatisfactory decline of 4% for the period owing to continued fragility in
Tokyo's financial system and a 10% slide in the value of the yen.
The fund's heavy representation in European financial and stable growth-oriented
companies was helpful to performance given the declining interest-rate
environment and stagnant economic growth that prevailed in Europe during most of
1996. Also contributing to results was a healthy allocation to the continent's
smaller markets, which generally fared best, as well as the overweight in the
region as a whole.
In the Far East, the World Fund was well positioned in many of Japan's leading
export companies, such as Toyota, Fuji Photo Film, Canon, and TDK, which
delivered above-average performance given their high sensitivity to the weakness
in the yen. In Southeast Asia, however, our posturing was generally too
conservative, both in terms of the types of companies held, and the weighting in
Hong Kong, which recorded the largest gain of any country in the EAFE index.
Looking to 1997, a much more mundane global market climate can be envisioned,
with perhaps an increased level of volatility following such unusually high
rates of return of the past two years. Regionally, we still find the greatest
preponderance of attractive investments to be in Europe, where managements have
become increasingly focused on delivering shareholder value. We remain
comfortable with the fund's defensive positioning, and as always, will continue
to be broadly diversified in high quality companies that are attractively valued
on a global basis.
/s/ Erik B. Granade
Erik B. Granade, CFA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sentinel World Fund Performance
3/1/93 inception through 11/30/96
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 9.7% 15.5%
- --------------------------------------
Since
Inception* 13.8% 15.3%
- --------------------------------------
</TABLE>
*3/1/93
+Sales charge applicable to year of initial investment.
<TABLE>
<CAPTION>
World Fund
World Fund Lipper's Int'l. EAFE
with/load Fund Avg. Index
------- ---------- --------------- ------
<C> <S> <C> <C> <C>
0 3/01/93 9,500 10,000 10,000
1 11/30/93 11,786 12,211 12,027
2 11/30/94 12,746 13,221 13,837
3 11/30/95 14,050 14,198 14,930
4 11/30/96 16,226 16,259 16,736
</TABLE>
[LINE GRAPH APPEARS HERE]
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in expenses paid with respect to
each class of shares.
Chart Ending Values
& Legend
3/1/93 inception
through 11/30/96
____Sentinel $16,226
World
Fund
- --- Morgan $16,736
Stanley's Capital
International "EAFE"
(Europe, Australia,
Far East) Index*
__..Lipper $16,259
International
Fund Average
* An unmanaged index of 1,114
companies representing the stock
markets of Europe, Australia,
New Zealand and the Far East.
17
<PAGE>
Sentinel World Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Shares Value
(Note 1)
- -----------------------------------------------------------------
<S> <C> <C>
Common Stocks 93.9%
Argentina 1.3%
YPF S. A. (ADR) 40,000 $ 930,000
Australia 4.7% -----------
CRA Ltd. 64,625 1,082,303
National Australia 126,880 1,585,139
Qantas Airways 165,000 257,336
Westpac Bank Corp Ord. 96,008 576,206
-----------
3,500,984
-----------
Denmark 2.6%
Novo Nordisk (ADR) 25,000 1,153,125
Tele Danmark (ADR) 30,000 750,000
-----------
1,903,125
-----------
Finland 2.9%
Cultor 15,400 734,398
Nokia Corp. (ADR) 25,000 1,403,125
-----------
2,137,523
-----------
France 4.9%
Alcatel Alsthom (ADR) 40,005 740,093
Elf Aquitaine (ADR) 28,785 1,262,942
Guyenne et Gascogne 1,940 708,557
Societe Generale 8,850 966,316
-----------
3,677,908
-----------
Germany 4.8%
Bayer A.G. Ord. 25,000 1,003,573
Bayerische Motoren Werke 1,300 837,675
Siemens A.G. 13,000 626,567
Veba A.G. 19,000 1,111,367
-----------
3,579,182
-----------
Hong Kong 2.3%
China Light & Power Co. 210,000 901,707
HSBC Holdings 40,890 851,434
-----------
1,753,141
-----------
Italy 1.5%
Istituto Mobiliare
Italia (ADR) 44,000 1,144,000
-----------
Japan 23.3%
Canon 50,000 1,054,019
Dai Nippon Printing Co 55,000 1,004,831
Dai Tokyo Fire & Marine 110,000 666,667
Daiichi Corp. 37,000 786,473
Daiichi Pharmaceuticals 57,000 891,173
Fuji Photo Film 31,000 972,069
Hitachi Koki Co. Ord. 105,000 874,308
Ito-Yokado 14,000 707,071
Kirin Beverage 50,000 671,937
Kyocera Corp. 18,000 1,157,312
Mitsubishi Heavy Industry 120,000 980,237
Murata Manufacturing 33,000 1,127,536
Nomura Securities 40,000 674,572
Sankyo Co LTD 40,000 1,071,585
Sekisui House 90,000 964,427
TDK Corp. 16,000 1,031,532
Teijin 180,000 858,498
Toshiba Corp. 115,000 740,404
Toyota Motors Corp. Ord. 42,000 1,147,299
-----------
17,381,950
-----------
Malaysia 0.5%
Malaysian Int'l. Shipping 120,000 379,897
-----------
<CAPTION>
- -----------------------------------------------------------------
Shares Value
(Note 1)
- -----------------------------------------------------------------
<S> <C> <C>
Mexico 1.1%
Telefonos de Mexico (ADR) 27,500 $ 835,313
-----------
Netherlands 10.1%
ABN Amro Bank 21,219 1,372,734
Akzo Nobel N.V. 8,400 1,113,611
Elsevier 60,000 1,021,661
Hollandsche Benton
Groep N.V. 3,900 738,619
ING Groep N.V. 27,290 954,660
Koninklijke Pt. 20,872 780,917
Unilever N V (ADR) 9,000 1,558,125
-----------
7,540,327
-----------
Norway 1.2%
Norsk Hydro (ADR) 18,000 904,500
-----------
Singapore 3.3%
Jardine Matheson 141,232 932,131
Malaysian Int'l. Shipping 126,666 370,289
Singapore Int'l. Airlines 125,000 1,176,471
-----------
2,478,891
-----------
South Korea 0.5%
Pohang Iron & Steel Co. 6,740 337,427
-----------
Spain 6.1%
Banco Popular 5,500 1,065,612
Banco Santander 18,000 975,376
Repsol (ADR) 42,500 1,556,563
Telefonica de
Espana S.A. (ADR) 15,000 990,000
-----------
4,587,551
-----------
Sweden 4.2%
Aga B Free 60,000 914,355
Astra AB B Free 30,000 1,407,215
Volvo AB B 37,500 822,362
-----------
3,143,932
-----------
Switzerland 4.2%
Ciba Geigy Registered 725 894,740
Globus PC 1,350 636,266
Nestle A.G. Registered 875 947,303
Sandoz Registered 575 666,947
-----------
3,145,256
-----------
United Kingdom 14.4%
Albright & Wilson 300,000 913,055
Allied Irish Bank 192,815 1,272,557
Assoc. Brit. Food 140,000 1,039,335
Boots Co. plc 90,000 960,977
Glaxo Hldg plc (ADR) 37,500 1,232,813
Guinness plc 120,000 897,921
Johnson Matthey plc 100,000 914,736
National Westminster
Bank plc 76,342 883,821
Severn Trent Water plc 108,669 1,195,034
Tesco plc 247,847 1,419,050
-----------
10,729,299
-----------
Total Common Stocks
(Cost $58,896,675) 70,090,206
-----------
Preferred Stock 1.4%
Germany
RWE A.G.
(Cost $643,623) 27,660 1,012,972
-----------
<CAPTION>
- -----------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- -----------------------------------------------------------------
Corporate Short-Term Notes 2.3%
Beneficial Corp. 5.27%,
12/05/96 800M $ 799,532
Prudential Funding 5.18%,
12/02/96 900M 899,870
-----------
Total Corporate Short Term Notes
(Cost $1,699,402) 1,699,402
-----------
Total Investments
(Cost $61,239,700)* 72,802,580
Excess of Other Assets
Over Liabilities 2.4% 1,842,665
-----------
Net Assets $74,645,245
===========
</TABLE>
- -----------------------------------------------------------------
Summary of Foreign Securities
by Industry Classification
<TABLE>
<CAPTION>
Percent of Value
Industry Net Assets (Note 1)
<S> <C> <C>
Airlines 1.9% $ 1,433,807
Appliances, Furnishings 1.0% 786,473
Automotive Mfg. & Related 3.8% 2,807,336
Banks 15.6% 11,647,855
Building, Construction 2.3% 1,703,046
Chemicals 7.6% 5,697,833
Consumer Discretionary 1.4% 1,021,661
Consumer Staples 1.4% 1,039,335
Diversified Industries 2.7% 2,059,667
Drugs 7.1% 5,269,733
Electrical Equipment 1.8% 1,366,971
Electronics 2.9% 2,188,844
Energy 1.5% 1,111,367
Financial Services 0.9% 674,572
Foods, Beverage 4.4% 3,251,559
Hospital Mgmt, Supply 1.5% 1,153,125
Household Staples 2.1% 1,558,125
Insurance 0.9% 666,667
Machinery 2.5% 1,854,545
Manufacturing & Process 1.3% 972,069
Non-Ferrous Metals 2.7% 1,997,039
Office Equipment 1.4% 1,054,019
Petroleum 6.2% 4,654,005
Printing, Publishing 1.3% 1,004,831
Retail Food 2.9% 2,127,607
Retail General 3.1% 2,304,314
Steel 0.5% 337,427
Telecommunications 2.9% 2,143,218
Trucking, Shipping 1.0% 750,186
Utilities - Electric 2.6% 1,914,679
Utilities - Telephone 4.5% 3,356,229
Utilities - Water 1.6% 1,195,034
---- -----------
95.3% $71,103,178
==== ===========
</TABLE>
* Also cost for federal income tax purposes. At November 30, 1996, net
unrealized appreciation for federal income tax purposes aggregated
$11,562,880 of which $13,761,125 related to appreciated securities and
$2,198,245 related to depreciated securities.
(ADR) - American Depository Receipt
See Notes to Financial Statements.
18
<PAGE>
Sentinel World Fund
Statement of Assets and Liabilities
at November 30, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $72,802,580
Cash and cash equivalents 507,284
Foreign currency (cost $2,051,995) 2,016,129
Receivable for fund shares sold 9,556
Receivable for dividends and interest 196,702
Total Assets 75,532,251
-----------
Liabilities
Payable for securities purchased 763,807
Payable for fund shares repurchased 220
Accrued expenses 35,411
Management fee payable 37,829
Distribution fee payable (Class A Shares) 34,638
Distribution fee payable (Class B Shares) 2,489
Fund service fee payable 12,612
Total Liabilities 887,006
-----------
Net Assets Applicable to Outstanding Shares $74,645,245
===========
Net Asset Value and Offering Price per Share
Class A Shares
$71,457,559 / 4,554,373 shares outstanding $ 15.69
Sales Charge -- 5.00% of offering price 0.83
-----------
Maximum Offering Price $ 16.52
===========
Class B Shares
$3,187,686 / 204,653 shares outstanding $ 15.58
===========
<CAPTION>
Net Assets Represent
<S> <C>
Capital stock at par value $ 47,590
Paid-in capital 61,427,566
Accumulated undistributed net investment income 512,082
Accumulated undistributed net realized gain
on investments 1,128,545
Unrealized appreciation of investments 11,529,462
-----------
Net Assets $74,645,245
Investments at Cost $61,239,700
===========
<CAPTION>
Sentinel World Fund
Statement of Operations
For the Year Ended November 30, 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Income:
Dividends $1,330,918 *
Interest 152,539
----------
Total Income 1,483,457
----------
Expenses:
Management advisory fee 397,852
Transfer agent and custodian 244,946
Distribution expense (Class A Shares) 183,351
Distribution expense (Class B Shares) 10,900
Accounting services 22,821
Professional fees 14,700
Reports and notices to shareholders 10,138
Directors' fees and expenses 7,197
Other 39,624
----------
Total Expenses 931,529
Expense Offset (29,561)
----------
Net Expenses 901,968
----------
Net Investment Income 581,489
----------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from:
Investments 1,160,321
Foreign currency transactions (73,682)
----------
Net realized gain 1,086,639
----------
Net change in unrealized appreciation during the period:
Investments 7,069,103
Foreign currency transactions (11,848)
----------
Net change in unrealized appreciation 7,057,255
----------
Net Realized and Unrealized Gain on Investments 8,143,894
----------
Net Increase in Net Assets from Operations $8,725,383
==========
</TABLE>
* Net of Foreign Tax Withholding of $183,535
See Notes to Financial Statements.
19
<PAGE>
Sentinel World Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
------------- ------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 581,489 $ 349,068
Net realized gain on sales of investments 1,086,639 355,098
Net change in unrealized appreciation 7,057,255 3,563,174
-------------- -------------
Net increase in net assets from operations 8,725,383 4,267,340
-------------- -------------
Distributions to Shareholders
From net investment income
Class A Shares (471,463) (286,485)
Class B Shares - -
From realized gain on investments
Class A Shares (228,430) (505,083)
Class B Shares - -
--------------- -------------
Total distributions to shareholders (699,893) (791,568)
--------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 27,277,778 15,888,398
Class B Shares 3,168,407 -
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 660,554 761,890
Class B Shares - -
--------------- -------------
31,106,739 16,650,288
Less: Payments for shares reacquired
Class A Shares (12,059,284) (14,394,477)
Class B Shares (129,688) -
---------------- -------------
Increase in net assets from capital share
transactions 18,917,767 2,255,811
--------------- --------------
Total Increase in Net Assets for period 26,943,257 5,731,583
Net Assets: Beginning of period 47,701,988 41,970,405
---------------- --------------
Net Assets: End of period $ 74,645,245 $ 47,701,988
================ ==============
Undistributed Net Investment Income
at End of Period $ 512,082 $ 475,738
================ ==============
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
Sentinel World Fund (A)
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
Nine
Year Year Year Months
Ended Ended Ended Ended
Class A Shares 11/30/96 11/30/95 11/30/94 11/30/93(B)
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 13.78 $ 12.74 $ 11.86 $ 9.56
--------- ------- -------- ----------
Income from Investment
Operations
Net investment income 0.12 0.14 0.08 0.02
Net realized and
unrealized gain on
investments 1.99 1.14 0.89 2.28
--------- ------- -------- ----------
Total from investment
operations 2.11 1.28 0.97 2.30
--------- ------- -------- ----------
Less Distributions
Dividends from net
investment income 0.13 0.09 0.03 -
Distributions from
realized gains on
investments 0.07 0.15 0.06 -
--------- ------- -------- ----------
Total Distributions 0.20 0.24 0.09 -
--------- ------- -------- ----------
Net asset value at end of
period $ 15.69 $ 13.78 $ 12.74 $ 11.86
========= ======= ======== ==========
Total Return (%) ** 15.5 10.2 8.2 24.1 ++
Ratios/Supplemental Data
Ratio of net expenses to
average net assets (%) 1.43 1.56 1.58 2.00 +
Ratio of expenses to
average net assets before
expense reductions (%)
*** 1.48 1.63 1.58 2.12 +
Ratio of net investment
income to average net
assets (%) 0.94 0.79 0.62 0.41 +*
Portfolio turnover rate (%) 14 32 30 66
Average commission rate
paid per share $ 0.0445 N/A N/A N/A
Net assets at end of
period (000 omitted) $ 71,458 $ 47,702 $ 41,970 $ 16,872
- --------------------------------------------------------------------------------
<CAPTION>
Eight Months
Class B Shares Ended 11/30/96(C)
<S> <C>
Net asset value at beginning of period $ 14.49
--------
Income from Investment Operations
Net investment loss (0.08)
Net realized and unrealized gain on investments 1.17
--------
Total from investment operations 1.09
--------
Less Distributions
Dividends from net investment income -
Distributions from realized gains on investments -
--------
Total Distributions -
--------
Net asset value at end of period $ 15.58
========
Total Return (%) ** 7.5 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.56 +
Ratio of expenses to average net assets before
expense reductions (%) *** 2.59 +
Ratio of net investment loss to average net assets (%) (0.19) +
Portfolio turnover rate (%) 14
Average commission rate paid per share $0.0455
Net assets at end of period (000 omitted) $ 3,188
</TABLE>
(A) As of April 1, 1996 INVESCO Capital Management, Inc. became the sub-
advisor to the Fund.
(B) Commenced operations March 1, 1993.
(C) Commenced operations April 1, 1996.
+ Annualized
++ Not Annualized
* Ratio of net investment income to average net assets would have been
.29% in 1993, in the absence of a voluntary expense reimbursement.
** 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 return.
*** Expense reductions are comprised of the voluntary expense
reimbursements and include, effective 1995, the earning credits as
described in Notes (2) and (1) H.
N/A Not Applicable to periods prior to 1996.
See Notes to Financial Statements.
21
<PAGE>
Sentinel Common Stock Fund seeks a combination of current income and long-term
growth of both capital and income through investments in the common stocks of
many well-established dividend paying companies.
Sentinel Common Stock Fund
For the second year in a row, one of the strongest sectors in the stock market
was the financial services group. The Sentinel Common Stock Fund again benefited
from this trend, with significant holdings in both banking and insurance
companies.
The Sentinel Common Stock Fund produced a total return of 27.2% for the fiscal
year ended November 30, 1996. This figure was slightly below the 27.9% return
for the Standard & Poor's 500, but well ahead of the 23.8% average return for
the universe of Lipper Growth & Income Funds.
While the stock market appreciated strongly during the year, the ride was far
from smooth. Vigorous economic growth early in the year propelled the market
higher, leading to some speculative excesses, particularly among the small
capitalization issues, in early spring. When economic activity began to show
signs of slowing, the market suffered a minor correction in July. Since that
time, however, with the consensus shifting back to a forecast of moderate
growth, restrained inflation and relatively low interest rates, the market again
rallied strongly, and ended November near its all-time high. Also contributing
to the year-end strength were the results of the national election, which again
produced a balanced government, with the Republicans controlling the United
States Congress, and the Democrats the White House.
For the second year in a row, one of the strongest sectors in the stock market
was the financial services group. The Sentinel Common Stock Fund again benefited
from this trend, with significant holdings in both banking and insurance
companies. Also very positively impacting performance of the Fund were
substantial holdings in consumer growth stocks (particularly pharmaceutical
companies) and our long-standing investments in the energy sector (especially
our holdings in oilfield service companies and diversified natural gas
companies). The weakest sector in the stock market has been the electrical and
telephone utilities. Although traditionally a strong source of dividend income
for the Sentinel Common Stock Fund, we have de-emphasized these groups in recent
years due to concerns about competitive pressures, retaining holdings in only a
very few, better positioned companies.
Looking forward, we anticipate that 1997 will bring a continuation of the trend
of modest economic growth and restrained inflation. We believe that, in such a
moderate growth, stable interest rate environment, the market will continue to
favor the stocks of companies with consistent earnings records. The Sentinel
Common Stock Fund continues to maintain sizable commitments to the financial,
energy, consumer products and healthcare areas, all of which should benefit in
the anticipated economic environment.
<TABLE>
<CAPTION>
- -------------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 20.8% 27.2%
- -------------------------------------
5 Years 14.9% 16.1%
- -------------------------------------
10 Years 12.5% 13.0%
- -------------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
Sentinel Common Stock Fund Performance
Ten Years Ended 11/30/96
[LINEGRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Common Stock Fund Common Stock Lipper's Growth & S&P
with/load Income Fund Avg. 500
<S> <C> <C> <C>
0 Nov.'86 9,500 10,000 10,000
1 Nov.'87 8,647 9,434 9,531
2 Nov.'88 10,357 11,429 11,746
3 Nov.'89 13,010 14,191 15,364
4 Nov.'90 12,699 13,362 14,832
5 Nov.'91 15,378 16,125 17,845
6 Nov.'92 17,946 19,291 21,135
7 Nov.'93 19,517 21,094 23,264
8 Nov.'94 19,163 21,159 23,514
9 Nov.'95 25,455 27,713 32,194
10 Nov.'96 32,369 34,306 41,162
</TABLE>
Chart Ending Values & Legend
Ten years ended 11/30/96
- ------- Sentinel Common Stock Fund $32,369
- - - - - Standard & Poor's 500 Stock Index* $41,162
- --- - - Lipper Growth & Income Fund Average $34,306
*An unmanaged index of stocks reflecting average prices in the stock market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in expenses paid with respect to
each class of shares.
22
<PAGE>
The recently concluded fiscal year was another strong one for your Fund. After
two years of extraordinary gains in the financial markets, shareholders should
be cautious about their expectations moving forward. As we have emphasized in
the past, the stock market does not normally produce such strong returns on a
regular basis, but rather achieves exceptional returns in some years, and more
modest returns or, possibly, declines in others. We believe that the Sentinel
Common Stock Fund's conservative, value-oriented investment style will continue
to serve our shareholders well both in strong markets and in more difficult
periods. As always, we appreciate your continuing support and confidence.
/s/ Keniston P. Merrill
Keniston P. Merrill
/s/ Richard A. Pendr
Richard A. Pender, CFA
/s/ Daniel J. Manion
Daniel J. Manion, CFA
23
<PAGE>
Sentinel Common Stock Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Shares Value
(Note 1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 93.8%
Automobiles & Auto Parts 4.5%
Chrysler Corp 425,000 $ 15,087,500
Echlin Inc. 550,000 18,493,750
Ford Motor 800,000 26,200,000
--------------
59,781,250
--------------
Banks 11.9%
Bank of New York 900,000 32,287,500
BankAmerica Corp. 200,000 20,600,000
Chase Manhattan Corp. 287,200 27,140,400
Citicorp 287,900 31,453,075
First Union Corp. 300,000 22,912,500
Morgan (J.P.) 254,700 24,037,314
--------------
158,430,789
--------------
Beverages 1.9%
Coca-Cola 500,000 25,562,500
Building Materials 1.7%
Sherwin - Williams 400,000 22,700,000
Consumer & Business Svcs 3.5%
Electronic Data Systems 489,486 23,678,885
Omnicom Group 450,000 22,950,000
--------------
46,628,885
--------------
Consumer Products 6.2%
American Brands 399,600 19,080,900
Gillette 340,000 25,075,000
Kimberly - Clark 261,000 25,512,750
Rubbermaid 525,000 12,600,000
--------------
82,268,650
--------------
Drugs 4.2%
American Home Products 450,000 28,912,500
Pfizer, Inc. 300,000 26,887,500
--------------
55,800,000
--------------
Electrical Equipment 5.5%
Emerson Electric 350,000 34,343,750
General Electric 380,000 39,520,000
--------------
73,863,750
--------------
Energy 10.4%
Amoco 259,600 20,151,450
Atlantic Richfield 98,800 13,745,550
Chevron Oil 240,000 16,080,000
Exxon 315,400 29,844,725
Mobil 210,000 25,410,000
Royal Dutch Petroleum 197,218 33,502,408
--------------
138,734,133
--------------
Financial 2.1%
American Express 525,000 27,431,250
--------------
Foods 3.5%
CPC International 225,000 18,731,250
Sara Lee 700,000 27,475,000
--------------
46,206,250
--------------
Healthcare Providers 2.1%
Columbia/HCA Healthcare 712,500 28,500,000
--------------
Industrial-Diversified 8.3%
Crown Cork & Seal 400,000 $ 21,200,000
Grace (W.R.) 295,000 15,598,125
PPG Industries 325,000 19,906,250
Parker-Hannifin 650,000 26,406,250
Rockwell 425,000 27,306,250
-------------
110,416,875
-------------
Insurance 6.3%
Allstate Corp. 485,003 29,221,431
American General 625,000 25,703,125
American Int'l Group 250,000 28,750,000
-------------
83,674,556
-------------
Medical - Equip & Supplies 2.0%
Johnson & Johnson 500,000 26,562,500
-------------
Oil Field Equipment & Services 3.3%
Halliburton Co. 325,000 19,581,250
Schlumberger Ltd. 240,000 24,960,000
-------------
44,541,250
-------------
Publishing 2.5%
Gannett 250,000 19,625,000
McGraw-Hill 300,000 13,650,000
-------------
33,275,000
-------------
Railroads 2.4%
Canadian Pacific 550,000 15,125,000
Union Pacific Corp. 300,000 17,475,000
-------------
32,600,000
-------------
Retail 4.0%
May Department Stores 366,980 17,890,275
Nordstrom, Inc. 250,000 10,875,000
Sears, Roebuck 503,500 25,049,125
-------------
53,814,400
-------------
Telecommunications Equipment 0.6%
Lucent Technologies, Inc 142,596 7,308,045
-------------
Tobacco 1.0%
Philip Morris 130,000 13,406,250
-------------
Utilities - Electric 2.1%
FPL Group 360,000 16,605,000
Florida Progress 350,000 11,331,250
-------------
27,936,250
-------------
Utilities - Gas 2.9%
Enron Corp. 420,000 19,215,000
Sonat, Inc. 380,000 19,665,000
-------------
38,880,000
-------------
Utilities - Telephone 0.9%
GTE Corp. 280,000 12,565,000
-------------
Total Common Stocks
(Cost $617,455,722) 1,250,887,583
-------------
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agency Obligations 0.7%
Federal National Mortgage Association 0.7%
Agency Discount Note:
5.22%, 12/19/96
(Cost $9,973,900) 10,000M $ 9,973,900
--------------
Corporate Short-Term Notes 5.4%
Beneficial Corp
5.23%, 12/02/96 8,000M 7,998,838
5.25%, 12/19/96 4,900M 4,887,137
Commercial Credit
5.25%, 12/05/96 11,000M 10,993,583
IBM Credit Corp
5.25%, 12/12/96 8,800M 8,785,883
5.25%, 12/16/96 10,000M 9,978,125
Norwest Financial
5.25%, 12/05/96 7,600M 7,595,567
5.25%, 12/16/96 7,500M 7,483,594
Prudential Funding
5.25%, 12/10/96 10,000M 9,986,875
5.26%, 12/24/96 3,700M 3,687,566
-------------
Total Corporate Short-Term Notes
(Cost $71,397,168) 71,397,168
-------------
Total Investments
(Cost $698,826,790)* 1,332,258,651
Excess of Other Assets
Over Liabilities 0.1% 1,590,867
-------------
Net Assets $1,333,849,518
=============
</TABLE>
* The aggregate cost for federal income tax purposes was $698,967,472. At
November 30, 1996, unrealized appreciation for income tax purposes aggregated
$633,291,179 of which $636,832,554 related to appreciated securities and
$3,541,375 related to depreciated securities.
24 See Notes to Financial Statements.
<PAGE>
Sentinel Common Stock Fund
Statement of Assets and Liabilities
at November 30, 1996
- ----------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $1,332,258,651
Cash and cash equivalents 987,940
Receivable for fund shares sold 1,500,663
Receivable for dividends and interest 4,440,753
--------------
Total Assets 1,339,188,007
==============
Liabilities
Payable for securities purchased 2,923,888
Payable for fund shares repurchased 641,304
Accrued expenses 366,785
Management fee payable 584,850
Distribution fee payable (Class A Shares) 661,592
Distribution fee payable (Class B Shares) 20,805
Fund service fee payable 139,265
--------------
Total Liabilities 5,338,489
--------------
Net Assets Applicable to Outstanding shares $1,333,849,518
==============
Net Asset Value and Offering Price per Share
Class A Shares
$1,306,592,040 / 32,181,137 shares outstanding $ 40.60
Sales Charge -- 5.00% of offering price 2.14
--------------
Maximum Offering Price $ 42.74
==============
Class B Shares
$27,257,478 / 671,906 shares outstanding $ 40.57
==============
Net Assets Represent
Capital stock at par value $ 328,530
Paid-in capital 580,722,224
Accumulated undistributed net investment income 3,097,452
Accumulated undistributed net realized gain
on investments 116,269,451
Unrealized appreciation of investments 633,431,861
--------------
Net Assets $1,333,849,518
==============
Investments at Cost $ 698,826,790
==============
</TABLE>
Sentinel Common Stock Fund
Statement of Operations
For the Year Ended November 30, 1996
- ----------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends $ 28,200,992
Interest 3,224,151
------------
Total Income 31,425,143
============
Expenses:
Management advisory fee 6,357,176
Transfer agent and custodian 1,722,126
Distribution expense (Class A Shares) 3,345,000
Distribution expense (Class B Shares) 85,382
Accounting services 480,812
Professional fees 182,450
Reports and notices to shareholders 89,870
Directors' fees and expenses 131,937
Other 89,452
------------
Total Expenses 12,484,205
Expense Offset (111,708)
------------
Net Expenses 12,372,497
------------
Net Investment Income 19,052,646
------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 116,444,973
Net change in unrealized appreciation 148,127,314
------------
Net Realized and Unrealized Gain on Investments 264,572,287
------------
Net Increase in Net Assets from Operations $283,624,933
============
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
Sentinel Common Stock Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
-------------- --------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 19,052,646 $ 21,822,839
Net realized gain on sales of investments 116,444,973 83,681,019
Net change in unrealized appreciation 148,127,314 164,928,158
-------------- --------------
Net increase in net assets from
operations 283,624,933 270,432,016
-------------- --------------
Distributions to Shareholders
From net investment income
Class A Shares (19,249,840) (22,427,518)
Class B Shares (42,698) -
From net realized gain on investments
Class A Shares (82,958,132) (32,779,992)
Class B Shares - -
-------------- --------------
Total distributions to shareholders (102,250,670) (55,207,510)
-------------- --------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 109,605,903 70,030,323
Class B Shares 24,776,151 -
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 83,386,533 43,543,555
Class B Shares 37,935 -
Net asset value of shares issued in
exchange for net assets of another
investment company - 51,894,735
-------------- --------------
217,806,522 165,468,613
Less: Payments for shares reacquired
Class A Shares (122,853,547) (162,084,590)
Class B Shares (421,513) -
-------------- --------------
Increase in net assets from capital
share transactions 94,531,462 3,384,023
-------------- --------------
Total Increase in Net Assets for period 275,905,725 218,608,529
Net Assets: Beginning of period 1,057,943,793 839,335,264
-------------- --------------
Net Assets: End of period $1,333,849,518 $1,057,943,793
============== ==============
Undistributed Net Investment Income
at End of Period $ 3,097,452 $ 3,337,344
============== ==============
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Sentinel Common Stock Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/96 11/30/95 11/30/94 11/30/93 11/20/92
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 35.21 $ 28.25 $ 29.63 $ 29.71 $ 26.78
---------- ---------- ---------- ---------- ----------
Income from Investment Operations
Net investment income 0.59 0.72 0.83 0.79 0.90
Net realized and unrealized gain (loss)
on investments 8.18 8.09 (1.35) 1.66 3.44
---------- ---------- ---------- ---------- ----------
Total from investment operations 8.77 8.81 (0.52) 2.45 4.34
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends from net investment income 0.61 0.74 0.80 0.82 0.91
Distributions from realized gains on investments 2.77 1.11 0.06 1.71 0.50
---------- ---------- ---------- ---------- ----------
Total Distributions 3.38 1.85 0.86 2.53 1.41
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $ 40.60 $ 35.21 $ 28.25 $ 29.63 $ 29.71
========== ========== ========== ========== ==========
Total Return (%) * 27.2 32.8 (1.8) 8.8 16.7
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.06 1.09 1.02 0.93 0.72
Ratio of expenses to average net assets before
expense reductions (%)** 1.07 1.10 1.02 0.93 0.72
Ratio of net investment income to average net assets (%) 1.64 2.29 2.82 2.68 3.13
Portfolio turnover rate (%) 22 22 15 9 5
Average commission rate paid per share $ .0600 N/A N/A N/A N/A
Net assets at end of period (000 omitted) $1,306,592 $1,057,944 $ 839,335 $ 897,836 $ 688,309
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Eight Months
Class B Shares Ended 11/30/96(A)
-----------------
<S> <C>
Net asset value at beginning of period $ 35.43
-------
Income from Investment Operations
Net investment income 0.22
Net realized and unrealized gain on investments 5.05
-------
Total from investment operations 5.27
-------
Less Distributions
Dividends from net investment income 0.13
Distributions from realized gains on investments -
-------
Total Distributions 0.13
-------
Net asset value at end of period $ 40.57
=======
Total Return (%) * 14.9 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.91 +
Ratio of expenses to average net assets before
expense reductions (%)** 1.92 +
Ratio of net investment income to average net assets (%) .80 +
Portfolio turnover rate (%) 22
Average commission rate paid per share $ .0600
Net assets at end of period (000 omitted) $27,257
</TABLE>
(A) Commenced operations April 1, 1996.
+ Annualized
++ Not 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 return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earning credits as described in Notes (2)
and (1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
27
<PAGE>
Sentinel Balanced Fund seeks a conservative combination of stability, income and
capital growth through a well diversified portfolio of both stocks and bonds. At
least 25% of the Fund's net assets will always be invested in fixed income
securities.
Sentinel Balanced Fund
The past year was a solid one for your Fund, highlighted by very strong returns
from the stock component.
The Sentinel Balanced Fund produced a total return of 16.6% for the fiscal year
ended November 30, 1996. The Fund's results were on par with the 16.4% return
for the average balanced fund as measured by Lipper Analytical Services and fell
between the 27.9% return for the Standard & Poor's 500 and the 6.1% return for
the Lehman Aggregate Bond Index.
The past twelve months were a volatile period for the financial markets. The
stock market rallied strongly early in the year, as economic growth was stronger
than anticipated. Stocks corrected sharply in the summer, as the economy began
to show signs of slowing, but rallied to all-time highs in the fall, as a
consensus began to build for moderate economic growth, restrained inflation and
relatively low interest rates. Meanwhile, fixed income securities also
experienced considerable volatility. The bond market, as measured by the 10-year
U.S. Treasury Index, started the year at 5.75%. Interest rates then declined
over the next two months to reach a low of 5.52% on January 18, 1996. From that
point rates rose almost uninterruptedly until a high was set for the index on
June 12, 1996, at 7.06%. The index then slowly declined over the remaining
months and ended November 29, 1996, at 6.01%. Overall, the index had a positive
4.1% return for the year.
The Sentinel Balanced Fund began the fiscal year with a mix of 58% stocks, 35%
bonds and 7% cash, and with only minor fluctuations, maintained this allocation.
The Fund's equity segment again benefited from its long-standing positions in
the financial services sector, as well as significant holdings in consumer
growth stocks (especially the pharmaceutical companies) and in the energy
sector. The Balanced Fund has recently been underweighting the utilities sector,
due to concern about the increasing competition in both the electrical and
telephone groups. The Fund's de-emphasis of these groups impacted performance
positively, as these were among the worst performing sectors of the stock
market.
Looking ahead to 1997, we continue to expect that the economy will grow at a
more moderate rate than in recent years, and that inflation will remain
restrained. Corporate earnings are likely to grow at a much slower rate than in
the past several years, and in such an environment, we believe our commitments
to stable financial, energy, consumer products and healthcare stocks
================================================================================
Sentinel Balanced Fund Performance
Ten Years Ended 11/30/96
<TABLE>
<CAPTION>
- --------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 10.8% 16.6%
- --------------------------------
5 Years 10.4% 11.5%
- --------------------------------
10 Years 9.6% 10.2%
- --------------------------------
</TABLE>
+Sales charge applicable to
year of initial investment.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Balanced Fund Balanced Lipper's Bal. S&P Lehman
with/load Fund Avg. 500 Aggregate
<S> <C> <C> <C> <C>
0 Nov.'86 9,500 10,000 10,000 10,000
1 Nov.'87 8,995 9,709 9,531 10,176
2 Nov.'88 10,304 11,268 11,746 11,115
3 Nov.'89 12,165 13,518 15,364 12,710
4 Nov.'90 12,379 13,294 14,832 13,673
5 Nov.'91 14,545 15,905 17,845 15,644
6 Nov.'92 16,341 18,175 21,135 17,030
7 Nov.'93 17,932 20,069 23,264 18,885
8 Nov.'94 17,278 19,710 23,514 18,307
9 Nov.'95 21,496 24,808 32,194 21,537
10 Nov.'96 25,061 28,886 41,162 22,844
</TABLE>
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Indices and Average shown above, you should note
that the Fund's performance reflects the maximum 5% sales charge and includes
all expenses and management fees, while that shown for the Indices and Average
does not. Past performance is not predictive of future results. Performance will
vary for each class of shares due to differences in expenses paid with respect
to each class of shares.
Chart Ending Values
& Legend
Ten years ended 11/30/96
____Sentinel $25,061
Balanced
Fund
....Standard & $41,162
Poor's 500
Stock Index*
- ----Lehman $22,844
Aggregate
Bond Index+
- --..Lipper $28,886
Balanced
Fund Average
*An unmanaged index of stocks reflecting average prices in the stock market.
+An unmanaged index of bonds reflecting average prices in the bond market.
28
<PAGE>
should perform relatively well. The recent national elections have again given
us a Democratic Administration and a Republican Congress, which hopefully will
be able to compromise on some of the important economic matters of the day,
namely the budget deficit and the reform of entitlement programs such as Social
Security and Medicare. Any progress along these lines would, we believe, be
regarded positively by the financial markets.
The past year was a solid one for your Fund, highlighted by very strong returns
from the stock component. Investors would be wise to begin to temper their
expectations, understanding that financial market returns over the last fifteen
years, and over the past two years in particular, have been extraordinarily
strong. Such strength is unlikely to persist on a sustained basis. We continue
to believe that a balanced investment program, with diversified exposure to both
the stock and bond markets, will serve shareholders well. We appreciate your
continuing support.
/s/ Rodney A. Buck
Rodney A. Buck, CFA
/s/ Richard A. Pender
Richard A. Pender, CFA
/s/ Richard D. Temple
Richard D. Temple
29
<PAGE>
Sentinel Balanced Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations 16.7%
U.S. Treasury Obligations 11.9%
2-Year:
Note 6%, '97 3200M $ 3,213,280
Note 5%, '98 2000M 1,989,820
-----------
5,203,100
-----------
3-Year:
Note 5%, '99 2500M 2,468,575
-----------
5-Year:
Note 6.375%, '00 1400M 1,428,126
Note 5.5%, '00 1050M 1,039,007
-----------
2,467,133
-----------
10-Year:
Note 6.375%, '02 5000M 5,125,100
Note 7.5%, '05 4250M 4,651,880
Note 6.5%, '06 14000M 14,461,580
-----------
24,238,560
-----------
30-Year:
Bond 7.25%, '16 2000M 2,180,460
-----------
Total U.S. Treasury Obligations 36,557,828
-----------
U.S. Government Agency Obligations 4.8%
Federal Home Loan Bank 0.3%
5-Year:
6.65%, '01 1000M 1,007,030
-----------
Federal Home Loan Mortgage Corporation 1.4%
15-Year:
6.5%, '08 2002M 1,999,090
-----------
30-Year:
8%, '08 2140M 2,226,762
-----------
Total Federal Home
Loan Mortgage Corporation 4,225,852
-----------
Federal National Mortgage Association 2.1%
Collateralized Mortgage Obligation:
148(B), 0%, '98 1404M 1,352,996
-----------
Medium Term Note:
6.29%, '00 4000M 4,052,480
-----------
15-Year:
7.5%, '06 992M 1,017,231
-----------
Total Federal National
Mortgage Association 6,422,707
-----------
Government National Mortgage Association 1.0%
30-Year:
9%, '09 45M 47,042
7.75%, '26 3074M 3,145,058
-----------
Total Government
National Mortgage Association 3,192,100
-----------
Total U.S. Government
Agency Obligations 14,847,689
-----------
Total U.S. Government Obligations
(Cost $50,713,371) 51,405,517
-----------
Other Collateralized Mortgage Obligations 0.9%
Collateralized Mortgage Obligation
Trust Series 22(Y) 7.95%, '17
(Cost $2,774,801) 2748M 2,835,818
-----------
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds 13.2%
Beverages 0.3%
Anheuser Busch 8.5%, '17 771M $ 802,804
-----------
Financial Institutions 3.3%
C.S. First Boston 7.75%, '06 2000M 2,140,000
First Union Corp.
6.824%, '26 2325M 2,388,938
Lehman Brothers Holdings
8.8%, '15 1200M 1,390,500
Midland Bank 7.65%, '25 800M 874,000
Salomon Bros. 6.875%, '03 3500M 3,504,375
-----------
10,297,813
-----------
Foreign Financial Institutions 2.5%
BCH Cayman Islands Ltd.
7.7%, '06 2500M 2,656,250
Banque Paribas (Fr.)
6.875%, '09 2000M 1,957,500
Swedish Export Credit
9.875%, '38 3000M 3,266,250
-----------
7,880,000
-----------
Industrial - Diversified 0.6%
Dimon Inc. 8.875%, '06 1800M 1,910,250
-----------
Insurance 2.2%
Farmers Insurance Exchange
8.5%, '04 2000M 2,160,000
Integon Corp. 8%, '99 750M 768,750
Integon Corp. 9.5%, '01 1500M 1,636,875
Liberty Mutual 8.2%, '07 2000M 2,187,500
-----------
6,753,125
-----------
Paper & Forest Products 0.8%
Boise Cascade 7.35%, '16 2500M 2,431,250
-----------
Retail 0.7%
May Dept. Stores 9.125%, '16 2000M 2,090,000
-----------
Telecommunications 1.4%
Comsat 8.05%, '06 2000M 2,252,500
Continental Cablevision
8.3%, '06 2000M 2,200,000
-----------
4,452,500
-----------
Utility-Electric 0.7%
Mississippi Power & Light
8.8%, '05 2000M 2,055,000
-----------
Utility-Gas 0.7%
Consolidated Natural Gas
8.625%, '11 2000M 2,110,000
-----------
Total Bonds
(Cost $39,319,915) 40,782,742
-----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Shares Value
(Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 58.6%
Automobiles & Auto Parts 2.8%
Chrysler Corp 60,000 $ 2,130,000
Echlin Inc. 80,000 2,690,000
Ford Motor 115,000 3,766,250
-----------
8,586,250
-----------
Banks 5.5%
Bank of New York 120,000 4,305,000
BankAmerica Corp. 25,000 2,575,000
Chase Manhattan Corp. 26,000 2,457,000
Citicorp 25,000 2,731,250
First Union Corp. 40,000 3,055,000
Morgan (J. P.) 20,000 1,887,500
-----------
17,010,750
-----------
Beverages 1.0%
Coca-Cola 62,400 3,190,200
-----------
Building Materials 1.1%
Sherwin-Williams 60,000 3,405,000
-----------
Consumer & Business Services 2.4%
Electronic Data Systems 70,712 3,420,693
Omnicom Group 75,000 3,825,000
-----------
7,245,693
-----------
Consumer Products 2.7%
American Brands 45,000 2,148,750
Coleman 80,000 1,180,000
Kimberly-Clark 35,000 3,421,250
Rubbermaid 75,000 1,800,000
-----------
8,550,000
-----------
Drugs 2.6%
American Home Products 60,000 3,855,000
Pfizer, Inc. 45,000 4,033,125
-----------
7,888,125
-----------
Electrical Equipment 3.8%
Emerson Electric 37,500 3,679,687
General Electric 47,500 4,940,000
Grainger (W.W.) 40,000 3,180,000
-----------
11,799,687
-----------
Energy 6.3%
Amoco 44,000 3,415,500
Atlantic Richfield 17,000 2,365,125
Chevron 35,000 2,345,000
Exxon 38,000 3,595,750
Mobil 30,050 3,636,050
Royal Dutch Petroleum 24,000 4,077,000
-----------
19,434,425
-----------
Financial 1.2%
American Express 70,000 3,657,500
-----------
Foods 2.4%
CPC International 45,000 3,746,250
Sara Lee 95,000 3,728,750
-----------
7,475,000
-----------
Healthcare Providers 1.3%
Columbia/HCA Healthcare 97,500 3,900,000
-----------
</TABLE>
(continued)
30
<PAGE>
Sentinel Balanced Fund
Investment in Securities (cont'd.)
at November 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------------------------------------
Industrial-Diversified 5.6%
<S> <C> <C>
Crown Cork & Seal 55,000 $ 2,915,000
Dover 30,000 1,601,250
Grace (W.R.) 32,000 1,692,000
PPG Industries 50,000 3,062,500
Parker-Hannifin 95,000 3,859,375
Rockwell Int'l. 65,000 4,176,250
------------
17,306,375
------------
Insurance 4.8%
Allstate Corp. 85,000 5,121,250
American General 85,000 3,495,625
American Int'l. Group 35,000 4,025,000
Equitable of Iowa 45,000 2,013,750
------------
14,655,625
------------
Medical-Equipment & Supplies 1.2%
Johnson & Johnson 72,000 3,825,000
------------
Oil Field Equipment & Services 2.2%
Halliburton Co. 45,000 2,711,250
Schlumberger Ltd. 38,000 3,952,000
------------
6,663,250
------------
Publishing 1.8%
Gannett 35,000 2,747,500
McGraw-Hill 60,000 2,730,000
------------
5,477,500
------------
Railroads 2.3%
Canadian Pacific 73,000 2,007,500
Illinois Central Corp. 82,500 2,794,688
Union Pacific Corp. 40,000 2,330,000
------------
7,132,188
------------
Retail 2.9%
May Department Stores 55,000 2,681,250
Nordstrom, Inc. 40,000 1,740,000
Sears, Roebuck 90,000 4,477,500
------------
8,898,750
------------
Telecommunications-Equipment 0.3%
Lucent Technologies, Inc. 19,445 996,556
------------
Tobacco 0.6%
Philip Morris 18,000 1,856,250
------------
Utilities-Electric 0.9%
FPL Group 60,000 2,767,500
------------
Utilities-Gas 1.9%
Enron Corp. 60,000 2,745,000
Sonat, Inc. 60,000 3,105,000
------------
5,850,000
------------
Utilities-Telephone 1.0%
GTE Corp. 70,000 3,141,250
------------
Total Common Stocks
(Cost $105,741,394) 180,712,874
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Corporate Short-Term Notes 15.1%
Beneficial Corp. 5.25%
12/10/96 8000M $ 7,989,500
Beneficial Corp. 5.26%
12/17/96 6000M 5,985,973
Household Finance 5.26%
12/20/96 2700M 2,692,505
IBM Credit Corp. 5.25%
12/13/96 3900M 3,893,175
IBM Credit Corp. 5.25%
12/17/96 8000M 7,981,333
Norwest Financial, Inc. 5.25%
12/02/96 7200M 7,198,950
Prudential Funding 5.28%
12/05/96 8000M 7,995,307
Prudential Funding 5.22%
12/16/96 2700M 2,694,127
------------
Total Corporate Short-Term Notes
(Cost $46,430,870) 46,430,870
------------
Total Investments
(Cost $244,980,351)* 322,167,821
Excess of Liabilities
Over Other Assets (4.5%) (13,932,009)
------------
Net Assets $308,235,812
============
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1996, net
unrealized appreciation for federal income tax purposes aggregated
$77,187,470 of which $78,072,976 related to appreciated securities and
$885,506 related to depreciated securities.
See Notes to Financial Statements.
31
<PAGE>
Sentinel Balanced Fund
Statement of Assets and Liabilities
at November 30, 1996
- -------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $322,167,821
Cash and cash equivalents 557,237
Receivable for securities sold 52,817
Receivable for fund shares sold 594,621
Receivable for dividends and interest 2,222,698
------------
Total Assets 325,595,194
------------
Liabilities
Payable for securities purchased 16,364,543
Payable for fund shares repurchased 573,310
Accrued expenses 88,906
Management fee payable 156,958
Distribution fee payable (Class A Shares) 128,349
Distribution fee payable (Class B Shares) 8,107
Fund service fee payable 39,209
------------
Total Liabilities 17,359,382
------------
Net Assets Applicable to Outstanding Shares $308,235,812
============
Net Asset Value and Offering Price per Share
Class A Shares
$297,287,616 / 16,027,384 shares outstanding $ 18.55
Sales Charge -- 5.00% of offering price 0.98
------------
Maximum Offering Price $ 19.53
============
Class B Shares
$10,948,196 / 589,175 shares outstanding $ 18.58
============
Net Assets Represent
Capital stock at par value $ 166,166
Paid-in capital 222,218,324
Accumulated undistributed net investment income 1,259,431
Accumulated undistributed net realized gain
on investments 7,404,421
Unrealized appreciation of investments 77,187,470
------------
Net Assets $308,235,812
============
Investments at Cost $244,980,351
============
</TABLE>
Sentinel Balanced Fund
Statement of Operations
For the Year Ended November 30, 1996
- ---------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends $ 3,980,520
Interest 8,284,710
-----------
Total Income 12,265,230
-----------
Expenses:
Management advisory fee 1,802,612
Transfer agent and custodian 525,341
Distribution expense (Class A Shares) 835,591
Distribution expense (Class B Shares) 31,780
Accounting services 117,140
Professional fees 41,975
Reports and notices to shareholders 27,019
Directors' fees and expenses 32,137
Other 49,728
-----------
Total Expenses 3,463,323
Expense Offset (44,056)
-----------
Net Expenses 3,419,267
-----------
Net Investment Income 8,845,963
-----------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 7,530,121
Net change in unrealized appreciation 27,684,174
-----------
Net Realized and Unrealized Gain on Investments 35,214,295
-----------
Net Increase in Net Assets from Operations $44,060,258
===========
</TABLE>
See Notes to Financial Statements.
32
<PAGE>
Sentinel Balanced Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
------------- -------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 8,845,963 $ 9,309,981
Net realized gain on sales of investments 7,530,121 6,896,018
Net change in unrealized appreciation 27,684,174 37,588,953
------------- -------------
Net increase in net assets from operations 44,060,258 53,794,952
------------- -------------
Distributions to Shareholders
From net investment income
Class A Shares (8,766,564) (9,440,483)
Class B Shares (39,537) -
From net realized gain on investments
Class A Shares (6,598,524) (143,043)
Class B Shares - -
------------- -------------
Total distributions to shareholders (15,404,625) (9,583,526)
------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 38,066,491 35,919,601
Class B Shares 10,345,842 -
Net asset value of shares in reinvestment
of dividends and distributions -
Class A Shares 13,951,023 8,552,193
Class B Shares 34,337 -
Net asset value of shares issued in exchange for
net assets of another investment company - 4,084,150
------------- -------------
62,397,693 48,555,944
------------- -------------
Less: Payments for shares reacquired
Class A Shares (49,751,264) (51,993,073)
Class B Shares (169,001) -
------------- -------------
Increase (decrease) in net assets from
capital share transactions 12,477,428 (3,437,129)
------------- -------------
Total Increase in Net Assets for period 41,133,061 40,774,297
Net Assets: Beginning of period 267,102,751 226,328,454
------------- -------------
Net Assets: End of period $308,235,812 $267,102,751
============= =============
Undistributed Net Investment Income
at End of Period $ 1,259,431 $ 1,220,591
============= =============
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
Sentinel Balanced Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/96 11/30/95 11/30/94 11/30/93 11/30/92
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 16.84 $ 14.08 $ 15.27 $ 14.82 $ 13.89
----------- ----------- ----------- ----------- -----------
Income from Investment Operations
Net investment income 0.54 0.58 0.58 0.59 0.70
Net realized and unrealized gain (loss)
on investments 2.13 2.78 (1.12) 0.80 0.97
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.67 3.36 (0.54) 1.39 1.67
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends from net investment income 0.54 0.59 0.56 0.58 0.71
Distributions from realized gains on investments 0.42 0.01 0.09 0.36 0.03
----------- ----------- ----------- ----------- -----------
Total Distributions 0.96 0.60 0.65 0.94 0.74
----------- ----------- ----------- ----------- -----------
Net asset value at end of period $ 18.55 $ 16.84 $ 14.08 $ 15.27 $ 14.82
=========== =========== =========== =========== ===========
Total Return (%) * 16.6 24.4 (3.6) 9.7 12.4
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.20 1.27 1.21 1.14 0.81
Ratio of expenses to average net assets before
expense reductions (%) ** 1.22 1.29 1.21 1.14 0.81
Ratio of net investment income to average net assets (%) 3.13 3.77 3.97 3.88 4.86
Portfolio turnover rate (%) 83 110 66 72 38
Average commission rate paid per share $ .0600 N/A N/A N/A N/A
Net assets at end of period (000 omitted) $ 297,288 $ 267,103 $ 226,328 $ 229,632 $ 120,700
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Eight Months
Class B Shares Ended 11/30/96(A)
-------------
<S> <C>
Net asset value at beginning of period $ 17.09
-------------
Income from Investment Operations
Net investment income 0.26
Net realized and unrealized loss on investments 1.37
-------------
Total from investment operations 1.63
-------------
Less Distributions
Dividends from net investment income 0.14
Distributions from realized gains on investments -
-------------
Total Distributions 0.14
-------------
Net asset value at end of period $ 18.58
=============
Total Return (%) * 9.6 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.12 +
Ratio of expenses to average net assets before
expense reductions (%)** 2.13 +
Ratio of net investment income to average net assets (%) 2.21 +
Portfolio turnover rate (%) 83
Average commission rate paid per share $ .0600
Net assets at end of period (000 omitted) $10,948
</TABLE>
(A) Commenced operations April 1, 1996.
+ Annualized
++ Not 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 return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995,the earning credits as described in Notes (2)
and (1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
34
<PAGE>
Sentinel Bond Fund seeks as high a level of continuing income as is consistent
with the preservation of capital through primary investments in a well
diversified portfolio of high quality corporate bonds.
Sentinel Bond Fund
In recognition of the longevity of the current economic expansion, the Fund
plans to maintain a relatively short average maturity until stronger signals are
sent by the Federal Reserve as to the direction of interest rates or the likely
pace of economic expansion.
For the fiscal year ended November 30, 1996, the Sentinel Bond Fund produced a
total return of 4.5%, while the Lehman Aggregate Bond Index returned 6.1%. The
Lehman Aggregate Index is considered a good proxy for the overall fixed income
market. During the same period, the average Lipper A-rated Corporate Bond Fund
returned 5.2%.
On November 30, 1995, the 10-year U.S. Treasury Index (Index) yielded 5.75%. The
bull market in bonds that started in 1995 finally came to an end in January 1996
when the Index set a low of 5.52%. Market participants, realizing that the
promised balanced budget was a long way from reality, that inflationary pressure
would continue to cast a long dark shadow, and that the economy was showing
surprising resilience, abandoned the fixed income market, sending interest rates
up sharply. The 10-year U.S. Treasury Index reached its high for the year on
June 12, 1996, at 7.06%. The fixed income markets then consolidated in a trading
range until September of this year. Investor sentiment once again began to
change as the economy sputtered along without generating enough growth to ignite
inflation or cause the Federal Reserve to tighten credit. The market did an
"about-face" and rallied to the 6.04% level on November 29, 1996. On a price
basis, the 10-year U.S. Treasury Index experienced a 10% price decline from
January to June, only to recapture a 7% price increase from September to
November.
While the 10-year U.S. Treasury Index was experiencing this price volatility,
corporate securities were going through the same gyrations, tempered slightly by
their increased yield and the continued narrowing of yield spreads between
corporates and Treasury securities. Mortgage securities also did well as a
result of their shorter average maturities and their monthly income stream.
During the year, the Fund's average maturity was shortened from 11.3 years to
7.9 years. On November 30th of last year, the Fund's assets were 90% invested in
corporate securities. During the subsequent twelve month period, in response to
the continued narrowing of yield spreads between corporates and Treasury issues,
this position was reduced to 57% of assets. Finally, in recognition of the need
for income, some of the proceeds generated from the sale of corporate securities
were reinvested in the mortgage market in order to obtain added income and to
reduce price volatility.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ------------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 0.3% 4.5%
- ------------------------------------
5 Years 7.1% 8.0%
- ------------------------------------
10 Years 7.9% 8.3%
- ------------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Bond Fund Performance
Ten Years Ended 11/30/96
<TABLE>
<CAPTION>
Bond Lipper's A rated Lehman
with/load Corp. Bond Fund Avg. Aggregate
--------- -------------------- ---------
<S> <C> <C> <C>
0 Nov.'86 9,600 10,000 10,000
1 Nov.'87 9,571 9,975 10,176
2 Nov.'88 10,531 10,862 11,115
3 Nov.'89 11,889 12,253 12,710
4 Nov.'90 12,582 12,902 13,673
5 Nov.'91 14,544 14,774 15,644
6 Nov.'92 15,922 16,148 17,030
7 Nov.'93 18,109 18,413 18,885
8 Nov.'94 17,221 17,757 18,307
9 Nov.'95 20,455 21,101 21,537
10 Nov.'96 21,372 22,197 22,844
</TABLE>
Chart Ending Values & Legend
Ten years ended 11/30/96
_______ Sentinel Bond Fund $21,372
- - - - - Lehman Aggregate Bond Index* $22,844
- --- - - Lipper A-Rated Corp. Bond Fund Average $22,197
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in expenses paid with respect to
each class of shares.
35
<PAGE>
To summarize, the Fund's 1996 market performance resulted from having too long
an average maturity in a bear market for bonds. However, in recognition of the
longevity of the current economic expansion, the Fund plans to maintain a
relatively short average maturity until stronger signals are sent by the Federal
Reserve as to the direction of interest rates or the likely pace of economic
expansion.
/s/ Richard D. Temple
Richard D. Temple
36
<PAGE>
Sentinel Bond Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------
U.S.Government Obligations 34.5%
U.S. Treasury Obligations 25.6%
<S> <C> <C>
2-Year:
Note 6%, '97 1000M $ 1,004,150
Note 5%, '98 2000M 1,989,820
-------------
2,993,970
-------------
3-Year:
Note 5%, '99 1500M 1,481,145
-------------
5-Year:
Note 6.375%, '00 2600M 2,652,234
Note 5.5%, '00 1600M 1,583,248
-------------
4,235,482
-------------
10-Year:
Note 6.375%, '02 2000M 2,050,040
Note 7.5%, '05 6000M 6,567,360
Note 6.5%, '06 9000M 9,296,730
-------------
17,914,130
-------------
Total U.S. Treasury Obligations 26,624,727
-------------
U.S. Government Agency Obligations 8.9%
Federal Home Loan Bank 1.0%
5-Year:
6.65%, '01 1000M 1,007,030
-------------
Federal Home Loan Mortgage Corporation 4.0%
15-Year:
6.5%, '08 2002M 1,999,090
-------------
30-Year:
8%, '08 2140M 2,226,762
-------------
Total Federal Home Loan
Mortgage Corporation 4,225,852
-------------
Federal National Mortgage Association 3.8%
Collateralized Mortgage
Obligation:
148(B), 0%, '98 1404M 1,352,996
-------------
10-Year:
7.5%, '04 1232M 1,261,742
-------------
15-Year:
7.5%, '06 1358M 1,393,195
-------------
Total Federal National
Mortgage Association 4,007,933
-------------
Government National Mortgage Association 0.1%
30-year:
13%, '11 25M 29,422
13%, '13 1M 1,116
-------------
Total Government National
Mortgage Association 30,538
-------------
Total U.S. Government
Agency Obligations 9,271,353
-------------
Total U.S. Government
Obligations
(Cost $35,457,886) 35,896,080
-------------
Other Collateralized Mortgage
Obligations 2.7%
Collateralized Mortgage Obligation
Trust Series 22(Y)
7.95%, '17
(Cost $2,774,801) 2748M 2,835,818
-------------
Bonds 57.0%
Beverages 1.0%
Anheuser Busch 8.5%, '17 964M $ 1,003,765
Canadian 3.3%
Province of Nova Scotia
9.375%, '02 3000M 3,442,500
Financial Institutions 13.9%
CS First Boston 7.75%, '06 3000M 3,210,000
First Union Corp.
6.824%, '26 2325M 2,388,937
Lehman Brothers Holdings
8.8%, '15 2000M 2,317,500
Midland Bank 7.65%, '25 2600M 2,840,500
Salomon Bros. 6.875%, '03 3750M 3,754,688
-------------
14,511,625
-------------
Foreign Financial Institutions 9.1%
BCH Cayman Islands Ltd.
7.7%, '06 2500M 2,656,250
Banque Paribas (Fr.)
6.875%, '09 2750M 2,691,562
Swedish Export Credit
9.875%, '38 3770M 4,104,588
9,452,400
Industrial - Diversified 4.0%
Dimon Inc. 8.875%, '06 1860M 1,973,925
General Dynamics
9.95%, '18 2000M 2,172,500
-------------
4,146,425
-------------
Insurance 7.0%
Farmers Insurance Exchange
8.5%, '04 2500M 2,700,000
Integon Corp. 8%, '99 750M 768,750
Integon Corp. 9.5%, '01 1500M 1,636,875
Liberty Mutual 8.2%, '07 2000M 2,187,500
-------------
7,293,125
-------------
Paper & Forest Products 2.3%
Boise Cascade 7.35%, '16 2500M 2,431,250
-------------
Retail 2.0%
May Dept. Stores 9.125%, '16 2000M 2,090,000
-------------
Telecommunications 4.3%
Comsat 8.05%, '06 2000M 2,252,500
Continental Cablevision
8.3%, '06 2000M 2,200,000
-------------
4,452,500
-------------
Utilities - Electric 4.4%
Mississippi Power & Light
8.8%, '05 2500M 2,568,750
Niagara Mohawk 9.25%, '01 2000M 2,060,000
-------------
4,628,750
-------------
Utilities - Gas 4.1%
Arkla Inc. 10%, '19 1000M 1,118,750
Consolidated Natural Gas
8.625%, '11 2000M 2,110,000
Transco Gas Pipeline Corp.
9.125%, '17 1000M 1,048,750
-------------
4,277,500
-------------
Utilities - Telephone 1.6%
NYNEX Capital Funding
7.63%, '09 1500M 1,680,030
-------------
Total Bonds
(Cost $57,773,352) 59,409,870
-------------
Corporate Short-Term Notes 14.2%
Beneficial Corp. 5.25%,
12/05/96 3600M $ 3,597,900
Commercial Credit Corp. 5.25%,
12/10/96 5000M 4,993,438
Norwest Financial, Inc. 5.26%
12/16/96 2300M 2,294,959
Prudential Funding Corp. 5.26%,
12/02/96 3300M 3,299,518
Prudential Funding Corp. 5.35%,
12/05/96 600M 599,643
-------------
Total Corporate Short-Term Notes
(Cost $14,785,458) 14,785,458
-------------
Total Investments
(Cost $110,791,497)* 112,927,226
Excess of Liabilities
Over Other Assets (8.4%) (8,804,588)
-------------
Net Assets $104,122,638
=============
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1996 unrealized
appreciation for federal income tax purposes aggregated $2,135,729 of which
$2,552,786 related to appreciated securities and $417,057 related to
depreciated securities.
See Notes to Financial Statements.
37
<PAGE>
Sentinel Bond Fund
Statement of Assets and Liabilities
at November 30, 1996
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $112,927,226
Cash and cash equivalents 392,240
Receivable for securities sold 52,817
Receivable for fund shares sold 153,660
Receivable for interest 1,763,765
--------------
Total Assets 115,289,708
--------------
Liabilities
Payable for securities purchased 11,033,736
Payable for fund shares repurchased 5,610
Accrued expenses 40,844
Management fee payable 44,950
Distribution fee payable (Class A Shares) 26,137
Distribution fee payable (Class B Shares) 3,707
Fund service fee payable 12,086
--------------
Total Liabilities 11,167,070
--------------
Net Assets Applicable to Outstanding Shares $104,122,638
==============
Net Asset Value and Offering Price per Share
Class A Shares
$99,408,280 / 15,657,296 shares outstanding $ 6.35
Sales Charge -- 4.00% of offering price 0.26
--------------
Maximum Offering Price $ 6.61
==============
Class B Shares
$4,714,358 / 741,210 shares outstanding $ 6.36
==============
Net Assets Represent
Capital stock at par value $ 163,985
Paid-in capital 106,328,365
Distributions in excess of net investment income (17,259)
Accumulated undistributed net realized loss
on investments (4,488,182)
Unrealized appreciation of investments 2,135,729
--------------
Net Assets $104,122,638
==============
Investments at Cost $110,791,497
==============
<CAPTION>
Sentinel Bond Fund
Statement of Operations
For the Year Ended November 30, 1996
- ---------------------------------------------------------------
Investment Income
<S> <C>
Income:
Interest $ 7,771,024
--------------
Expenses:
Management advisory fee 547,636
Transfer agent and custodian 170,342
Distribution expense (Class A Shares) 204,195
Distribution expense (Class B Shares) 14,799
Accounting services 42,945
Professional fees 21,280
Reports and notices to shareholders 8,452
Directors' fees and expenses 11,733
Other 34,508
--------------
Total Expenses 1,055,890
Expense Offset (24,897)
--------------
Net Expenses 1,030,993
--------------
Net Investment Income 6,740,031
--------------
Realized and Unrealized Loss on Investments
Net realized loss on sales of investments (1,050,714)
Net change in unrealized appreciation (1,254,923)
--------------
Net Realized and Unrealized Loss on Investments (2,305,637)
--------------
Net Increase in Net Assets from Operations $ 4,434,394
==============
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
Sentinel Bond Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
--------------- ---------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 6,740,031 $ 6,689,451
Net realized gain (loss) on sales of investments (1,050,714) 1,989,093
Net change in unrealized appreciation (1,254,923) 8,007,845
--------------- ---------------
Net increase in net assets from operations 4,434,394 16,686,389
--------------- ---------------
Distributions to Shareholders
From net investment income
Class A Shares (6,671,766) (6,677,766)
Class B Shares (77,872) -
From net realized gain on investments
Class A Shares - -
Class B Shares - -
--------------- ---------------
Total distributions to shareholders (6,749,638) (6,677,766)
--------------- ---------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 18,125,838 19,152,787
Class B Shares 4,597,141 -
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 4,701,495 4,951,462
Class B Shares 64,317 -
Net asset value of shares issued in exchange for
net assets of another investment company - 31,075,198
--------------- ---------------
27,488,791 55,179,447
Less: Payments for shares reacquired
Class A Shares (29,739,584) (36,920,567)
Class B Shares (65,876) -
--------------- ---------------
Increase (decrease) in net assets from
capital share transactions (2,316,669) 18,258,880
--------------- ---------------
Total Increase (Decrease) in Net Assets for period (4,631,913) 28,267,503
Net Assets: Beginning of period 108,754,551 80,487,048
--------------- ---------------
Net Assets: End of period $104,122,638 $108,754,551
=============== ===============
Distributions in Excess of Net Investment Income
at End of Period $ (17,259) $ (8,604)
=============== ===============
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
Sentinel Bond Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/96 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C>
------------- ------------- ------------- ------------- -------------
Net asset value at beginning of period $ 6.49 $ 5.85 $ 6.90 $ 6.56 $ 6.43
------------- ------------- ------------- ------------- -------------
Income from Investment Operations
Net investment income 0.41 0.42 0.39 0.41 0.46
Net realized and unrealized gain (loss)
on investments (0.14) 0.64 (0.70) 0.46 0.13
------------- ------------- ------------- ------------- -------------
Total from investment operations 0.27 1.06 (0.31) 0.87 0.59
------------- ------------- ------------- ------------- -------------
Less Distributions
Dividends from net investment income 0.41 0.42 0.39 0.41 0.46
Distributions from realized gains on investments - - 0.35 0.12 -
------------- ------------- ------------- ------------- -------------
Total Distributions 0.41 0.42 0.74 0.53 0.46
------------- ------------- ------------- ------------- -------------
Net asset value at end of period $ 6.35 $ 6.49 $ 5.85 $ 6.90 $ 6.56
============= ============= ============= ============= =============
Total Return (%) * 4.5 18.8 (4.9) 13.7 9.5
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.98 0.99 0.98 0.92 0.78
Ratio of expenses to average net assets before
expense reductions (%) ** 1.00 1.03 0.98 0.92 0.78
Ratio of net investment income to average net assets (%) 6.46 6.81 6.34 5.98 7.03
Portfolio turnover rate (%) 176 237 133 147 83
Net assets at end of period (000 omitted) $ 99,408 $ 108,755 $ 80,487 $ 83,387 $ 58,106
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months
Class B Shares Ended 11/30/96(A)
---------------
<S> <C>
Net asset value at beginning of period $ 6.30
---------------
Income from Investment Operations
Net investment income 0.21
Net realized and unrealized gain on investments 0.06
---------------
Total from investment operations 0.27
---------------
Less Distributions
Dividends from net investment income 0.21
Distributions from realized gains on investments -
---------------
Total Distributions 0.21
---------------
Net asset value at end of period $ 6.36
===============
Total Return (%) * 4.5 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.16 +
Ratio of expenses to average net assets before
expense reductions (%) ** 2.18 +
Ratio of net investment income to average net assets (%) 5.28 +
Portfolio turnover rate (%) 176
Net assets at end of period (000 omitted) $4,714
</TABLE>
(A) Commenced operations April 1, 1996.
+ Annualized
++ Not 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 return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earning credits as described in Notes (2)
and (1) H.
See Notes to Financial Statements.
40
<PAGE>
Sentinel Tax-Free Income Fund seeks a high level of current
income and preservation of capital through a portfolio of high
quality municipal bonds which are exempt from federal income taxes.
Sentinel Tax-Free Income Fund
At current prices, municipal bonds provide after-tax yields which compare
favorably to corporate, government and mortgage backed securities for investors
who are looking to maximize risk adjusted, after-tax cash flows in
their fixed income portfolios.
For the fiscal year ended November 30, 1996, the Sentinel Tax-Free Income Fund
had a total return of 4.3% compared to 5.9% for the Lehman Municipal Bond Index.
During this same period, the average Lipper General Municipal Debt Fund returned
4.9%.
Interest rates were volatile throughout 1996 as market participants responded to
conflicting data regarding the level of economic activity. A surprisingly strong
employment report in February was instrumental in driving up the rate of the
thirty-year treasury bond from approximately 6.0% to a peak of 7.2% in June. As
rates stabilized above 7.0%, the interest rate sensitive sectors of the economy
such as housing and automobile sales began to slow, setting the stage for a
rally which drove the yield of the long treasury bond down to 6.4% at the end of
November.
As retail investors have continued to concentrate investment dollars in
equities, the bond markets have become dominated by large institutional traders.
This had the effect of increasing the sensitivity of fixed income prices to
small changes in economic data, causing excessive volatility.
On a relative basis, tax-free securities outperformed taxable fixed income
securities over the course of the year. The driving factor in this result was
the lack of supply of municipal bonds compared to a growing demand for tax-
exempt income primarily from the property and casualty insurance industry. On an
after-tax basis, municipal bonds are tough to beat. For example, a high grade,
ten-year maturity municipal bond yielding 4.7% has a taxable equivalent yield of
7.3% for an investor in the 36% tax bracket, 1.4% more than a comparable
treasury security. At current prices, municipal bonds provide after-tax yields
which compare favorably to corporate, government and mortgage backed securities
for investors who are looking to maximize risk adjusted, after-tax cash flows in
their fixed income portfolios.
In this environment, we will continue to position the Sentinel Tax-Free Income
Fund to take advantage of opportunities while maintaining our conservative mix
of quality assets in order to provide our shareholders with a relatively high
level of current income exempt from federal taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 0.1% 4.3%
- ---------------------------------------
5 Years 6.3% 7.2%
- ---------------------------------------
Since
Inception* 7.3% 8.0%
- ---------------------------------------
*10/1/90
</TABLE>
+Sales charge applicable to year of initial investment.
Sentinel Tax-Free Income Fund Performance
10/1/90 inception through 11/30/96
<TABLE>
<CAPTION>
Tax-Free Income Fund
Tax-Free Income Lipper's Gen'l Municipal Lehman Municipal
with/load Debt Fund Avg Bond Index
--------- -------------- ----------
<S> <C> <C> <C>
0 10/01/90 9,600 10,000 10,000
1 Nov.'90 9,890 10,383 10,386
2 Nov.'91 10,897 11,415 11,452
3 Nov.'92 11,988 12,584 12,600
4 Nov.'93 13,416 14,058 13,997
5 Nov.'94 12,739 13,126 13,262
6 Nov.'95 14,780 13,540 15,769
7 Nov.'96 15,418 16,304 16,695
</TABLE>
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in expenses paid with respect to
each class of shares.
<TABLE>
<CAPTION>
Chart Ending Values
& Legend
10/1/90 inception
through 11/30/96
<S> <C>
- -----Sentinel $15,418
Tax-Free
Income Fund
- -----Lehman $16,695
Municipal
Bond Index*
- -----Lipper $16,304
General
Municipal Debt
Fund Average
</TABLE>
*An unmanaged index of bonds reflecting average prices in the bond market.
[41]
<PAGE>
Sentinel Tax-Free Income Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds 95.6%
California - 11.5%
California General Obligation
6.250%, 04/01/08 4000M $ 4,490,680
Foothill/Eastern CA Toll
6.500%, 01/01/32 3500M 3,679,270
San Mateo Cnty CA
Power Rev (AMBAC)
6.500%, 07/01/15 3000M 3,449,100
---------------
11,619,050
---------------
Colorado - 1.6%
Arapahoe County
Capital Improvements
6.950%, 08/31/20 1500M 1,663,845
---------------
Connecticut - 1.9%
Conn State Health &
Educational Facs (MBIA)
5.750%, 07/01/16 1850M 1,893,900
---------------
Delaware - 1.1%
Delaware Health Facility
Auth (MBIA)
7.625%, 11/01/10 500M 544,215
University of DE Housing
& Dining Facs
6.625%, 11/01/10 500M 543,140
---------------
1,087,355
---------------
District of Columbia - 0.5%
District of Columbia
G/O (AMBAC)
7.500%, 06/01/09 500M 546,415
---------------
Florida - 2.8%
Orange County Healthcare A
(MBIA)
6.250%, 10/01/13 1500M 1,655,445
University Community
Hospital Inc (FSA)
7.500%, 09/01/11 1000M 1,130,190
---------------
2,785,635
---------------
Hawaii - 4.1%
Hawaii State G/O (FGIC)
5.125%, 02/01/09 3000M 3,011,910
Dept of Budget Financial
of HI (FSA)
7.650%, 07/01/19 1000M 1,156,460
Hawaii State Housing Finance
7.800%, 07/01/29 10M 10,521
---------------
4,178,891
---------------
Idaho - 0.6%
Idaho Housing Agency
Series D-1
8.000%, 01/01/20 575M 620,212
---------------
<CAPTION>
- -------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Illinois - 5.0%
Illinois Educational
Facs Authority
6.100%, 12/15/16 560M $ 580,927
Illinois Housing
Development Authority
7.000%, 07/01/10 990M 1,054,380
Illinois State Sales
Tax Revenue
6.500%, 06/15/13 1000M 1,120,420
Illinois State Sales
Tax Revenue
6.000%, 06/15/12 2180M 2,347,293
---------------
5,103,020
---------------
Indiana - 0.1%
Indianapolis IN Economic
Dev Revenue
7.800%, 12/01/17 55M 57,286
---------------
Kansas - 0.2%
Kansas City Leavenworth
Cty & City of Lenexa
Series A - Mtg Rev
8.400%, 05/01/15 150M 156,063
---------------
Louisiana - 0.5%
Jefferson LA Sales Tax (MBIA)
8.250%, 07/01/02 500M 548,910
---------------
Massachusetts - 4.3%
Massachusetts State G/O
6.875%, 07/01/10 1000M 1,122,330
Massachusetts State G/O (FGIC)
6.000%, 08/01/09 1000M 1,093,860
Mass State Health &
Educational Facs
Beth Israel Hospital Revenue
7.000%, 07/01/09 1000M 1,057,590
Mass State Health
& Educational Facs
New England Baptist
Hospital Revenue
7.300%, 07/01/11 1000M 1,079,460
---------------
4,353,240
---------------
Michigan - 1.0%
Michigan State Building
Authority
6.250%, 10/01/20 170M 175,015
Royal Oak MI Hospital
Finance Authority
7.375%, 01/01/20 750M 812,918
---------------
987,933
---------------
Missouri - 1.2%
Central MO State
University (MBIA)
7.000%, 07/01/14 1000M 1,129,700
Missouri Housing
Development Comm
9.375%, 04/01/16 60M 64,705
---------------
1,194,405
---------------
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
North Carolina - 1.0%
NC Eastern Municipal
Power Agency
6.000%, 01/01/06 1000M $ 1,046,200
---------------
Nebraska - 2.1%
Omaha Public Power District
7.625%, 02/01/12 1000M 1,024,500
Omaha Public Power District
6.150%, 02/01/12 1000M 1,113,200
---------------
2,137,700
---------------
New Hampshire - 0.8%
New Hampshire Higher
Ed & Health (MBIA)
7.625%, 07/01/20 750M 827,460
---------------
New Jersey - 1.1%
University of Medicine
& Dentistry
7.200%, 12/01/19 1000M 1,101,170
---------------
Nevada - 1.1%
Clark Cty NV McCarran
Intl Airport (AMBAC)
6.150%, 07/01/07 1000M 1,073,530
---------------
New York - 20.4%
Metro Transit Authority
5.750%, 07/01/13 2000M 2,032,020
Monroe County NY G/O
6.000%, 03/01/14 1000M 1,089,060
New York City NY G/O
7.100%, 02/01/09 1200M 1,302,072
New York City NY G/O
6.500%, 02/15/06 3500M 3,731,420
NYC Municipal Water
Fin Authority
7.000%, 06/15/07 250M 279,027
NY State Dorm Authority
6.375%, 07/01/08 3000M 3,177,810
NY State Dorm Authority
6.000%, 08/15/16 2800M 2,888,284
NY State Environmental
Facs Corp
7.250%, 06/15/10 50M 56,395
NY State Environmental
Facs Corp
6.600%, 09/15/12 1450M 1,599,974
NY State Medical Care Facs
7.875%, 08/15/08 250M 280,290
Triborough Bridge &
Tunnel Authority
8.125%, 01/01/12 500M 529,845
Triborough Bridge &
Tunnel Authority
6.000%, 01/01/12 3250M 3,547,733
---------------
20,513,930
---------------
Ohio - 0.7%
OH Housing Finance Authority
7.050%, 09/01/16 665M 695,297
---------------
</TABLE>
(continued)
42
<PAGE>
Sentinel Tax-Free Income Fund
Investment in Securities (cont'd.)
at November 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Oregon - 4.0%
Klamath Falls Elec Revenue
4.500%, 05/01/23 4000M $4,027,240
--------------
Pennsylvania - 5.4%
Allegheny County Sanitation
Auth (FGIC)
7.500%, 12/01/16 500M 539,875
Montgomery Cty Higher Ed
& Health
8.300%, 06/01/10 500M 571,940
Pennsylvania State G/O
6.250%, 07/01/11 2000M 2,232,220
PA Higher Educational
Facs Auth C (MBIA)
7.200%, 07/01/19 1000M 1,094,280
PA State Educational
Facs Authority
5.600%, 11/15/10 1000M 1,043,330
--------------
5,481,645
--------------
Puerto Rico - 6.8%
Puerto Rico Hwy & Transportation
5.500%, 07/01/36 4750M 4,674,475
Puerto Rico Elec Power Authority
6.125%, 07/01/08 2000M 2,173,800
--------------
6,848,275
--------------
Tennessee - 2.2%
Lawrenceburg TN Electrical
Revenue (MBIA)
6.625%, 07/01/18 1910M 2,222,056
--------------
Texas - 1.1%
North Central TX Health
6.250%, 05/15/10 1000M 1,102,680
--------------
Utah - 0.1%
Utah State Housing Finance
Authority
7.250%, 07/01/22 25M 26,412
--------------
Virginia - 5.3%
Fairfax County Water Authority
7.250%, 01/01/27 1000M 1,104,680
VA State Housing Development
Authority
5.200%, 01/01/06 1355M 1,364,688
VA State Public Bldg Authority
5.200%, 08/01/15 3000M 2,912,610
--------------
5,381,978
--------------
<CAPTION>
- -------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Vermont - 1.0%
Vermont Education &
Health Building
7.050%, 10/01/16 900M $ 996,966
--------------
Washington - 6.1%
Snohomish Cnty G/O
7.100%, 12/01/07 500M 554,475
Washington State G/O
6.200%, 03/01/11 1220M 1,337,669
Washington State Public Power
System Proj. #2
7.625%, 07/01/10 250M 284,455
Washington State Public Power
System Proj. #3 (MBIA)
7.125%, 07/01/16 3295M 3,914,032
--------------
6,090,631
--------------
Total Bonds
(Cost $90,377,682) 96,369,330
--------------
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 4.2%
Port St Helens OR
General Electric Project
4.000%, 06/01/10 (a) 200M $ 200,000
New Castle PA Hospital
3.8500%, 07/01/26 (a) 4000M 4,000,000
--------------
Total Short-Term Investments
(Cost $4,200,000) 4,200,000
--------------
Total Investments
(Cost $94,577,682)* 100,569,330
Excess of Other Assets
Over Liabilities 0.2% 163,634
--------------
Net Assets $ 100,732,964
==============
</TABLE>
* Also cost for federal income tax purposes.
At November 30, 1996, net unrealized appreciation for federal income tax
purposes aggregated $5,991,648 of which all related to appreciated
securities.
(a) Variable rate security that may be tendered back to issuer prior to
maturity, at par.
The following abbreviations are used in portfolio descriptions:
(AMBAC) - Guaranteed by American Municipal Bond Association Corp.
(FGIC) - Guaranteed by Financial Guaranty Insurance Co.
(FSA) - Guaranteed by Financial Security Assurance Inc.
(MBIA) - Guaranteed by Municipal Bond Investors Assurance Corp.
G/O - General Obligation Bond
See Notes to Financial Statements.
43
<PAGE>
<TABLE>
<CAPTION>
Sentinel Tax-Free Income Fund
Statement of Assets and Liabilities
at November 31, 1996
- ------------------------------------------------------------
Assets
<S> <C>
Investments at value $100,569,330
Cash and cash equivalents 221,716
Receivable for securities sold 560,124
Receivable for fund shares sold 570
Receivable for interest 1,959,409
--------------
Total Assets 103,311,149
--------------
Liabilities
Payable for securities purchased 2,430,522
Payable for fund shares repurchased 42,913
Accrued expenses 26,645
Management fee payable 43,477
Distribution fee payable (Class A Shares) 24,788
Distribution fee payable (Class B Shares) 596
Fund service fee payable 9,244
--------------
Total Liabilities 2,578,185
--------------
Net Assets Applicable to Outstanding Shares $100,732,964
==============
Net Asset Value and Offering Price per Share
Class A Shares
$99,957,369 / 7,389,500 shares outstanding $ 13.53
Sales Charge -- 4.00% of offering price 0.56
Maximum Offering Price $ 14.09
==============
Class B Shares
$765,605 / 56,555 shares outstanding $ 13.54
==============
<CAPTION>
Net Assets Represent
<S> <C>
Capital stock at par value $ 74,461
Paid-in capital 93,729,884
Accumulated undistributed net investment income 12,295
Accumulated undistributed net realized gain
on investments 924,676
Unrealized appreciation of investments 5,991,648
----------------
Net Assets $100,732,964
================
Investments at Cost $ 94,527,683
================
</TABLE>
<TABLE>
<CAPTION>
Sentinel Tax-Free Income Fund
Statement of Operations
For the Year Ended November 30, 1996
- -----------------------------------------------------------------
Investment Income
<S> <C>
Income:
Interest $ 6,033,632
----------------
Expenses:
Management advisory fee 548,846
Transfer agent and custodian 126,906
Distribution expense (Class A Shares) 207,052
Distribution expense (Class B Shares) 2,765
Accounting services 43,100
Professional fees 19,040
Reports and notices to shareholders 5,465
Directors' fees and expenses 11,806
Other 45,092
----------------
Total Expenses 1,010,072
Expense Offset (34,206)
----------------
Net Expenses 975,866
----------------
Net Investment Income 5,057,766
----------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 1,068,481
Net change in unrealized appreciation (1,972,048)
----------------
Net Realized and Unrealized Loss on Investments (903,567)
----------------
Net Increase in Net Assets from Operations $ 4,154,199
================
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
Sentinel Tax-Free Income Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
------------- -------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 5,057,766 $ 5,344,289
Net realized gain on sales of investments 1,068,481 1,604,746
Net change in unrealized appreciation (1,972,048) 8,580,337
------------- -------------
Net increase in net assets from operations 4,154,199 15,529,372
------------- -------------
Distributions to Shareholders
From net investment income
Class A Shares (5,039,025) (5,344,668)
Class B Shares (9,954) -
From net realized gain on investments
Class A Shares - -
Class B Shares - -
------------- -------------
Total distributions to shareholders (5,048,979) (5,344,668)
------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 11,436,258 19,708,036
Class B Shares 825,932 -
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,258,113 3,604,212
Class B Shares 8,945 -
Net asset value of shares issued in exchange
for net assets of another investment company - 4,493,940
------------ ------------
15,529,248 27,806,188
Less: Payments for shares reacquired
Class A Shares (24,320,856) (27,420,131)
Class B Shares (86,393) -
------------ ------------
Increase (decrease) in net assets from
capital share transactions (8,878,001) 386,057
------------ ------------
Total Increase (Decrease) in Net Assets for
period (9,772,781) 10,570,761
Net Assets: Beginning of period 110,505,745 99,934,984
------------ ------------
Net Assets: End of period $100,732,964 $110,505,745
============ ============
Undistributed Net Investment Income
at End of Period $ 12,295 $ 3,508
============ ============
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
Sentinel Tax-Free Income Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/96 11/30/95 11/30/94 11/30/93 11/30/92
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 13.62 $ 12.35 $ 13.81 $ 13.13 $ 12.68
---------- ---------- ---------- ---------- ---------
Income from Investment Operations
Net investment income 0.65 0.67 0.68 0.73 0.76
Net realized and unrealized gain (loss)
on investments (0.09) 1.27 (1.34) 0.79 0.47
---------- ---------- ---------- ---------- ---------
Total from investment operations 0.56 1.94 (0.66) 1.52 1.23
---------- ---------- ---------- ---------- ---------
Less Distributions
Dividends from net investment income 0.65 0.67 0.68 0.73 0.76
Distributions from realized gains on investments - - 0.12 0.11 0.02
---------- ---------- ---------- ---------- ---------
Total Distributions 0.65 0.67 0.80 0.84 0.78
---------- ---------- ---------- ---------- ---------
Net asset value at end of period $ 13.53 $ 13.62 $ 12.35 $ 13.81 $13.13
========== ========== ========= ========= =========
Total Return (%) ** 4.3 16.0 (5.1) 11.9 10.0
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.94 0.90 0.75 0.64 0.50
Ratio of expenses to average net assets before
expense reductions (%) *** 0.97 0.99 0.94 0.90 0.72
Ratio of net investment income to average net assets (%) 4.86 5.06 * 5.11 * 5.41 * 5.93 *
Portfolio turnover rate (%) 112 112 92 39 48
Net assets at end of period (000 omitted) $ 99,967 $ 110,506 $ 99,935 $ 111,968 $ 55,538
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eight Months
Class B Shares Ended 11/30/96(A)
----------------
<S> <C>
Net asset value at beginning of period $13.28
----------------
Income from Investment Operations
Net investment income 0.32
Net realized and unrealized gain on investments 0.26
----------------
Total from investment operations 0.58
----------------
Less Distributions
Dividends from net investment income 0.32
Distributions from realized gains on investments -
----------------
Total Distributions 0.32
----------------
Net asset value at end of period $13.54
================
Total Return (%) ** 4.5 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.18 +
Ratio of expenses to average net assets before
expense reductions (%)*** 2.48 +
Ratio of net investment income to average net assets (%) 3.61 +
Portfolio turnover rate (%) 112
Net assets at end of period (000 omitted) $ 766
</TABLE>
(A) Commenced operations April 1, 1996.
+ Annualized
++ Not annualized
* Ratio of net investment income to average net assets would have been
5.00% in 1995, 4.92% in 1994, 5.14% in 1993 and 5.71% in 1992, in the
absence of a voluntary expense reimbursement.
** 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 return.
*** Expense reductions are comprised of the voluntary expense
reimbursements and include, effective 1995, the earning credits as
described in Notes (2) and (1) H.
See Notes to Financial Statements.
46
<PAGE>
Sentinel New York Tax-Free Income Fund seeks a high level of current income and
stability of principal through investments in obligations issued by the State of
New York, its agencies and authorities, which are exempt from Federal and New
York State income taxes.
Sentinel New York Tax-Free Income Fund
On a relative basis, tax-free securities outperformed taxable fixed income
securities over the course of the year.
For the fiscal year ended November 30, 1996, the Sentinel New York Tax-Free
Income Fund had a total return of 4.8% compared to 5.9% for the Lehman Municipal
Bond Index. During this same period, the average Lipper New York State Municipal
Debt Fund returned 4.8%.
Interest rates were volatile throughout 1996 as market participants responded to
conflicting data regarding the level of economic activity. A surprisingly strong
employment report in February was instrumental in driving up the rate of the
thirty-year treasury bond from approximately 6.0% to a peak of 7.2% in June. As
rates stabilized above 7.0%, the interest rate sensitive sectors of the economy
such as housing and automobile sales began to slow, setting the stage for a
rally which drove the yield of the long treasury bond down to 6.4% at the end of
November.
As retail investors have continued to concentrate investment dollars in
equities, the bond markets have become dominated by large institutional traders.
This had the effect of increasing the sensitivity of fixed income prices to
small changes in economic data, causing excessive volatility.
On a relative basis, tax-free securities outperformed taxable fixed income
securities over the course of the year. The driving factor in this result was
the lack of supply of municipal bonds compared to a growing demand for tax-
exempt income primarily from the property and casualty insurance industry. On an
after-tax basis, municipal bonds are tough to beat. For example, a high grade,
ten-year maturity municipal bond yielding 4.7% has a taxable equivalent yield of
8.0% for an investor in the 36% federal tax bracket blended to include New York
state tax, 1.9% more than a comparable treasury security. At current prices,
municipal bonds provide after-tax yields which compare favorably to corporate,
government and mortgage backed securities for investors who are looking to
maximize risk adjusted, after-tax cash flows in their fixed income portfolios.
In this environment, we will continue to position the Sentinel New York Tax-Free
Income Fund to take advantage of opportunities while maintaining our
conservative mix of quality assets in order to provide our shareholders with a
relatively high level of current income exempt from New York state, City and
federal taxation.
/s/ Kenneth J Hart
Kenneth J. Hart
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 0.6% 4.8%
- --------------------------------------
Since
Inception* 5.1% 7.7%
- --------------------------------------
*3/27/95
</TABLE>
+Sales charge applicable to year of initial investment.
<TABLE>
<CAPTION>
================================================================================
Sentinel NY Tax-Free Income Fund Performance
Inception as of opening of business 3/27/95 through 11/30/96
NY Tax-Free Income Lipper's NY Municipal Lehman Municipal
with/load Debt Fund Avg. Bond Index
--------- ------------- ----------
<S> <C> <C> <C>
03/27/95 9,600
0 3/31/95 9,617 10,000 10,000
1 4/30/95 9,608 10,010 10,012
2 5/31/95 9,993 10,331 10,331
3 6/30/95 9,789 10,195 10,241
4 7/31/95 9,843 10,258 10,338
5 8/31/95 9,966 10,374 10,469
6 9/30/95 10,011 10,428 10,535
7 10/30/95 10,206 10,597 10,688
8 11/30/95 10,376 10,814 10,866
9 12/31/95 10,460 10,930 10,970
10 1/31/96 10,519 10,967 11,054
11 2/29/96 10,397 10,874 10,978
12 3/31/96 10,231 10,695 10,838
13 4/30/96 10,197 10,650 10,807
14 5/30/96 10,190 10,649 10,803
15 6/30/96 10,303 10,762 10,921
16 7/31/96 10,399 10,864 11,020
17 8/31/96 10,376 10,857 11,017
18 9/30/96 10,555 11,006 11,171
19 10/31/96 10,662 11,134 11,298
20 11/30/96 10,869 11,334 11,505
</TABLE>
Chart Ending Values & Legend
3/27/95 inception through 11/30/96
<TABLE>
<S> <C>
_______ Sentinel NY Tax-Free Income Fund $10,869
- - - - - Lehman Municipal Bond Index* $11,505
- --- - - Lipper NY Municipal Debt Fund Average $11,334
</TABLE>
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
47
<PAGE>
Sentinel New York Tax-Free Income Fund
Investment in Securities
at November 30, 1996
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bonds 100.6%
<S> <C> <C>
New York 91.6%
Insured University Revenue (MBIA)
5.625%, 07/01/13 250M $255,687
Metro Transportation Authority
5.75%, 07/01/13 250M 254,003
Monroe County Water
Improvement (MBIA)
5.60%, 12/01/11 225M 229,936
Monroe County G/O
6.00%, 03/01/14 250M 272,265
New York City Municipal
Assistance Corp.
4.30%, 07/01/99 225M 226,411
New York City Municipal
Water Fin. Auth.
6.00%, 06/15/17 100M 101,569
New York City G/O
6.50%, 02/15/06 250M 266,530
New York State Dorm.
Authority Revenue
Cornell Univ. - Ser A
7.375%, 07/01/30 50M 55,356
State Univ. Educ. Fac. - Ser A
7.20%, 05/15/06 200M 229,486
State Univ. Educ. Fac. - Ser A
6.375%, 05/15/14 250M 261,520
Department of Health
5.50%, 07/01/20 125M 119,129
City University System
5.625%, 07/01/16 250M 248,375
New York State Energy Resources
7.50%, 07/01/25 50M 53,811
New York State Environmental
Facilities
5.75%, 01/15/13 250M 259,980
5.75%, 03/15/13 300M 298,401
New York State Environmental
Water Revenue
7.25%, 06/15/10 60M 67,674
New York State Housing
Finance Agency
5.625%, 05/01/02 250M 255,410
New York State Local Govt.
Assistance Corp.
7.00%, 04/01/08 100M 111,574
New York State Medical
Care Facilities
7.875%, 08/15/20 20M 22,257
7.30%, 02/15/21 25M 27,897
Hospitals & Nursing Homes
6.45%, 02/15/09 230M 244,393
New York State Mortgage
Agency Revenue
7.95%, 04/01/22 100M 106,483
New York State Thwy. Auth.
Service Contract
6.25%, 04/01/14 200M $ 207,684
New York State Urban
Development Corp.
5.70%, 04/01/20 250M 249,338
Port Authority NY & NJ
5.00%, 07/15/12 70M 68,074
Suffolk County NY Water
Authority (AMBAC)
5.625%, 06/01/16 170M 171,081
Triborough Bridge & Tunnel
Authority
6.00%, 01/01/12 250M 272,903
6.875%, 01/01/15 65M 70,302
United Nations Development
Corp.
6.00%, 07/01/12 250M 258,095
-----------
5,265,624
-----------
Puerto Rico 9.0%
Puerto Rico Commonwealth
6.00%, 07/01/09 250M 272,140
Puerto Rico Commonwealth
Hwy. & Trans.
5.50%, 07/01/36 250M 246,025
-----------
518,165
-----------
Total Bonds
(Cost $5,460,949 ) 5,783,789
-----------
Short-Term Investments 1.8%
New York City G/O
3.10%, 08/15/22 (a)
(Cost $100,000) 100M 100,000
-----------
Total Investments
(Cost $5,560,949)* 5,883,789
Excess of Liabilities
Over Other Assets (2.4%) (135,192)
-----------
Net Assets $5,748,597
- --------------------------------------------------------------------------------
</TABLE>
* Also cost for federal income tax purposes.
At November 30, 1996, net unrealized appreciation for federal income tax
purposes aggregated $322,840 all of which related to appreciated securities.
(a) Variable rate security that may be tendered back to issuer prior to
maturity, at par.
The following abbreviations are used in portfolio descriptions:
(AMBAC) - Guaranteed by American Municipal Bond Association Corp.
(MBIA) - Guaranteed by Municipal Bond Investors Assurance Corp.
G/O - General Obligation Bond
See Notes to Financial Statements.
48
<PAGE>
Sentinel New York Tax-Free Income Fund
Statement of Assets and Liabilities
at November 30, 1996
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $5,883,789
Cash and cash equivalents 71,114
Receivable for interest 103,290
-----------
Total Assets 6,058,193
-----------
Liabilities
Payable for securities purchased 269,728
Payable for fund shares repurchased 35,000
Accrued expenses 282
Management fee payable 2,531
Distribution fee payable 1,632
Fund service fee payable 423
-----------
Total Liabilities 309,596
-----------
Net Assets Applicable to Outstanding Shares 5,748,597
===========
Net Asset Value and Offering Price Per Share
$5,748,597 / 490,673 shares outstanding $11.72
Sales Charge--4.00% of Offering Price 0.49
Maximum Offering Price Per Share $12.21
===========
Net Assets Represent
Capital stock at par value $ 4,907
Paid-in capital 5,375,253
Accumulated undistributed net investment income 381
Accumulated undistributed net realized gain
on investments 45,216
Unrealized appreciation of investments 322,840
-----------
Net Assets $5,748,597
===========
Investments at Cost $5,560,949
===========
<CAPTION>
Sentinel New York Tax-Free Income Fund
Statement of Operations
For the Year Ended November 30, 1996
- --------------------------------------------------------------
<S> <C>
Investment Income
Income:
Interest $314,372
-----------
Expenses:
Management advisory fee 29,167
Transfer agent and custodian 6,933
Distribution expense 11,005
Accounting services 2,282
Professional fees 3,085
Reports and notices to shareholders 647
Directors' fees and expenses 632
Other 6,922
-----------
Total Expenses 60,673
Expense Offset (3,270)
-----------
Net Expenses 57,403
-----------
Net Investment Income 256,969
-----------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 96,585
Net change in unrealized appreciation (84,924)
-----------
Net Realized and Unrealized Gain on Investments 11,661
-----------
Net Increase in Net Assets from Operations $268,630
===========
</TABLE>
See Notes to Financial Statements.
49
<PAGE>
Sentinel New York Tax-Free Income Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Months
Ended Ended
11/30/96 11/30/95*
----------- ------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 256,969 $ 158,532
Net realized gain (loss) on sales of investments 96,585 (47,300)
Net change in unrealized appreciation (84,924) 289,172
----------- -----------
Net increase in net assets from operations 268,630 400,404
----------- -----------
Distributions to Shareholders
From net investment income (256,981) (158,139)
From realized gain on investments - -
----------- -----------
Total distributions to shareholders (256,981) (158,139)
----------- -----------
From Capital Share Transactions
Net proceeds from sales of shares 746,749 984,046
Net asset value of shares in reinvestment
of dividends and distributions 245,239 147,544
Net asset value of shares issued in exchange for
net assets of another investment company - 5,759,369
----------- -----------
991,988 6,890,959
Less: Payments for shares reacquired (587,443) (1,800,821)
----------- -----------
Increase in net assets from capital share
transactions 404,545 5,090,138
----------- -----------
Total Increase in Net Assets for period 416,194 5,332,403
Net Assets: Beginning of period 5,332,403 -
----------- -----------
Net Assets: End of period $5,748,597 $ 5,332,403
=========== ===========
Undistributed Net Investment Income
at End of Period $ 381 $ 393
=========== ===========
</TABLE>
* Commenced operations March 27, 1995.
See Notes to Financial Statements.
50
<PAGE>
Sentinel New York Tax-Free Income Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months
Year Ended Ended
11/30/96 11/30/95(A)
------------ ----------
<S> <C> <C>
Net asset value at beginning of period $11.72 $11.19
------------ ----------
Income from Investment Operations
Net investment income 0.53 0.36
Net realized and unrealized gain on
investments - 0.53
------------ ----------
Total from investment operations 0.53 0.89
------------ ----------
Less Distributions
Dividends from net investment income 0.53 0.36
Distributions from realized gains on
investments - -
------------ ----------
Total Distributions 0.53 0.36
------------ ----------
Net asset value at end of period $11.72 $ 11.72
============ ==========
Total Return (%) * 4.8 8.1 ++
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 1.04 1.22 +
Ratio of expenses to average net assets
before expense reductions (%) ** 1.10 1.29 +
Ratio of net investment income to
average net assets (%) 4.65 4.60 +
Portfolio turnover rate (%) 48 32
Net assets at end of period (000
omitted) $5,749 $ 5,332
</TABLE>
(A) Commenced operations March 27, 1995.
+ Annualized
++ Not 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 return.
** Expense reductions are comprised of the voluntary expense
reimbursements and include, effective 1995, the earning credits as
described in Note (2) and (1) H
See Notes to Financial Statements.
51
<PAGE>
Sentinel Government Securities Fund seeks high current returns with a high
degree of capital preservation through the securities issued or guaranteed by
the United States government, its agencies and instrumentalities.
Sentinel Government Securities Fund
The twelve-month period ended November 30, 1996, can be categorized as one of
high volatility in terms of the direction of interest rates, the shape of the
U.S. Treasury yield curve, and the relative spreads of mortgage-backed
securities.
For the fiscal year ended November 30, 1996, the Sentinel Government Securities
Fund produced a total return of 3.2%. This compares to an average return of
4.4%, as reported by Lipper Analytical Services Inc., for U.S. government funds
with similar objectives. The Lehman Government Bond Index returned 5.3% over the
same period, while the Lehman Mortgage Index returned 7.2%.
The twelve-month period ended November 30, 1996, can be categorized as one of
high volatility in terms of the direction of interest rates, the shape of the
U.S. Treasury yield curve, and the relative spreads of mortgage-backed
securities (MBS). Bond market psychology changed abruptly from one economic
release to the next as participants attempted to anticipate moves by the Federal
Reserve and to position themselves accordingly. The Federal Reserve did ease
monetary policy twice over the twelve-month period, once in December 1995 and
again in January 1996, but remained inactive for the balance of the year.
Early in the year, the bond market had discounted additional Fed easing.
However, real economic growth for the first half of 1996 was somewhat greater
than expected, resulting in an abrupt change in market psychology. Interest
rates rose between 125-to-150 basis points by mid-year. Real GDP growth for the
third quarter of 1996 posted a very modest 2.0% gain, igniting a powerful bond
market rally. Interest rates reversed course and fell between 85-to-100 basis
points. Interestingly, interest rates rose only 25-to-30 basis points over the
twelve-month period ended November 30, 1996. The table on the following page
illustrates the highly volatile environment experienced in the bond market over
the twelve month period by showing yields on various U.S. Treasuries; the shape
of the U.S. Treasury yield curve, as measured by the 2-year Note to 30-year Bond
spread; and yield spreads available on 30-year mortgage-backed securities
relative to the 10-year U.S. Treasury Note.
<TABLE>
<CAPTION>
- ----------------------------------
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year -0.9% 3.2%
- -----------------------------------
5 Years 6.0% 6.9%
- -----------------------------------
10 Years 7.3% 7.7%
- -----------------------------------
</TABLE>
+Sales charge applicable to
year of initial investment.
================================================================================
Sentinel Government Securities Fund Performace
Ten Years Ended 11/30/96
[LINE GRAPH APPEARS HERE]
Gov't Secs. Fund
<TABLE>
<CAPTION>
Gov't Secs. Lipper's Government Lehman Gov't Lehman
with/load Fund Ave Bond Index Mortgage Index
--------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
0 Nov.'86 9,600 10,000 10,000 10,000
1 Nov.'87 9,716 9,996 10,118 10,328
2 Nov.'88 10,515 10,802 10,917 11,437
3 Nov.'89 11,782 12,105 12,496 13,046
4 Nov.'90 12,755 12,941 13,401 14,291
5 Nov.'91 14,481 14,572 15,175 16,483
6 Nov.'92 15,727 15,764 16,548 17,756
7 Nov.'93 17,391 17,382 18,548 19,062
8 Nov.'94 16,610 16,453 17,883 18,757
9 Nov.'95 19,585 19,165 20,994 21,811
10 Nov.'96 20,215 20,005 22,107 23,387
</TABLE>
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Indices and Average shown above, you should note
that the Fund's performance reflects the maximum 4% sales charge and includes
all expenses and management fees, while that shown for the Indices and Average
does not. Past performance is not predictive of future results.
Chart Ending Values & Legend
Sentinel Government Securities Fund $20,215
Lehman Government Bond Index* $22,107
Lehman Morgage Index* $23,387
Lipper Gen'l US Government Fund Average $20,005
*An unmanaged index of bonds reflecting average prices in the bond market.
52
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
11/30/95 2/13/96 7/5/96 11/30/96
2-year Note 5.35% 4.79% 6.43% 5.58%
5-year Note 5.52 5.13 6.82 5.83
10-year Note 5.75 5.58 7.05 6.05
30-year Bond 6.13 6.03 7.19 6.36
Slope of Yield Curve +78 bp +124 bp +76 bp +78 bp
FNMA 7 1/2% +143 bp +141 bp +109 bp +124 bp
</TABLE>
Over the fiscal year, the Fund reduced its portfolio duration from 5.0 years to
4.3 years. In addition, the Fund increased its exposure to mortgage-backed
securities to 75% of assets, up from 23% as of November 30, 1995. The Fund
actively engaged in U.S. Treasury dollar rolls, a strategy which added
approximately 58 basis points to the Fund's return. The Fund's fiscal year
relative performance was hindered by its early relative underweighting in the
strong MBS sector and its somewhat longer duration.
In summary, we remain committed to achieving the Fund's concurrent goals of high
current income and capital preservation through all market conditions.
/s/ David M. Brownlee,
David M. Brownlee, CFA
53
<PAGE>
Sentinel Government Securities Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations 91.7%
U.S. Treasury Obligations 22.5%
5-Year:
Note 6.25%, '01 3000M $ 3,051,660
--------------
10-Year:
Note 5.875%, '04 4000M 3,979,840
Note 6.5%, '06 5500M 5,681,335
--------------
9,661,175
--------------
30-Year:
Note 7.125%, '23 4000M 4,317,400
Note 6%, '26 4000M 3,774,120
--------------
8,091,520
--------------
Total U.S. Treasury Obligations 20,804,355
--------------
U.S. Government Agency Obligations 69.2%
Federal Home Loan Bank 2.2%
5-Year:
6.65%, '01 2000M 2,014,060
--------------
Federal Home Loan Mortgage Corporation 12.9%
15-Year:
8.5%, '98 36M 36,991
9%, '06 2192M 2,310,962
6.5%, '07 1772M 1,793,807
8%, '07 2197M 2,278,809
--------------
6,420,569
==============
30-Year:
8.25%, '04 216M 226,258
11%, '09 20M 21,844
10.5%, '13 43M 47,679
11%, '15 4M 4,508
11%, '15 59M 65,735
11%, '15 68M 76,442
11%, '15 43M 48,179
11%, '16 8M 8,582
11%, '16 33M 37,163
11%, '17 16M 18,071
11%, '17 157M 175,616
10.5%, '18 157M 174,514
10.5%, '18 248M 275,790
11%, '20 12M 13,959
8.5%, '25 4076M 4,293,281
--------------
5,487,621
--------------
Total Federal Home Loan
Mortgage Corporation 11,908,190
--------------
Federal National Mortgage Association 28.0%
Collateralized Mortgage Obligation:
148(B), 0%, '98 4212M 4,058,988
--------------
15-Year:
8.25%, '02 139M 144,236
7.75%, '05 4641M 4,812,134
8%, '06 1425M 1,471,982
9%, '09 2913M 3,115,603
11%, '11 983M 1,100,292
7.5%, '11 2905M 2,968,710
7%, '11 3000M 3,020,610
--------------
16,633,567
--------------
30-Year:
9.25%, '09 439M $ 472,418
9.25%, '11 1904M 2,051,926
7.5%, '14 2494M 2,589,527
--------------
5,113,871
--------------
Total Federal National
Mortgage Association 25,806,426
--------------
Government National
Mortgage Association 26.1%
Collateralized Mortgage Obligation:
1996 - 17(J), 7%, '12 2000M 2,017,680
--------------
10-Year:
7%, '03 731M 743,918
7%, '03 1030M 1,048,097
1,792,015
--------------
15-Year:
10%, '01 39M 41,570
7.5%, '08 2044M 2,103,288
9%, '09 1068M 1,127,499
7%, '11 4689M 4,752,012
--------------
8,024,369
--------------
30-Year:
8%, '08 3794M 3,994,818
9.75%, '13 302M 325,035
11%, '14 61M 66,814
10.5%, '15 59M 65,468
10.5%, '16 112M 124,435
10.5%, '17 22M 24,406
10.5%, '17 73M 80,907
10.5%, '19 53M 58,787
10.5%, '19 35M 38,606
10.5%, '19 92M 102,082
10.5%, '19 135M 150,789
10.5%, '19 32M 35,569
10.5%, '19 12M 13,798
8.25%, '26 2018M 2,095,152
7.75%, '26 1981M 2,026,664
7.5%, '26 3000M 3,040,290
--------------
12,243,620
--------------
Total Government National
Mortgage Association 24,077,684
--------------
Total U.S. Government
Agency Obligations 63,806,360
--------------
Total U.S. Government Obligations
(Cost $83,409,778) 84,610,715
--------------
Other Collateralized Mortgage
Obligations 7.6%
Collateralized Mortgage Obligation
Trust Series 22(Y)
7.95%, '17 3664M 3,781,091
Veterans Affairs 1996-3
Class 3(PT)
8.490834%, '26 2976M 3,203,376
--------------
Total Other Collateralized
Mortgage Obligations
(Cost $6,780,290) 6,984,467
--------------
Corporate Short-Term Notes 5.8%
Beneficial Corp. 5.26%,
12/16/96 2400M $ 2,394,740
Prudential Funding Corp. 5.26%,
12/11/96 3000M 2,995,617
--------------
Total Corporate Short-Term Notes
(Cost $5,390,357) 5,390,357
--------------
Repurchase Agreement 7.9%
Repurchase agreement with RBC Dominion
Securities, Inc. dated 11/27/96 at
5.32% to be repurchased at $7,305,394
on 12/02/96, collateralized by a
$7,286,000 U.S. Treasury Note due 07/31/97
valued at $7,447,188.
(Cost $7,300,000) 7300M 7,300,000
--------------
Total Investments
(Cost $102,880,425)* 104,285,539
Excess of Liabilities
Over Other Assets (13.0%) (11,986,518)
--------------
Net Assets $ 92,299,021
==============
</TABLE>
* Also cost for federal income tax purposes.
At November 30, 1996, unrealized appreciation for
federal income tax purposes aggregated $1,405,114
of which $1,564,509 related to appreciated securities
and $159,395 related to depreciated securities.
See Notes to Financial Statements
54
<PAGE>
Sentinel Government Securities Fund
Statement of Assets and Liabilities
at November 30, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $104,285,539
Cash and cash equivalents 446,461
Receivable for securities sold 24,413,902
Receivable for fund shares sold 54
Receivable for interest 714,190
------------
Total Assets 129,860,146
------------
Liabilities
Payable for securities purchased 37,420,739
Payable for fund shares repurchased 21,844
Accrued expenses 39,567
Management fee payable 40,246
Distribution fee payable 27,183
Fund service fee payable 11,546
------------
Total Liabilities 37,561,125
------------
Net Assets Applicable to Outstanding Shares $ 92,299,021
============
Net Asset Value and Offering Price Per Share
$92,299,021 / 9,233,946 shares outstanding $ 10.00
Sales Charge -- 4.00% of Offering Price 0.42
------------
Maximum Offering Price Per Share $ 10.42
============
Net Assets Represent
Capital stock at par value $ 92,339
Paid-in capital 97,340,115
Accumulated undistributed net investment income 1,010
Accumulated undistributed net realized loss
on investments (6,539,557)
Unrealized appreciation of investments 1,405,114
------------
Net Assets $ 92,299,021
============
Investments at Cost $102,880,425
============
<CAPTION>
Sentinel Government Securities Fund
Statement of Operations
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Investment Income
Income:
Interest $ 7,163,372
------------
Expenses:
Management advisory fee 527,418
Transfer agent and custodian 182,923
Distribution expense 199,480
Accounting services 41,475
Professional fees 18,150
Reports and notices to shareholders 11,448
Directors' fees and expenses 11,312
Other 20,777
------------
Total Expenses 1,012,983
Expense Offset (19,058)
------------
Net Expenses 993,925
------------
Net Investment Income 6,169,447
------------
Realized and Unrealized Loss on Investments
Net realized loss on sales of investments (3,051,420)
Net change in unrealized appreciation (475,659)
------------
Net Realized and Unrealized Loss on Investments (3,527,079)
------------
Net Increase in Net Assets from Operations $ 2,642,368
============
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
Sentinel Government Securities Fund
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
------------- --------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 6,169,447 $ 6,843,293
Net realized gain (loss) on sales of
investments (3,051,420) 3,976,086
Net change in unrealized appreciation (475,659) 6,533,082
------------- --------------
Net increase in net assets from operations 2,642,368 17,352,461
------------- --------------
Distributions to Shareholders
From net investment income (6,067,900) (6,684,083)
From net realized gain on investments - -
------------- --------------
Total distributions to shareholders (6,067,900) (6,684,083)
------------- --------------
From Capital Share Transactions
Net proceeds from sales of shares 11,859,191 12,011,122
Net asset value of shares in reinvestment
of dividends and distributions 4,652,285 5,223,850
------------- --------------
16,511,476 17,234,972
Less: Payments for shares reacquired (28,887,111) (24,260,467)
------------- --------------
Decrease in net assets from capital share
transactions (12,375,635) (7,025,495)
------------- --------------
Total Increase (Decrease) in Net Assets for
period (15,801,167) 3,642,883
Net Assets: Beginning of period 108,100,188 104,457,305
------------- --------------
Net Assets: End of period $ 92,299,021 $108,100,188
============= ==============
Undistributed (Distributions in Excess of)
Net Investment Income at End of Period $ 1,010 $ (2,180)
============= ==============
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
Sentinel Government Securities Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
11/30/96 11/30/95 11/30/94 11/30/93 11/30/92
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.30 $ 9.31 $ 10.45 $ 10.18 $ 10.04
----------- ----------- ----------- ----------- -----------
Income from Investment Operations
Net investment income 0.61 0.63 0.59 0.62 0.70
Net realized and unrealized gain (loss)
on investments (0.30) 0.99 (1.04) 0.42 0.14
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.31 1.62 (0.45) 1.04 0.84
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends from net investment income 0.61 0.63 0.58 0.60 0.70
Distributions from realized gains on investments - - 0.11 0.17 -
----------- ----------- ----------- ----------- -----------
Total Distributions 0.61 0.63 0.69 0.77 0.70
----------- ----------- ----------- ----------- -----------
Net asset value at end of period $ 10.00 $ 10.30 $ 9.31 $ 10.45 $ 10.18
=========== =========== =========== =========== ===========
Total Return (%) * 3.2 17.9 (4.5) 10.6 8.6
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.00 1.03 1.00 0.98 0.76
Ratio of expenses to average net assets before
expense reductions (%) ** 1.01 1.04 1.00 0.98 0.76
Ratio of net investment income to average net assets (%) 6.18 6.50 5.95 6.06 6.90
Portfolio turnover rate (%) 614 367 149 97 79
Net assets at end of period (000 omitted) $ 92,299 $ 108,100 $ 104,457 $ 134,749 $68,293
</TABLE>
* 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 return.
** Expense reductions are comprised of the voluntary expense
reimbursements and include, effective 1995, the earning credits as
described in Notes (2) and (1)H.
See Notes to Financial Statements.
57
<PAGE>
Sentinel Short-Intermediate Government Fund seeks as high a level of current
income as is consistent with preservation of capital through securities issued
or guaranteed by the U.S. government, its agencies and instrumentalities.
Sentinel Short-Intermediate Government Fund
Given the volatility of interest rates over the last four years, the Sentinel
Short-Intermediate Government Fund is structured to experience relatively minor
price fluctuations in its NAV, while offering a yield in excess of those
available on money market securities.
For the fiscal year ended November 30, 1996, the Sentinel Short-Intermediate
Government Fund produced a total return of 5.6%. This compares favorably to an
average return of 5.1% for the Lipper Analytical Services Inc. universe of short
maturity U.S. government funds with similar objectives. The Lehman 1-3 year
Government Index returned 5.9% for the same period.
The investment goal of the Fund is to provide a high level of current income,
consistent with the preservation of capital, by investing in only U.S.
government securities, including its agencies and instrumentalities. The Fund
attempts to earn a competitive current yield and rate of total return between
that of a money market fund and that provided by a long-term government bond
fund. At least 65% of the Fund's assets are invested in U.S. government
securities with average maturities of 2 to 5 years. Included in this group of
securities are U.S. Treasury and agency issues, as well as mortgage-backed
securities issued by the instrumentalities of the U.S. government. The
investment strategy of the Fund is to be at least 95% invested in all market
environments, with a primary focus on yield, as the price
appreciation/depreciation of short maturity securities is fairly limited over a
12-month investment horizon. In addition, yield and total return are highly,
positively correlated for short duration instruments over short investment
horizons. The Fund's target duration is 2.0 years, managed within a range of 1.5
to 2.5 years.
The twelve-month period ended November 30, 1996, proved to be one of high
volatility. Market psychology changed abruptly from one economic release to the
next as reported economic statistics gave very mixed signals with respect to
future economic growth and the outlook for inflation. Over the period, the yield
on the 2-year U.S. Treasury Note rose 23 basis points to 5.58%, while the 30-
year U.S. Treasury Bond yield also increased 23 basis points to 6.36%. However,
during the twelve-month period, interest rates experienced significant swings,
peaking in the early summer at 7.19% on the 30-year Bond and falling to 6.36% by
November 30, 1996.
[LINE GRAPH APPEARS HERE]
Short-Intermediate Gov't Fund
Short-Intermediate Lipper's Short US Lehman 1-3 yr
Gov't Fund with/load Gov't Fund Ave. Gov't Bond Index
-------------------- --------------- ----------------
03/37/95 9,900
0 03/31/95 9,900 10,000 10,000
1 4/30/95 9,984 10,070 10,089
2 5/31/95 10,191 10,258 10,262
3 6/30/95 10,221 10,299 10,317
4 7/31/95 10,240 10,302 10,358
5 8/31/95 10,301 10,368 10,420
6 9/30/95 10,342 10,418 10,471
7 10/30/95 10,421 10,501 10,558
8 11/30/95 10,525 10,594 10,648
9 12/31/95 10,615 10,682 10,728
10 1/31/96 10,678 10,753 10,819
11 2/29/96 10,618 10,706 10,777
12 3/31/96 10,614 10,693 10,769
13 4/30/96 10,603 10,695 10,780
14 5/30/96 10,620 10,707 10,804
15 6/30/96 10,695 10,780 10,883
16 7/31/96 10,734 10,815 10,925
17 8/31/96 10,753 10,844 10,965
18 9/30/96 10,898 10,937 11,065
19 10/31/96 11,021 11,047 11,190
20 11/30/96 11,119 11,133 11,273
<TABLE>
<CAPTION>
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 4.6% 5.6%
---------------------------------
Since
Inception* 6.5% 7.2%
---------------------------------
*3/27/95
+Sales charge applicable to year of initial investment.
</TABLE>
Chart Ending Values
& Legend
3/27/95 inception
through 11/30/96
--------- Sentinel $11,119
Short-Intermediate
Gov't Fund
- - - - - Lehman $11,273
1-3 Yr. Gov't
Bond Index*
----- - - Lipper $11,133
Short U.S. Gov't
Fund Average
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 1% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
58
<PAGE>
Given the volatility of interest rates over the last four years, the Sentinel
Short-Intermediate Government Fund is structured to experience relatively minor
price fluctuations in its NAV, while offering a yield in excess of those
available on money market securities. As of November 30, 1996, the Fund was
positioned 98% in short-term mortgage-backed securities, 1% in U.S.
Treasury/Agency notes, and 1% in money market instruments. The Fund utilizes
mortgage-backed securities for their excess yield spreads available over
comparable duration U.S. Treasuries. The Fund carefully limits the type of
mortgage-backed securities it buys to those which possess limited risk should
interest rates unexpectedly rise. In summary, the Fund's exposure to mortgage-
backed securities and its relatively short duration made the largest
contributions to the Fund's performance during the period.
/s/ David M. Brownlee
David M. Brownlee, CFA
59
<PAGE>
Sentinel Short-Intermediate Government Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- -------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations 85.1%
U.S. Treasury Obligations 1.4%
5-Year:
Note 6.25%, '01 500M $ 508,610
-----------
U.S. Government Agency Obligations 83.7%
Federal Home Loan Mortgage Corporation 43.1%
Collateralized Mortgage Obligations:
1057(D), 8%, '00 985M 1,005,893
1317-E, 7%, '04 764M 767,589
53(A) P11, 9.5%, '20 13M 12,967
-----------
1,786,449
-----------
5-Year:
8%, '00 518M 529,561
8%, '00 512M 522,985
7%, '00 1062M 1,076,808
8%, '00 532M 544,146
-----------
2,673,500
-----------
10-Year:
6.5%, '04 937M 950,824
-----------
15-Year:
8.5%, '01 858M 890,031
9.5%, '01 2M 2,200
9%, '01 372M 387,291
9%, '01 307M 319,577
9.5%, '01 5M 5,424
8%, '02 833M 865,067
7.5%, '02 770M 791,964
9.5%, '03 4M 4,264
9.5%, '03 5M 5,659
10%, '05 143M 151,372
9%, '06 767M 805,097
9%, '07 608M 637,338
8.5%, '07 65M 68,073
5.5%, '09 1155M 1,130,507
7%, '10 901M 910,766
-----------
6,974,630
-----------
30-Year:
8.5%, '03 899M 943,389
7%, '06 1083M 1,096,157
7%, '07 580M 587,030
8.25%, '07 653M 680,043
10.25%, '09 26M 29,249
-----------
3,335,868
-----------
Total Federal Home Loan
Mortgage Corporation 15,721,271
-----------
Federal National Mortgage Association 34.4%
Collateralized Mortgage Obligations:
1992 - 20(PG), 7%, '05 718M 720,065
-----------
15-Year:
7.5%, '02 314M 320,672
9%, '02 1216M 1,275,895
9%, '02 9M 9,585
10.5%, '03 74M 78,909
6%, '04 1234M 1,239,233
7%, '05 1007M 1,025,766
8%, '05 700M 724,073
7.5%, '09 963M $ 993,949
8%, '09 1448M 1,496,539
8.5%, '10 490M 511,852
7.5%, '10 939M 960,990
11%, '11 1702M 1,904,878
-----------
10,542,341
-----------
30-Year:
8%, '04 383M 397,466
8%, '04 499M 518,685
7.5%, '07 341M 347,929
-----------
1,264,080
-----------
Total Federal National
Mortgage Association 12,526,486
-----------
Government National Mortgage Association 6.2%
15-Year:
12.75%, '97 3M 3,149
10.5%, '98 5M 5,356
11.25%, '98 1M 1,138
11.25%, '98 0M 268
11.25%, '98 0M 176
11.25%, '98 1M 1,024
10.75%, '98 6M 5,923
10.75%, '98 3M 3,631
10.75%, '98 12M 13,389
9.5%, '99 10M 11,204
10.25%, '99 13M 13,431
11.25%, '00 16M 17,055
11%, '00 9M 9,822
11%, '00 0M 315
9.75%, '01 10M 10,410
9.75%, '01 4M 3,806
9%, '01 36M 38,492
9.5%, '04 11M 11,948
9%, '07 42M 44,069
7.5%, '08 479M 493,371
7.5%, '08 370M 381,208
-----------
1,069,185
-----------
30-Year:
6.5%, '03 346M 351,584
8%, '03 379M 394,233
9.25%, '07 43M 45,334
9%, '09 186M 198,254
10%, '09 10M 11,375
9.75%, '10 172M 185,352
10%, '16 19M 20,067
-----------
1,206,199
-----------
Total Government National
Mortgage Association 2,275,384
-----------
Total U.S. Government
Agency Obligations 30,523,141
-----------
Total U.S. Government Obligations
(Cost $30,679,102) 31,031,751
-----------
Other Collateralized Mortgage
Obligations 13.8%
Collateralized Mortgage Obligation
Trust Series 27(A)
7.25%, '17 337M $ 338,175
Georgia Federal Mortgage Corp.
Series A 4 10.5%, '14 1222M 1,263,180
MDC Asset Inv. Trust XII 3
8.94%, '18 1529M 1,578,703
Merrill Lynch Trust Series 5(B)
6%, '18 108M 104,370
Veterans Affairs 1996-1 Class 1G
6.75%, '00 1723M 1,745,358
-----------
Total Other Collateralized
Mortgage Obligations
(Cost $5,103,332) 5,029,786
-----------
Total Investments
(Cost $35,782,434)* 36,061,537
Excess of Other Assets
Over Liabilities 1.1% 412,157
-----------
Net Assets $36,473,694
===========
</TABLE>
- -------------------------------------------------------
* Also cost for federal income tax purposes.
At November 30, 1996, unrealized appreciation for federal income tax purposes
aggregated $279,103 of which $348,348 related to appreciated securities and
$69,245 related to depreciated securities.
See Notes to Financial Statements.
60
<PAGE>
Sentinel Short-Intermediate Government Fund
Statement of Assets and Liabilities
at November 30, 1996
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $36,061,537
Cash and cash equivalents 710,461
Receivable for securities sold 138,607
Receivable for fund shares sold 160,070
Receivable for interest 274,275
Receivable from fund administrator 22,650
Total Assets 37,367,600
-----------
Liabilities
Payable for securities purchased 773,958
Payable for fund shares repurchased 65,518
Accrued expenses 9,124
Management fee payable 15,667
Distribution fee payable 25,491
Fund service fee payable 4,148
-----------
Total Liabilities 893,906
===========
Net Assets Applicable to Outstanding Shares $36,473,694
===========
Net Asset Value and Offering Price Per Share
$36,473,694 / 3,718,756 shares outstanding $9.81
Sales Charge -- 1.00% of Offering Price 0.10
-----------
Maximum Offering Price Per Share $9.91
===========
Net Assets Represent
Capital stock at par value $ 37,188
Paid-in capital 37,329,306
Accumulated undistributed net investment income 1,384
Accumulated undistributed net realized loss
on investments (1,173,287)
Unrealized appreciation of investments 279,103
-----------
Net Assets $36,473,694
===========
Investments at Cost $35,782,434
===========
</TABLE>
Sentinel Short-Intermediate Government Fund
Statement of Operations
For the Year Ended November 30, 1996
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
<S> <C>
Income:
Interest $ 2,509,534
-----------
Expenses:
Management advisory fee 187,223
Transfer agent and custodian 57,538
Distribution expense 123,929
Accounting services 14,975
Professional fees 7,970
Reports and notices to shareholders 2,716
Directors' fees and expenses 4,116
Other 27,996
-----------
Total Expenses 426,463
Expense Reimbursement (55,931)
Expense Offset (16,463)
-----------
Net Expenses 354,069
-----------
Net Investment Income 2,155,465
-----------
Realized and Unrealized Loss on Investments
Net realized loss on sales of investments (177,412)
Net change in unrealized appreciation (73,058)
-----------
Net Realized and Unrealized Loss on Investments (250,470)
Net Increase in Net Assets from Operations $ 1,904,995
===========
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
Sentinel Short-Intermediate Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Months
Ended Ended
11/30/96 11/30/95*
------------ ------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 2,155,465 $ 837,760
Net realized gain (loss) on sales of investments (177,412) 45,919
Net change in unrealized appreciation (73,058) 315,484
------------ ------------
Net increase in net assets from operations 1,904,995 1,199,163
------------ ------------
Distributions to Shareholders
From net investment income (2,059,894) (823,999)
From realized gain on sale of investments - -
------------ ------------
Total distributions to shareholders (2,059,894) (823,999)
------------ ------------
From Capital Share Transactions
Net proceeds from sales of shares 32,166,653 21,848,488
Net asset value of shares in reinvestment
of dividends and distributions 1,660,864 683,298
Net asset value of shares issued in exchange for
net assets of another investment company - 15,218,556
------------ ------------
33,827,517 37,750,342
Less: Payments for shares reacquired (25,615,589) (9,708,841)
------------ ------------
Increase in net assets from capital share
transactions 8,211,928 28,041,501
------------ ------------
Total Increase in Net Assets for period 8,057,029 28,416,665
Net Assets: Beginning of period 28,416,665 -
------------ ------------
Net Assets: End of period $ 36,473,694 $28,416,665
Undistributed Net Investment Income
at End of Period $ 1,384 $ -
============ ============
</TABLE>
* Commenced operations March 27, 1995.
See Notes to Financial Statements.
62
<PAGE>
Sentinel Short-Intermediate Government Securities Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months
Year Ended Ended
11/30/96 11/30/95(A)
---------- ------------
<S> <C> <C>
Net asset value at beginning of
period $ 9.84 $ 9.64
---------- ------------
Income from Investment Operations
Net investment income 0.57 0.40
Net realized and unrealized gain
(loss) on investments (0.03) 0.20
---------- ------------
Total from investment operations 0.54 0.60
---------- ------------
Less Distributions
Dividends from net investment income 0.57 0.40
Distributions from realized gains on
investments - -
---------- ------------
Total Distributions 0.57 0.40
---------- ------------
Net asset value at end of period $ 9.81 $ 9.84
========== ============
Total Return (%) ** 5.6 6.3++
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 1.00 1.00+
Ratio of expenses to average net
assets before expense reductions (%) *** 1.20 1.38+
Ratio of net investment income to
average net assets (%) 6.09* 6.07+*
Portfolio turnover rate (%) 120 58
Net assets at end of period (000
omitted) $36,474 $28,417
</TABLE>
(A) Commenced operations March 27, 1995.
+ Annualized
++ Not annualized
* Ratio of net investment income to average net assets would have been
5.93% in 1996 and 5.76% in 1995, in the absence of a voluntary expense
reimbursement.
** 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 return.
*** Expense reductions are comprised of the voluntary expense
reimbursements and include, effective 1995, the earning credits as
described in Notes (2) and (1) H.
See Notes to Financial Statements.
63
<PAGE>
Sentinel U.S. Treasury Money Market Fund is a no-load money market fund which
seeks high current income, preservation of capital, and liquidity by
investing exclusively in the short-term obligations issued and guaranteed by
the U.S Treasury with remaining maturities of 397 days or less.
Sentinel U.S. Treasury Money Market Fund
As of November 30, 1996, Sentinel U.S. Treasury Money Market Fund's net assets
had increased over the previous year by 4.1% to $84.0 million. Looking ahead,
the Fund's average maturity should remain relatively stable until a clearer
picture develops on the Federal Reserve's monetary stance.
For the 12-month period ended November 30, 1996, short-term interest rates
dropped modestly, partly influenced by the Federal Reserve's 25 basis point cut
at the end of January, 1996. The discount and federal funds rates both decreased
25 basis points to end the fiscal year at 5.00% and 5.75%, respectively. On
average, 90-day bank certificates of deposit and commercial paper decreased 31
basis points to 5.39% and 5.49%, respectively. The 90-day Treasury bill declined
40 basis points to 5.08% and the prime rate declined 50 basis points to 8.25%.
These year-over-year changes in benchmark rates do not reflect the volatility of
rates during the 12-month period from November 30, 1995, to November 30, 1996.
In the fall of 1995, investors were convinced that the economy was slowing and
headed for a recession. Inflation was a thing of the past and the Republican
Congress was going to balance the budget. Short-term rates, as measured by the
six-month Treasury bill, declined from 5.45% on November 30, 1995, to 4.87% on
February 13, 1996. Investor psychology changed when it became apparent that
there would not be a budget agreement, that the economy was once again
expanding, and that inflationary pressure was still present. The fixed income
market corrected sharply, sending the six-month Treasury bill to a high of 5.63%
on July 9, 1996. Part of that rise has since been recaptured, as the six-month
Treasury bill closed at 5.23% on November 29, 1996.
In this environment, the Fund shortened maturity from 66 to 45 days. The 7-day
yield declined 25 basis points to 4.41%. As of November 30, 1996, Sentinel U.S.
Treasury Money Market Fund's net assets had increased over the previous year by
4.1% to $84.0 million. Looking ahead, the Fund's average maturity should remain
relatively stable until a clearer picture develops on the Federal Reserve's
monetary stance.
/s/ Richard D. Temple
Richard D. Temple
/s/Darlene A. Coppola
Darlene A. Coppola
64
<PAGE>
Sentinel U.S.Treasury Money Market Fund
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- -------------------------------------------------------
<S> <C> <C>
U.S. Treasury Obligations 96.2%
U S Treasury Bill
4.855%, 12/05/96 3500M $ 3,498,112
U S Treasury Bill
4.93%, 12/05/96 1000M 999,452
U S Treasury Bill
5.065%, 12/12/96 4500M 4,493,036
U S Treasury Bill
5.13%, 12/12/96 3000M 2,995,297
U S Treasury Bill
4.92%, 12/19/96 1500M 1,496,310
U S Treasury Bill
5.095%, 12/19/96 8000M 7,979,620
U S Treasury Bill
5.13%, 12/19/96 1650M 1,645,768
U S Treasury Bill
5.14%, 12/19/96 1550M 1,546,016
U S Treasury Bill
5.16%, 12/19/96 2500M 2,493,550
U S Treasury Bill
4.8%, 12/26/96 750M 747,500
U S Treasury Note
7.5%, 12/31/96 2000M 2,003,566
U S Treasury Note
7.5%, 12/31/96 4000M 4,007,143
U S Treasury Bill
4.95%, 01/09/97 1200M 1,193,565
U S Treasury Bill
4.975%, 01/09/97 4000M 3,978,442
U S Treasury Bill
4.99%, 01/09/97 1800M 1,790,270
U S Treasury Note
8%, 01/15/97 1800M 1,805,980
U S Treasury Note
7.5%, 01/31/97 2000M 2,006,118
U S Treasury Note
7.5%, 01/31/97 5000M 5,016,792
U S Treasury Note
7.5%, 01/31/97 5025M 5,043,064
U S Treasury Note
7.5%, 01/31/97 3000M 3,010,595
U S Treasury Note
7.5%, 01/31/97 1700M 1,705,967
U S Treasury Note
7.5%, 01/31/97 4750M 4,766,663
U S Treasury Bill
5.01%, 02/06/97 6550M 6,488,927
U S Treasury Bill
5.02%, 02/13/97 2000M 1,979,362
U S Treasury Note
6.875%, 02/28/97 3025M 3,036,160
U S Treasury Note
6.875%, 02/28/97 5060M 5,079,068
-------------
Total Investments
(Amortized Cost $80,806,343)* 80,806,343
Excess of Other Assets
Over Liabilities 3.8% 3,158,134
-------------
Net Assets $ 83,964,477
=============
</TABLE>
- -------------------------------------------------------
* Also cost for federal income tax purposes.
See Notes to Financial Statements.
65
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Statement of Assets and Liabilities
at November 30, 1996
- -------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $80,806,343
Cash and cash equivalents 2,745,143
Receivable for fund shares sold 1,122,930
Receivable for interest 922,881
-------------
Total Assets 85,597,297
Liabilities
Payable for fund shares repurchased 1,549,675
Dividends payable 14,315
Accrued expenses 27,898
Management fee payable 27,871
Fund service fee payable 13,061
Total Liabilities 1,632,820
-------------
Net Assets Applicable to Outstanding Shares $83,964,477
=============
Net Asset Value
Class A Shares
$80,804,137 / 80,804,137 shares outstanding $ 1.00
=============
Class B Shares
$3,160,340 / 3,160,340 shares outstanding $ 1.00
=============
Net Assets Represent
Capital stock at par value $ 839,745
Paid-in capital 83,124,732
-------------
Net Assets $83,964,477
=============
Investments at Cost $80,806,343
=============
</TABLE>
Sentinel U.S. Treasury Money Market Fund
Statement of Operations
For the Year Ended November 30, 1996
- -------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $4,322,390
-------------
Expenses
Management advisory fee 330,644
Transfer agent and custodian 209,765
Accounting services 34,215
Professional fees 15,615
Reports and notices to shareholders 9,037
Directors' fees and expenses 9,755
Other 37,860
-------------
Total Expenses 646,891
Expense Offset (4,540)
-------------
Net Expenses 642,351
-------------
Net Investment Income and Net Increase in
Net Assets from Operations $3,680,039
=============
</TABLE>
See Notes to Financial Statements.
66
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
------------- -------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 3,680,039 $ 3,783,325
------------- -------------
Distributions to Shareholders
From net investment income
Class A Shares (3,581,171) (3,783,325)
Class B Shares (98,868) -
------------- -------------
Total Distributions to Shareholders (3,680,039) (3,783,325)
------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 198,865,999 150,294,331
Class B Shares 7,608,971 -
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,213,012 3,499,173
Class B Shares 84,246 -
------------- -------------
209,772,228 153,793,504
Less: Payments for shares reacquired
Class A Shares (201,938,785) (148,430,713)
Class B Shares (4,532,877) -
------------- -------------
Increase in net assets from capital share
transactions 3,300,566 5,362,791
------------- -------------
Total Increase in Net Assets for period 3,300,566 5,362,791
Net Assets: Beginning of period 80,663,911 75,301,120
------------- -------------
Net Assets: End of period $ 83,964,477 $ 80,663,911
============= =============
</TABLE>
See Notes to Financial Statements.
67
<PAGE>
<TABLE>
<CAPTION>
Sentinel U.S. Treasury Money Market Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------------------------------
Nine
Year Ended Year Ended Year Ended Months Ended
Class A Shares 11/30/96 11/30/95 11/30/94 11/30/93(A)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations
Net investment income 0.04 0.05 0.03 0.02
Net realized and unrealized gain (loss) on investments - - - -
----------- ----------- ----------- -------------
Total from investment operations 0.04 0.05 0.03 0.02
----------- ----------- ----------- -------------
Less Distributions
Dividends from net investment income 0.04 0.05 0.03 0.02
Distributions from realized gains on investments - - - -
----------- ----------- ----------- -------------
Total Distributions 0.04 0.05 0.03 0.02
----------- ----------- ----------- -------------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =============
Total Return (%) ** 4.6 5.0 3.1 1.7 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.78 0.81 0.81 .85 +
Ratio of expenses to average net assets before
expense reductions (%) *** 0.78 0.82 0.81 .87 +
Ratio of net investment income to average net
assets (%) 4.38 4.83 3.01 2.20 +*
Net assets at end of period (000 omitted) $ 80,804 $ 80,664 $ 75,301 $72,252
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Eight Months
Class B Shares Ended 11/30/96(B)
-----------------
<S> <C>
Net asset value at beginning of period $ 1.00
-----------------
Income from Investment Operations
Net investment income 0.03
Net realized and unrealized gain (loss) on
investments -
-----------------
Total from investment operations 0.03
Less Distributions
Dividends from net investment income 0.03
Distributions from realized gains on investments -
-----------------
0.03
Net asset value at end of period $ 1.00
=================
Total Return (%) ** 3.0 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) .76 +
Ratio of expenses to average net assets before
expense reductions (%)*** .77 +
Ratio of net investment income to average net assets (%) 4.40 +
Net assets at end of period (000 omitted) $3,160
</TABLE>
(A) Commenced operations March 1, 1993.
(B) Commenced operations April 1, 1996.
+ Annualized
++ Not annualized
* Ratio of net investment income to average net assets would have been
2.18% in 1993, in the absence of a voluntary expense reimbursement.
** 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 return.
*** Expense reductions are comprised of the voluntary expense reimbursements and
include, effective 1995, the earning credits as described in Notes (2) and
(1) H.
See Notes to Financial Statements.
68
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Sentinel Group Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company. The Company consists of eleven separate series - 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 (a non-diversified series), Sentinel
Government Securities Fund, Sentinel Short-Intermediate Government Fund and
Sentinel U.S. Treasury Money Market Fund, each individually referred to as a
Fund. As a result of the Company merger with seven of the Independence Capital
Group of Funds, as further described in Note (6), Sentinel New York Tax-Free
Income Fund and Sentinel Short-Intermediate Government Fund commenced operations
on March 27, 1995. The Funds initially offered one class of shares now referred
to as Class A Shares. Effective April 1, 1996 Sentinel Emerging Growth, Sentinel
World, Sentinel Common Stock, Sentinel Balanced, Sentinel Bond, Sentinel Tax-
Free Income and Sentinel U.S. Treasury Money Market Funds have a second class of
shares called Class B Shares. The following is a summary of significant
accounting policies followed by the Company.
A. Security Valuation: Equity securities which are traded on a national or
foreign securities exchange and over-the-counter securities listed in the NASDAQ
National Market System are valued at the last reported sales price on the
principal exchange on which they are traded on the date of determination.
Securities for which no sale was reported on that date are valued at the mean
between the last reported bid and asked prices. Over-the-counter securities not
listed on the NASDAQ National Market System are valued at the mean of the
current bid and asked prices. Fixed income securities are valued on the basis of
valuations provided by independent pricing services. Short-term securities
maturing in 60 days or less are stated at cost plus accrued interest earned
which approximates market value. Portfolio securities of the Sentinel U.S.
Treasury Money Market Fund are valued at amortized cost, which approximates
market value, in accordance with the terms of a rule adopted by the Securities
and Exchange Commission. The amortized cost method values a security at cost on
the date of purchase and thereafter assumes a constant amortization to maturity
of any discount or premium.
B. Securities Transactions and Related Investment Income: Securities
transactions are accounted for on the date the securities are purchased or sold
(trade date). Interest income is recorded on the accrual basis. Cost is
determined, and realized gains and losses are computed, using the identified
cost method. Market discount and original issue discount are accreted to income.
The Sentinel Tax-Free Income Fund, the Sentinel New York Tax-Free Income Fund
and the Sentinel Short-Intermediate Government Fund amortize premium. Sentinel
New York Tax-Free Income Fund invests in debt instruments of municipal issuers
whose ability to meet their obligations may be affected by economic developments
in the State of New York.
C. Dividends and Distributions: Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage-backed
securities and foreign currency transactions. Re-classifications were made to
reflect these differences as of November 30, 1996 as follows:
<TABLE>
<CAPTION>
Increase (decrease) in
Increase (decrease) accumulated undistributed
in accumulated net realized gain (loss)
undistributed net on investments and foreign
Fund investment income currency transactions
- --------------------------- ------------------- --------------------------
<S> <C> <C>
World...................... ($73,682) $73,682
Balanced................... (1,022) 1,022
Bond....................... 952 (952)
Government Sec............. (98,357) 98,357
Short-Intermediate Gov't... (94,187) 94,187
</TABLE>
D. Dollar Rolls: Sentinel Balanced, Sentinel Bond, Sentinel Government
Securities and Sentinel Short-Intermediate Government Funds enter into dollar
rolls in which the Funds sell securities for delivery in the current month, and
simultaneously contract to repurchase similar (same type, coupon and maturity)
securities on a specified future date. During the roll period the Funds forgo
principal and interest paid on the securities. The Funds are compensated by the
interest earned on the cash proceeds of the initial sale and by the lower
repurchase price at the future date. The difference between the sale proceeds
and the lower repurchase price is taken into income. The Funds maintain
segregated accounts, the dollar value of which is equal to its obligations, in
respect of dollar rolls.
69
<PAGE>
E. Federal Income Taxes: Each Fund intends to continue to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies. The
Company intends to distribute all of its taxable income to its shareholders,
relieving each Fund of any federal excise tax or income tax liability.
F. Foreign Currency Translations: The books and records of the Sentinel World
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars at the mean between the buying and selling rates on the
following basis:
(1) market value of investment securities, assets and liabilities at the closing
daily rate of exchange; and
(2) purchases and sales of investment securities, income and expenses at the
rate of exchange prevailing on the respective dates of such transactions.
The Sentinel World Fund does not isolate that portion of gains and losses on
investments in securities which is due to changes in the foreign exchange rates
from that which is due to changes in market prices of such securities. However,
pursuant to United States federal income tax regulations, gains and losses from
certain foreign currency transactions are treated as ordinary income for federal
income tax purposes.
G. Repurchase Agreements: Each Fund may enter into 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 a Fund. Each Fund, through its
custodian, takes possession of the securities collateralizing repurchase
agreements. All repurchase agreements entered into by the Funds provide that the
market value of the collateral underlying the repurchase agreement at the time
of purchase, and each subsequent business day, will always be at least equal to
102% of the repurchase agreement amount including accrued interest. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
H. Other: Direct expenses of a Fund are charged to that Fund while common
expenses of the Company are allocated proportionately based upon the Funds'
respective average net assets or number of shareholder accounts.
Allocation of expenses not allocated to a specific Class of each Fund are
allocated on the basis of daily net assets or number of shareholder accounts,
each on a pro rata basis, of each Class.
Investment income, gains and losses (realized and unrealized) are allocated pro
rata according to daily net assets of each Class of each Fund.
Earnings credits are received from the custodian and dividend paying agent on
cash balances and are reflected in the statement of operations as an expense
offset.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
(2) Management Advisory Fee and Other Transactions with Affiliates:
Pursuant to the Investment Advisory Agreement (the "Agreement"), Sentinel
Advisors, Co., ("SAC"), a Vermont general partnership whose general 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 of Philadelphia ("Provident
Mutual"), HTK of Delaware, Inc. ("HTK") an affiliate of The Penn Mutual Life
Insurance Company ("Penn Mutual") and Sentinel Management Company ("SMC"), a
Vermont general partnership whose general partners are affiliates of National
Life, Provident Mutual and Penn Mutual, provides general supervision of the
Funds' investments as well as certain administrative and related services. As
compensation in full for services rendered under its Agreement, the Funds pay
SAC a monthly fee determined as follows: (1) With respect to Sentinel Emerging
Growth, Sentinel Growth, Sentinel World and Sentinel Balanced Funds: 0.70% per
annum on the first $200 million of aggregate average daily net assets of such
Funds; 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 Sentinel Common Stock Fund: 0.55%
per annum on the average daily net assets of the Fund. (3) With respect to
Sentinel Bond, Sentinel Tax-Free Income, Sentinel New York Tax-Free Income,
Sentinel Government Securities and Sentinel Short-Intermediate Government Funds:
0.55% per annum on the first $200 million of aggregate average daily net assets
of such Funds; 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
Sentinel U.S. Treasury Money Market Fund: 0.40% per annum on the first $300
million of average daily net assets; and 0.35% per annum on
70
<PAGE>
such assets in excess of $300 million. The Agreement provides that if certain
expenses incurred by the Company in any fiscal year exceed the expense
limitations imposed by any state's securities regulations, SAC will reimburse
the Company for any such excess. No reimbursement was required for the year.
With respect to Sentinel World Fund only, SAC has entered into a sub-advisory
agreement with INVESCO Capital Management, Inc. (the "Sub-Advisor"). Pursuant to
such agreement, the Sub-Advisor provides SAC with a continuous investment
program consistent with Sentinel World Fund's investment objectives and
policies. The sub-advisory agreement provides for a fee to be paid by SAC to the
Sub-Advisor of the greater of (a) a monthly fee equal to 0.375% per annum of the
average daily net assets of Sentinel World Fund up to $500 million and 0.30% per
annum of such average net assets in excess of $500 million, or (b) $20,000 per
annum.
On March 1, 1993, each of the Funds (except Sentinel U.S. Treasury Money Market
Fund) adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act.
These distribution plans are herein referred to as the "A Plans". The Sentinel
New York Tax-Free Income Fund became subject to the A Plan upon its inception on
March 27, 1995. On March 24, 1995 the Sentinel Short-Intermediate Government
Fund adopted a supplemental distribution plan pursuant to Rule 12b-1 applicable
only to it. On March 29, 1996 each of the Funds with Class B Shares (except
Sentinel U.S. Treasury Money Market Fund) adopted a Class B distribution plan
referred to as the "B Plans." None of the fees paid by the other Funds pursuant
to the Plans will be used to reimburse Sentinel Financial Services Company
("SFSC"), a Vermont general partnership whose general partners are National Life
Investment Management Company, Inc., a wholly-owned subsidiary of National Life,
ProvidentMutual Financial Services, Inc., an affiliate of Provident Mutual, HTK
and SMC, the principal underwriter ("Distributor") of the Company's shares, for
expenses incurred in connection with the distribution of the Sentinel U.S.
Treasury Money Market Fund shares.
Under the A Plans, each participating Fund pays to the Distributor a monthly fee
at the maximum annual rate of (a) .30% of average daily net assets relating to A
Shares outstanding in the case of the Sentinel Emerging Growth, Sentinel Growth,
Sentinel World, Sentinel Common Stock and Sentinel Balanced Funds, (b) .20% of
average daily net assets relating to A Shares outstanding in the case of the
Sentinel Bond, Sentinel Tax-Free Income, Sentinel New York Tax-Free Income and
Sentinel Government Securities Funds or (c) .35% of average daily net assets
relating to A Shares outstanding in the case of the Sentinel Short-Intermediate
Government Fund. Such fees will be used to reimburse the Distributor for
expenses incurred in connection with distribution and promotion of the 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, promotion 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, any
supplement thereto used in connection with the offering of such Fund's shares to
the public, or any reports and other communications for the distribution to
existing shareholders, and service fees (deferred commissions) paid to
securities dealers who have executed a selling agreement with the Distributor.
Under the B Plans, each participating Fund pays the Distributor a monthly fee at
the maximum annual rate of 1.00% of the average daily net assets relating to B
Shares outstanding. Of such amount, up to 0.25% shall be allocated to service
fees to securities dealers who have executed a selling agreement with the
Distributor, and up to 0.75% may be allocated to other expenses. Other expenses
include recovery of front-end sales commissions paid by the Distributor with
respect to sales of Class B Shares, together with the cost 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. Other expenses also include those described above for the A Plans.
The Distributor will not be reimbursed for any unreimbursed eligible expenses
from any other Fund, or in any future year from any of the Plans.
SFSC also receives a sales charge added to the net asset value received by the
Company on the sale of its Class A Shares. This compensation is not an expense
of the Company and does not affect its operating results. SFSC has advised the
Company that it received sales charges aggregating $5,816,283 for the year ended
November 30, 1996. The Company is advised that the total distribution charges
retained by SFSC on the sale of shares amounted to $177,813 after allowances of
$2,780,261 to Equity Services, Inc., an affiliate of National Life, $501,569 to
1717 Capital Management Company, an affiliate of Provident Mutual, $579,648 to
Hornor, Townsend & Kent, Inc. and $425,967 to Janney Montgomery Scott, Inc.,
affiliates of Penn Mutual, and $1,351,025 to other investment dealers.
71
<PAGE>
Each director who is not an employee of the adviser or an affiliated company is
paid an annual fee of $16,000 plus $1,500 for each meeting of the Board of
Directors attended. Such directors are reimbursed for travel and other out-of-
pocket expenses incurred in attending such meetings.
Pursuant to the Fund Services Agreement with Sentinel Administrative Service
Company ("SASC"), a Vermont general partnership whose general partners are
Sentinel Administrative Service Corporation ("SAS Corp."), an indirect wholly-
owned subsidiary of National Life, SIGMA American Corp., an affiliate of
Provident Mutual, HTK and SMC, the Company receives fund accounting and
financial administrative services, transfer agent services and investor
services, all of which are coordinated with other services which the Company has
contracted for with outside providers. Total fees for the year ended November
30, 1996 were $3,405,500.
SASC has voluntarily agreed to refund its fee to the extent necessary to prevent
the overall aggregate expense ratio of the Funds' Class A Shares and Sentinel
Pennsylvania Tax-Free Trust (excluding the Sentinel World Fund) from exceeding
1.30% of average daily net assets in any fiscal year. The Funds and Sentinel
Pennsylvania Tax-Free Trust make up the Sentinel Family of Funds. Although SASC
has no present intention to do so, this arrangement may be terminated at any
time. Expenses for the year ended November 30, 1996 did not exceed 1.30% of its
average daily net assets.
With respect to Class A Shares of Sentinel U.S. Treasury Money Market Fund,
Sentinel Short-Intermediate Government Fund and Sentinel World Fund, SASC has
agreed to reimburse the Funds for all operating expenses of the Funds in excess
of an annual rate of .85%, 1.00% and 2.00%, respectively, of the Funds' average
daily net assets. For the year ended November 30, 1996, the total amount
reimbursable to Sentinel Short-Intermediate Government Fund was $55,931. No
amounts were required to be reimbursed to Sentinel U.S. Treasury Money Market
Fund or Sentinel World Fund for the year ended November 30 1996. Although SASC
has no present intention to do so, this arrangement may be terminated at any
time.
(3) Investment Transactions:
Purchases and sales of investment securities (excluding short-term obligations)
for the year ended November 30, 1996 were as follows:
<TABLE>
<CAPTION>
Purchases of Sales of
other than Purchases of other than
U.S. U.S. U.S. Sales of U.S.
government government government government
direct and direct and direct and direct and
agency agency agency agency
Fund obligations obligations' obligations obligations
- -------------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Emerg. Growth....... $ 47,193,495 -- $ 49,098,414 --
Growth.............. 59,748,671 -- 62,447,087 --
World............... 25,660,957 -- 7,946,939 --
Common Stock........ 237,731,151 -- 248,667,748 --
Balanced............ 80,154,682 $127,549,540 100,023,311 $113,287,992
Bond................ 80,032,194 93,767,852 96,500,476 80,376,350
Tax-Free............ 113,449,671 -- 124,783,711 --
NY Tax-Free......... 3,283,120 -- 2,469,693 --
Government.......... -- 588,096,827 -- 593,322,473
Short-Int. Gov't.... -- 50,828,286 -- 41,423,236
</TABLE>
(The Sentinel U.S. Treasury Money Market Fund invests only in short-term
obligations.)
For Federal income tax purposes, the Company has capital loss carryforwards at
November 30, 1996 as follows:
$2,140,898, $1,295,618 and $1,051,666 (expiring in 2001, 2002 and 2004,
respectively) for a total of $4,488,182 for the Sentinel Bond Fund, $3,586,497
and $2,953,064 (expiring in 2002 and 2004, respectively) for a total of
$6,539,561 for the Sentinel Government Securities Fund and $328,517, $619,379,
$142,166 and $83,225 (expiring in 2000, 2001, 2002 and 2004, respectively) for a
total of $1,173,287 for the Sentinel Short-Intermediate Government Fund. During
the year ended November 30, 1996, the Sentinel Balanced Fund, the Sentinel Tax-
Free Income Fund and the Sentinel New York Tax-Free Income Fund utilized
$124,351, $143,804 and $51,369 of capital loss carryforwards, respectively. It
is unlikely that a capital gains distribution will be paid to shareholders of
these Funds until net gains have been realized in excess of such capital loss
carryforwards or the carryforwards expire.
72
<PAGE>
(4) Fund Shares:
At November 30, 1996, 2 billion shares of one cent par value were authorized.
There are 1.34 billion shares allocated to the various Funds as Class A Shares
and 240 million shares allocated to the various Funds as Class B Shares.
Proceeds from sales and payments for redemptions on Fund shares as shown in the
statement of changes in net assets are represented by the following number of
shares:
<TABLE>
<CAPTION>
Shares issued Net
Shares issued in in exchange increase
reinvestment of for assets of (decrease)
dividends and Shares other investment in shares
Fund Shares sold distributions reacquired companies outstanding
- ---- ----------- ---------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Year Ended 11/30/96
Emerging Growth - A................................... 3,047,507 3,479,603 4,509,726 -- 2,017,384
Emerging Growth - B................................... 393,138 -- 13,833 -- 379,305
Growth................................................ 415,150 584,386 596,369 -- 403,167
World - A............................................. 1,869,007 47,048 823,799 -- 1,092,256
World - B............................................. 213,270 -- 8,616 -- 204,654
Common Stock - A...................................... 3,070,782 2,509,631 3,443,788 -- 2,136,625
Common Stock - B...................................... 681,956 1,045 11,097 -- 671,904
Balanced - A.......................................... 2,233,529 835,736 2,906,556 -- 162,709
Balanced - B.......................................... 596,790 2,002 9,616 -- 589,176
Bond - A.............................................. 2,863,501 748,935 4,722,972 -- (1,110,536)
Bond - B.............................................. 741,373 10,355 10,518 -- 741,210
Tax-Free - A.......................................... 854,288 244,470 1,824,866 -- (726,108)
Tax-Free - B.......................................... 62,396 677 6,517 -- 56,556
NY Tax-Free........................................... 65,043 21,394 50,787 -- 35,650
Government............................................ 1,177,381 468,319 2,903,620 -- (1,257,920)
Short-Inter. Gov't.................................... 3,287,981 170,709 2,627,496 -- 831,194
U.S. Treasury - A..................................... 198,865,999 3,213,012 201,938,785 -- 140,226
U.S. Treasury - B..................................... 7,608,971 84,246 4,532,877 -- 3,160,340
Year Ended 11/30/95
Emerging Growth....................................... 2,765,224 2,794,856 4,369,276 -- 1,190,804
Growth................................................ 381,710 530,174 464,496 -- 447,388
World................................................. 1,216,644 61,344 1,110,080 -- 167,908
Common Stock.......................................... 2,253,613 1,533,936 5,212,198 1,761,838 337,189
Balanced.............................................. 2,333,343 564,931 3,386,737 273,807 (214,656)
Bond.................................................. 3,095,605 800,012 6,008,278 5,126,048 3,013,387
Tax-Free.............................................. 1,503,210 275,430 2,099,049 343,701 23,292
N.Y. Tax-Free*........................................ 86,231 12,949 158,731 514,574 455,023
Government............................................ 1,215,813 533,270 2,479,497 -- (730,414)
Short-Inter.Gov't.*................................... 2,233,440 70,060 994,380 1,578,443 2,887,563
U.S. Treasury......................................... 150,294,330 3,499,174 148,430,713 -- 5,362,791
*For the period March 27, 1995 to November 30, 1995.
</TABLE>
(5) Post Retirement Benefits:
The Company provides certain health care and life insurance benefits to its
retirees. At November 30, 1996 the projected obligation for such benefits had
been accrued.
(6) Business Combinations:
On March 27, 1995 the following Funds acquired seven funds of The Independence
Capital Group of Funds ("ICG") pursuant to a Plan of Reorganization approved by
ICG shareholders on March 10, 1995. The acquisition was accomplished by a tax-
free exchange, based on respective net asset values, as follows:
<TABLE>
<CAPTION>
Sentinel ICG ICG
ICG Sentinel Value of ICG Unrealized Accumulated
Sentinel Merged Shares Shares Shares ICG Appreciation Realized
Fund Fund Issued Issued Exchanged Value (Depreciation) Loss
- --------------------------- ------------- --------- ---------- ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock............... Tot. Ret. Growth 871,123 $25,653,997 2,289,320 $25,653,997 $3,547,083 $0
Common Stock............... Opportunities 890,715 26,240,738 2,491,973 26,240,738 2,064,874 (671,131)
-----------
Common Stock Fund Total 51,894,735
-----------
Balanced................... Balanced 273,807 4,084,150 426,145 4,084,150 218,379 (314,647)
Bond....................... Tot. Ret. Bond 5,126,048 31,075,198 3,219,052 31,075,198 532,802 (2,264,261)
Tax-Free Income............ Municipal Bond 343,701 4,493,940 415,491 4,493,940 99,091 (18,067)
NY Tax-Free Inc............ NY Municipal Bond 514,574 5,759,369 514,574 5,759,369 118,593 (4,069)
Short-Inter. Gov't......... Short-Inter Gov't 1,578,443 15,218,556 1,578,443 15,218,556 36,677 (1,151,557)
<CAPTION>
Sentinel
Value
Sentinel before Combined
Fund Combination Value
- --------------------------- ------------- ------------
<S> <C> <C>
Common Stock............... -- --
Common Stock............... -- --
------------ ------------
Common Stock Fund Total $898,684,833 $950,579,568
------------ ------------
Balanced................... 239,745,703 243,829,853
Bond....................... 84,932,093 116,007,291
Tax-Free Income............ 103,103,137 107,597,077
NY Tax-Free Inc............ 0 5,759,369
Short-Inter. Gov't......... 0 15,218,556
</TABLE>
73
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
of Sentinel Group Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of 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
(constituting Sentinel Group Funds, Inc., hereafter referred to as the "Fund")
at November 30, 1996, the results of each of their operations, the changes in
each of their net assets, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
December 20, 1996
74
<PAGE>
Sentinel Pennsylvania Tax-Free Trust seeks a high level of current income and
stability of principal through investments in obligations issued by the
Commonwealth of Pennsylvania and its agencies and authorities,
which are exempt from federal and Pennsylvania state income taxes.
Sentinel Pennsylvania Tax-Free Trust
On an after-tax basis, municipal bonds are tough to beat. For example, a high
grade, ten-year maturity municipal bond yielding 4.7% has a taxable equivalent
yield of 7.5% for an investor in the 36% federal tax bracket blended to include
Pennsylvania state tax, 1.5% more than a comparable treasury security.
For the fiscal year ended November 30, 1996, the Sentinel Pennsylvania Tax-Free
Trust had a total return of 5.0% compared to 5.9 % for the Lehman Municipal Bond
Index. During this same period, the average Lipper Intermediate Municipal Debt
Fund returned 4.7%.
Interest rates were volatile throughout 1996 as market participants responded to
conflicting data regarding the level of economic activity. A surprisingly strong
employment report in February was instrumental in driving up the rate of the
thirty- year treasury bond from approximately 6.0% to a peak of 7.2% in June. As
rates stabilized above 7.0%, the interest rate sensitive sectors of the economy
such as housing and automobile sales began to slow, setting the stage for a
rally which drove the yield of the long treasury bond down to 6.4% at the end of
November.
As retail investors have continued to concentrate investment dollars in
equities, the bond markets have become dominated by large institutional traders.
This had the effect of increasing the sensitivity of fixed income prices to
small changes in economic data, causing excessive volatility.
On a relative basis, tax-free securities outperformed taxable fixed income
securities over the course of the year. The driving factor in this result was
the lack of supply of municipal bonds compared to a growing demand for tax-
exempt income primarily from the property and casualty insurance industry. On an
after-tax basis, municipal bonds are tough to beat. For example, a high grade,
ten- year maturity municipal bond yielding 4.7% has a taxable equivalent yield
of 7.5% for an investor in the 36% federal tax bracket blended to include
Pennsylvania state tax, 1.5% more than a comparable treasury security. At
current prices, municipal bonds provide after-tax yields which compare favorably
to corporate, government and mortgage-backed securities for investors who are
looking to maximize risk adjusted, after-tax cash flows in their fixed-income
portfolios.
In this environment, we will continue to position the Sentinel Pennsylvania Tax-
Free Income Trust to take advantage of opportunities while maintaining our
conservative mix of quality assets in order to provide our shareholders with a
relatively high level of current income exempt from Pennsylvania state and
federal income taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
<TABLE>
<CAPTION>
Average Annual
Total Return
Through 11/30/96
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 0.8% 5.0%
- ----------------------------------------
5 Years 5.8% 6.6%
- ----------------------------------------
10 Years 6.2% 6.6%
- ----------------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Pennsylvania Tax-Free Trust Performance
Ten Years Ended 11/30/96
[LINE GRAPH APPEARS HERE]
PA Tax-Free Trust Fund
PA Tax-Free Trust Lipper's Intermediate Lehman Municipal
with/load Municipal Fund Avg Bond Index
--------- ------------------ ----------
0 Nov.'86 9,600 10,000 10,000
1 Nov.'87 9,233 9,979 9,978
2 Nov.'88 10,416 10,797 11,039
3 Nov.'89 11,447 11,694 12,254
4 Nov.'90 12,131 12,517 13,198
5 Nov.'91 13,203 13,614 14,552
6 Nov.'92 14,554 15,084 16,011
7 Nov.'93 15,882 16,528 17,786
8 Nov.'94 15,104 16,024 16,852
9 Nov.'95 17,335 18,181 20,036
10 Nov.'96 18,196 19,037 21,214
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
<TABLE>
<CAPTION>
Chart Ending Values
& Legend
Ten years ended 11/30/96
<S> <C>
- -----Sentinel $18,196
Pennsylvania
Tax-Free Trust
- - - -Lehman $21,214
Municipal
Bond Index*
- ---..Lipper $19,037
Intermediate
Municipal Debt
Fund Average
</TABLE>
*An unmanaged index of bonds reflecting average prices in the bond market.
75
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Investment in Securities
at November 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds 98.1%
Pennsylvania 83.3%
Allegheny County Higher
Educ. Bldg.
5.00%, 03/01/16 (AMBAC) 1000M $ 945,540
Allegheny County G/O
5.375%, 06/01/13 (FGIC) 1175M 1,179,359
Allegheny County Hospital
6.00%, 10/01/03 (FGIC) 1000M 1,088,460
Allegheny County
Institution G/O
7.30%, 04/01/09 (MBIA) 1000M 1,087,740
Allegheny County G/O
5.15%, 09/01/11 (FGIC) 1500M 1,480,005
Armstrong County Hospital
Auth.
6.25%, 06/01/13 (AMBAC) 1200M 1,269,720
Beaver County Industrial
Dev. Auth.
7.75%, 09/01/24 500M 526,615
Berks County G/O
7.25%, 11/15/20 (FGIC) 1000M 1,124,870
Chester County Health
& Education
5.40%, 07/01/06 (MBIA) 1375M 1,434,455
Delaware County Coll
Rev. Auth.
7.375%, 11/15/20 (MBIA) 500M 564,685
Erie Higher Educ. Building Auth.
7.85%, 09/15/19 500M 548,750
Lehigh County General Purpose
7.25%, 01/01/10 (FGIC) 1000M 1,055,160
Lehigh County Industrial
Dev. Auth.
6.15%, 08/01/29 (MBIA) 1000M 1,052,630
Montgomery County Higher
Educ. & Health
8.30%, 06/01/10 500M 571,940
Pennsylvania Higher Educ. Facs.
6.00%, 01/01/06 1500M 1,632,240
7.20%, 07/01/19 (MBIA) 1000M 1,094,280
5.60%, 11/15/09 (MBIA) 1500M 1,573,290
Pennsylvania Housing Finance Agency
8.00%, 04/01/16 1000M 1,029,140
Pennsylvania Intergovernmental
CO-OP Auth.
5.75%, 06/15/15 (MBIA) 1000M 1,012,440
Pennsylvania State G/O
6.25%, 07/01/11 1500M 1,674,165
Pennsylvania State Industrial
Dev. Auth.
5.80%, 07/01/09 (AMBAC) 1000M 1,068,180
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Pennsylvania State
Turnpike Commn.
7.20%, 12/01/17 (FGIC) 1000M $ 1,142,770
Pennsylvania Trafford
School Dist.
5.90%, 05/01/11 (MBIA) 1000M 1,040,650
Philadelphia Industrial Dev. Auth.
5.375%, 02/15/27 (MBIA) 1500M 1,448,850
Philadelphia Municipal Auth.
7.80%, 04/01/18 (FGIC) 45M 48,127
Philadelphia Regional Port. Auth.
7.125%, 08/01/10 (MBIA) 250M 274,095
7.15%, 08/01/20 (MBIA) 250M 274,305
Philadelphia Water & Waste
6.25%, 08/01/11 (MBIA) 1000M 1,105,600
6.25%, 08/01/12 (MBIA) 500M 552,320
Scranton Lackawanna
Health & Welfare
7.875%, 07/01/10 (MBIA) 500M 534,360
Westmoreland Cnty
Municipal Auth.
0.00%, 08/15/18 (FGIC) 500M 152,445
-----------
29,587,186
-----------
Puerto Rico 14.8%
Puerto Rico Public Buildings Auth.
5.70%, 07/01/09 1000M 1,044,740
Puerto Rico Commonwealth
Aqueduct & Sewer
6.00%, 07/01/09
Cmwlth GTD 500M 544,280
5.00%, 07/01/19
Cmwlth GTD 1000M 928,440
Puerto Rico Commonwealth
Hwy & Transport
5.50%, 07/01/13 (FSA) 1000M 1,034,130
5.50%, 07/01/36 1750M 1,722,175
-----------
5,273,765
-----------
Total Investments
(Cost $32,682,614)* 34,860,951
Excess of Other Assets
Over Liabilities 1.9% 684,301
-----------
Net Assets $35,545,252
===========
</TABLE>
* Also cost for federal income tax purposes.
At November 30, 1996, net unrealized appreciation for federal income tax
purposes aggregated $2,178,337 all of which related to appreciated
securities.
The following abbreviations are used in
portfolio descriptions:
(AMBAC) - Guaranteed by American
Municipal Bond Association Corp.
(FGIC) - Guaranteed by Financial Guaranty
Insurance Co.
(FSA) - Guaranteed by Financial Security
Assurance Inc.
(MBIA) - Guaranteed by Municipal Bond Investors
Assurance Corp.
G/O - General Obligation Bond
See Notes to Financial Statements.
76
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Statement of Assets and Liabilities
at November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $34,860,951
Receivable for fund shares sold 3,792
Receivable for interest 677,689
Receivable from fund administrator 90,139
-------------
Total Assets 35,632,571
-------------
Liabilities
Payable for fund shares repurchased 500
Accrued expenses 8,350
Management fee payable 15,863
Distribution fee payable 9,694
Fund service fee payable 10,083
Payable to custodian bank 42,829
------------
Total Liabilities 87,319
------------
Net Assets Applicable to Outstanding Shares $35,545,252
============
Net Asset Value and Offering Price Per Share
$35,545,252 / 2,674,841 shares outstanding $ 13.29
Sales Charge -- 4.00% of Offering Price 0.55
------------
Maximum Offering Price Per Share $ 13.84
============
Net Assets Represent
No par value shares of beneficial interest;
authorized - unlimited shares
Paid-in-capital $33,147,921
Accumulated undistributed net realized gain
on investments 218,994
Unrealized appreciation of investments 2,178,337
============
Net Assets $35,545,252
============
Investments at Cost $32,682,614
============
</TABLE>
<TABLE>
<CAPTION>
Sentinel Pennsylvania Tax-Free Trust
Statement of Operations
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
Investment Income
<S> <C>
Income:
Interest $2,000,798
------------
Expenses:
Management advisory fee 189,231
Transfer agent and custodian 57,742
Distribution expense 68,800
Accounting services 84,000
Professional fees 27,300
Reports and notices to shareholders 7,620
Directors' fees and expenses 26,446
Other 10,103
------------
Total Expenses 471,242
Expense Reimbursement (199,793)
Expense Offset (13,242)
------------
Net Expenses 258,207
------------
Net Investment Income 1,742,591
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 218,984
Net change in unrealized appreciation (282,933)
------------
Net Realized and Unrealized Loss on Investments (63,949)
------------
Net Increase in Net Assets from Operations $1,678,642
============
</TABLE>
See Notes to Financial Statements.
77
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/96 11/30/95
------------- ------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 1,742,591 $ 1,701,100
Net realized gain on sales of investments 218,984 722,772
Net change in unrealized appreciation (282,933) 2,109,486
------------- ------------
Net increase in net assets from operations 1,678,642 4,533,358
------------- ------------
Distributions to Shareholders
From net investment income (1,745,421) (1,698,270)
From realized gain on sale of investments (208,641) -
From paid-in capital (208) -
------------- ------------
Total distributions to shareholders (1,954,270) (1,698,270)
------------- ------------
From Capital Share Transactions
Net proceeds from sales of shares 3,822,068 3,128,263
Net asset value of shares in reinvestment
of dividends and distributions 1,343,773 1,157,477
------------- ------------
5,165,841 4,285,740
Less: Payments for shares reacquired (4,320,058) (3,317,531)
------------- ------------
Increase in net assets from capital share
transactions 845,783 968,209
------------- ------------
Total Increase in Net Assets for period 570,155 3,803,297
Net Assets: Beginning of period 34,975,097 31,171,800
------------- ------------
Net Assets: End of period $35,545,252 $34,975,097
============= ============
Undistributed Net Investment Income
at End of Period $ - $ 2,830
============= ============
</TABLE>
See Notes to Financial Statements.
78
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eleven Year
Year Ended Year Ended Year Ended Months Ended Ended
11/30/96 11/30/95 11/30/94 11/30/93(A) 12/31/92
----------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 13.40 $ 12.29 $ 13.57 $ 13.15 $12.74
----------- ---------- --------- ----------- --------
Income from Investment Operations
Net investment income 0.66 0.66 0.64 0.69 0.73
Net realized and unrealized gain (loss) on investments (0.03) 1.11 (1.28) 0.42 0.43
----------- ---------- --------- ----------- --------
Total from investment operations 0.63 1.77 (0.64) 1.11 1.16
----------- ---------- --------- ----------- --------
Less Distributions
Dividends from net investment income 0.66 0.66 0.64 0.69 0.75
Distributions from realized gains on investments 0.08 - - - -
----------- ---------- --------- ----------- --------
Total Distributions 0.74 0.66 0.64 0.69 0.75
----------- ---------- --------- ----------- --------
Net asset value at end of period $ 13.29 $ 13.40 $ 12.29 $ 13.57 $13.15
=========== ========== ========= =========== ========
Total Return (%) ** 5.0 14.8 (4.9) 8.1 ++ 9.4
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.75 0.97 1.30 1.24 + 1.16
Ratio of expenses to average net assets before
expense reductions (%) *** 1.37 1.36 1.30 1.24 + 1.16
Ratio of net investment income to average net assets (%) 5.07 * 5.14 * 4.84 5.07 + 5.62
Portfolio turnover rate (%) 56 80 56 23 1
Net assets at end of period (000 omitted) $ 35,545 $ 34,975 $31,172 $ 34,448 $33,669
</TABLE>
(A) As of March 1, 1993 Sentinel Advisors Co. became the investment advisor
to the Trust.
+ Annualized
++ Not annualized
* Ratio of net investment income to average net assets would have been
4.48% in 1996 and 4.78% in 1995, in the absence of a voluntary expense
reimbursement.
** 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 return.
*** Expense reductions are comprised of the voluntary expense reimbursements and
include, effective 1995, the earnings credits as described in Notes (5) and
(1) D.
See Notes to Financial Statements.
79
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Sentinel Pennsylvania Tax-Free Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The following is a summary of significant
accounting policies followed by the Trust.
A. Security Valuation: Investments in securities are valued on the basis of
valuations provided by an independent pricing organization. The independent
pricing organization values the investments, taking into consideration
characteristics of the securities, values of similar securities that trade on a
regular basis, and other relevant market data. Short-term tax-free notes are
stated at cost, which approximates market value.
B. Securities Transactions and Related Investment Income: Securities
transactions are accounted for on the date the securities are purchased or sold
(trade date). Interest income is recorded on the accrual basis and premiums are
amortized. Cost of investments sold is determined on the basis of identified
cost for both financial reporting and income tax purposes. The Trust invests in
debt instruments of municipal issuers whose ability to meet their obligations
may be affected by economic developments in the State of Pennsylvania.
C. Federal Income Taxes: It is the Trust's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies. The Trust intends to distribute all of its taxable income to its
shareholders; therefore, no federal excise tax or income tax provision is
required.
D. Other: Earnings credits are received from the custodian and dividend paying
agent on cash balances and are reflected in the statement of operations as an
expense offset.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
(2) Distributions:
Realized gains from securities transactions, if any, will be distributed to
shareholders prior to the end of each calendar year. At November 30, 1996 the
Trust did not have any capital loss carryforwards for Federal income tax
purposes.
Dividends from net investment income are declared and paid monthly and recorded
on the ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with federal income tax regulations.
<TABLE>
<CAPTION>
(3) Trust Shares:
Transactions in Trust shares were as follows:
Year Year
Ended Ended
11/30/96 11/30/95
--------- --------
<S> <C> <C>
Shares sold.................................... 291,419 241,675
Shares issued to stockholders in reinvestment
of net investment income....................... 102,717 89,664
--------- --------
394,136 331,339
Shares redeemed................................ (330,002) (257,613)
--------- --------
Net increase................................... 64,134 73,726
========= ========
</TABLE>
(4) Investment Transactions:
Purchases and sales of securities other than short-term securities aggregated
$18,439,405 and $18,484,205, respectively, during the year ended November 30,
1996.
(5) Management Advisory Fee and Other Transactions with Affiliates:
Pursuant to the Investment Advisory Agreement (the "Agreement"), Sentinel
Advisors, Co., ("SAC"), a Vermont general partnership whose general 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 of Philadelphia ("Provident
Mutual"), HTK of Delaware, Inc. ("HTK") an affiliate of The Penn Mutual Life
Insurance Company ("Penn Mutual") and Sentinel Management Company ("SMC"), a
Vermont general partnership whose general partners are affiliates of National
Life, Provident Mutual and Penn Mutual,
80
<PAGE>
provides general supervision of the Trust's investments as well as certain
administrative and related services. As compensation in full for services
rendered under its Agreement, the Trust pays SAC a monthly fee determined as
follows: 0.55% per annum on the first $50 million of average daily net assets;
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. The Agreement provides that if certain
expenses incurred by the Trust in any fiscal year exceed the expense limitations
imposed by any state's securities regulations, SAC will reimburse the Company
for any such excess. No reimbursement was required for the year.
Sentinel Financial Services Company ("SFSC"), a Vermont general partnership
whose general partners are National Life Investment Management Company, Inc., a
wholly-owned subsidiary of National Life, ProvidentMutual Financial Services,
Inc., an affiliate of Provident Mutual, HTK and SMC, is the principal
underwriter ("Distributor") of the Trust's shares. SFSC receives a sales charge
added to the net asset value received by the Trust on the sale of its shares.
This compensation is not an expense of the Trust and does not affect its
operating results. SFSC has advised the Trust that it received sales charges
aggregating $92,453 for the year ended November 30, 1996. The Trust is advised
that the total distribution charges retained by SFSC on the sale of shares
amounted to $3,213 after allowances of $7,924 to Equity Services, Inc., an
affiliate of National Life, $20,342 to 1717 Capital Management Company, an
affiliate of Provident Mutual, $2,472 to Hornor, Townsend & Kent, Inc. and
$16,432 to Janney Montgomery Scott, Inc., affiliates of Penn Mutual, and $42,070
to other investment dealers.
Each trustee who is not an employee of the adviser or an affiliated company is
paid an annual fee of $2,500 plus $200 for each meeting of the Board of Trustees
attended. Such trustees are reimbursed for travel and other out-of-pocket
expenses incurred in attending such meetings.
Pursuant to the Fund Services Agreement with Sentinel Administrative Service
Company ("SASC"), a Vermont general partnership whose general partners are
Sentinel Administrative Service Corporation ("SAS Corp."), an indirect wholly-
owned subsidiary of National Life, SIGMA American Corp., an affiliate of
Provident Mutual, HTK and SMC, the Trust receives trust accounting and financial
administrative services, transfer agent services and investor services, all of
which are coordinated with other services which the Trust has contracted for
with outside providers. Total fees for the year ended November 30, 1996 were
$121,000.
Effective March 1, 1993 SASC has voluntarily agreed to refund its fee to the
extent necessary to prevent the overall aggregate expense ratio of the Trust and
the Class A Shares of Sentinel Group Funds, Inc. (excluding the Sentinel World
Fund) from exceeding 1.30% of average daily net assets in any fiscal year.
Sentinel Group Funds, Inc. is a series fund with eleven portfolios and together
with the Trust make up the Sentinel Family of Funds. Although SASC has no
present intention to do so, this arrangement may be terminated at any time.
Expenses for the year ended November 30, 1996 did not exceed 1.30% of its
average daily net assets.
Effective March 27, 1995 thru May 14, 1995, SASC agreed to reimburse the Trust
for expenses in excess of an annual rate of 1.00%. Effective May 15, 1995, SASC
has agreed to reimburse the Trust for expenses in excess of an annual rate of
.75%. For the year ended November 30, 1996 the total amount reimbursable was
$199,793. This arrangement may be terminated at any time.
(6) Distribution Expenses:
On March 1, 1993, the Trust adopted a new distribution plan ("Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan the Trust pays to the Distributor
a monthly fee at the maximum annual rate of .20% of average daily net assets.
Such fees will be used to reimburse the Distributor for expenses incurred in
connection with distribution and promotion of the shares of the Trust, 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, promotion and selling shares of such Trust to the public, expenses
incurred for the preparation, printing and distribution of the Prospectus and
Statement of Additional Information, any supplement thereto used in connection
with the offering of such Trust's shares to the public, or any reports and other
communications for the distribution to existing shareholders, and service fees
(deferred commissions) paid to securities dealers who have executed a selling
agreement with the Distributor. The Distributor is not reimbursed for any
unreimbursed prior year's expenses.
81
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Sentinel Pennsylvania Tax-Free Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Sentinel Pennsylvania Tax-Free
Trust (the "Trust") at November 30, 1996, the results of its operations for the
year then ended, the changes in its net assets for the two years then ended, and
the financial highlights for each of the three years then ended and the eleven
months ended November 30, 1993, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
The financial highlights of the Trust for the year ended December 31, 1992 were
audited by other independent accountants whose report dated February 3, 1993
expressed an unqualified opinion on those financial highlights.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
December 20, 1996
82
<PAGE>
Federal Tax Status of Dividends and Distributions
During the fiscal year ended November 30, 1996, the Sentinel Funds paid the
following dividends and distributions:
<TABLE>
<CAPTION>
Net Short-term Long-term
Investment Capital Capital
Income Gain Gain
- ------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Emerging Growth - A...... $.026 $.14304 $ .82077
Emerging Growth - B...... - - -
Growth................... .073 .19552 2.35380
World - A................ .135 - .06541
World - B................ - - -
Common Stock - A......... .610 .27756 2.49122
Common Stock - B......... .124 - -
Balanced - A............. .543 .32785 .08712
Balanced - B............. .136 - -
Bond - A................. .413 - -
Bond - B................. .214 - -
Tax-Free Income - A...... .652 - -
Tax-Free Income - B...... .323 - -
N.Y. Tax-Free Income..... .533 - -
Government Sec........... .609 - -
Short-Inter. Government.. .565 - -
U.S. Treas. MM - A....... .044 - -
U.S. Treas. MM - B....... .029 - -
PA Tax-Free.............. .664 - .08000
</TABLE>
Each of the long-term capital gain distributions has been designated as a
"capital gain dividend" under the Federal Internal Revenue Code. The December
1995, long-term capital gain was included on Form 1099-DIV for the 1995 calendar
year.
For corporate shareholders, the percentage of the total dividends from net
investment income from the calendar year 1996 qualifying for the 70% dividend
received deduction available to corporations are as follows:
Sentinel Emerging Growth Fund 75%
Sentinel Growth Fund 100%
Sentinel Common Stock Fund 100%
Sentinel Balanced Fund 43%
In January 1997 you will be sent 1996 Form 1099-DIV from the Sentinel Funds. The
form will indicate the Federal income tax status of the dividends and capital
gains distributions paid to you by check or credited to your account in
additional shares during the calendar year 1996. The Internal Revenue Service
requires us to file this information, and it must be reported by you on your
Federal Income Tax Return for 1996. All of the dividends paid by the Sentinel
Tax-Free Income Fund, the Sentinel New York Tax-Free Income Fund and the
Sentinel Pennsylvania Tax-Free Trust from its net investment income is tax-
exempt for Federal income tax purposes.
Privileges, Plans and Services for Shareholders
Open Account - Unless another distribution option is elected, an Open Account is
automatically established for each new investor. In an Open Account, all income
dividends and any capital gains distributions are reinvested in additional
shares at net asset value and without charge.
Other Distribution Options - Upon written notice to Sentinel Administrative
Service Company, you may elect one of the following options:
1. Receive dividends in cash and reinvest any capital gains distributions in
additional shares of any of the Sentinel Funds, of the same class, at net
asset value.
2. Receive both dividends and capital gains in cash.
3. Reinvest both dividends and capital gains in another Sentinel Fund, of the
same class, at net asset value.
Automatic Investment Plan - This service, provided without charge, enables you
to make regular investments of $50 or more by means of an automatic checking
account debiting service via the ACH (Automated Clearing House) network.
Information and the application necessary to establish this plan are included in
the prospectus. A separate folder and application are also available from
Sentinel Administrative Service Company, or from your investment dealer.
Systematic Withdrawal Plan - This plan enables you to receive a check once per
month, during any months of the year you specify, for a dollar amount that you
specify. Note that this plan is available only to those who own, or are
purchasing, at least $5,000 worth of shares of one or more of the Sentinel
Funds, except Sentinel U.S. Treasury Money Market Fund, as determined by the
current offering price. Payments may be made to you, your bank, or other payee
as requested on the application. Under the Systematic Withdrawal Plan, all
dividends and distributions are automatically reinvested at net asset value and
payments are made from the proceeds of redeemed shares.
Bond, Tax-Free Income, New York Tax-Free Income, Government Securities, Short-
Intermediate Government, U.S. Treasury Money Market and Pennsylvania Tax-Free
Fund Check Writing Service - This special feature of the Class A Shares of
Sentinel Bond Fund, Sentinel Tax-Free Income Fund, Sentinel New York Tax-Free
Income Fund, Sentinel Government Securities Fund, Sentinel Short-
83
<PAGE>
Intermediate Government Fund, Sentinel U.S. Treasury Money Market Fund and
Sentinel Pennsylvania Tax-Free Trust enables you to draw checks (minimum amount
$500 except for the U.S. Treasury Money Market Fund which is $250) on your
account through Investors Fiduciary Trust Co. There is currently no fee for this
service. Please note that this service is not available to IRA, Keogh, 403(b) or
other fiduciary accounts. Information and applications are available by
contacting Sentinel Funds Investor Services at (800) 282-FUND (3863).
Exchange Privilege - The Exchange Privilege is designed to add flexibility to
your investment program by enabling you to exchange all or part of your shares
in one Sentinel Fund for shares of the same class of another Fund in the family
without payment of any additional sales charge. The exception to no additional
sales charge is when shares are exchanged from the U.S. Treasury Money Market
Fund to Class A Shares of another Sentinel Fund, a sales charge will be imposed
unless the assets in the U.S. Treasury Money Market Fund were in another
Sentinel Fund and were previously subject to a sales charge. Shares being
exchanged into another Fund must have a value of at least $1,000 (the minimum
investment required to open a new account) unless you already have an account in
that Fund. Shares being exchanged must have been in the account a minimum of 15
calendar days (90 days in the case of funds initially invested in the Sentinel
Short-Intermediate Government Fund or exchanged into such Fund from funds
initially invested in the Sentinel U.S. Treasury Money Market Fund). Account
registrations must be identical. Exchanges may be made by calling toll-free,
(800) 282-FUND (3863), or by writing Sentinel Funds, P. O. Box 1499, Montpelier,
Vermont 05601-1499. Note that an exchange is a taxable transaction for federal
income tax purposes.
Reinstatement Privilege - A shareholder who redeems all or part of an account
may reinvest all or part of the redemption proceeds at the then current net
asset value if a written request to the Fund is received or postmarked within
one year after the date of the redemption. Sentinel Short-Intermediate
Government Fund shareholders who have held their shares for 90 days or less,
however, may only use this reinstatement privilege to reinvest in the Short-
Intermediate Government Fund. In general, this privilege may be exercised only
once by a shareholder.
Telephone Redemption - Up to $1,000,000 in funds may be redeemed by telephone
upon completion of the appropriate section of the Application, or subsequent
submission of such, with proper signature guarantee. Under this service,
proceeds may either be sent to the address of record or a pre-designated bank. A
signature guarantee is required on any change in redemption instructions as well
as a 30 day waiting period for changes to become effective. To redeem shares by
telephone, you may call (800) 282-FUND (3863).
Tax-Deferred Retirement Plans - Shares of Sentinel Group Funds may be purchased
by all types of tax-deferred retirement plans, including self-employed
individuals and partnerships ("Keogh"), Individual Retirement Accounts ("IRA"),
Simplified Employee Pension Plans ("SEP-IRA"), 403(b) Plans (deferred
compensation arrangements for employees of public school systems and certain
non-profit organizations), Section 457 Plans and other corporate pension and
profit-sharing plans. Consult your tax advisor for details.
Please refer to the prospectus for complete details regarding these privileges,
plans and services.
84
<PAGE>
This page left blank intentionally.
85
<PAGE>
Directors/Trustees and Officers
Sentinel Group Funds, Inc. and
Sentinel Pennsylvania Tax-Free Trust
<TABLE>
<CAPTION>
<S> <C> <C>
Keniston P. Merrill John D. Feerick Susan M. Sterne
Chairman and Chief Executive Officer Director/Trustee Director/Trustee
Chairman and Chief Executive Officer, Dean, Fordham University President, Economic Analysis
Sentinel Advisors Company School of Law Associates, Inc.
Joseph M. Rob Richard I. Johannesen, Jr. Angela E. Vallot
Director/Trustee and President Director/Trustee Director/Trustee
Chief Executive Officer, Former Vice President and Manager - Of Counsel, Arent Fox Kintner
Sentinel Management Company Bond Market Research Department, Plotkin & Kahn
Salomon Brothers Inc.
Richard J. Borda John M. Grab, Jr.
Director/Trustee Robert B. Mathias Vice President
Former Vice Chairman, Director/Trustee
National Life Insurance Company Sports Consultant; Marvin Aber
former U.S. Congressman Vice President and Treasurer
Dr. Kalman J. Cohen
Director/Trustee Deborah G. Miller Thomas P. Malone
Distinguished Bank Research Director/Trustee Assistant Treasurer
Professor Emeritus, Vice President D. Russell Morgan
The Fuqua School of Business, Digital Equipment Corporation Secretary
Duke University
Stanley R. Reber
Richard D. Farman Director/Trustee
Director/Trustee Executive Vice President,
President and Chief Operating Officer, Provident Mutual
Pacific Enterprises Life Insurance Company
Investment Adviser Custodian and Dividend Paying Agent
Sentinel Advisors Company Investors Fiduciary Trust Company
Principal Underwriter Transfer Agent, Shareholder Servicing
Sentinel Financial Services Company Agent and Administrator
Sentinel Administrative Service
Counsel Company
Brown & Wood
Independent Accountants
Price Waterhouse LLP
</TABLE>
86
<PAGE>
The Sentinel Funds Board of Directors
[PICTURE OF SENTINAL FUNDS BOARD OF DIRECTORS APPEARS HERE]
Standing, left to right: Dr. Kalman J. Cohen, Joseph M. Rob, Richard I.
Johannesen, Jr., John D. Feerick,
Richard J. Borda, Stanley R. Reber.
Seated, left to right: Susan M. Sterne, Keniston P. Merrill, Angela E. Vallot.
Not pictured: Richard D. Farman, Robert B. Mathias, Deborah G. Miller.
87
<PAGE>
A Brief History
The Sentinel Family of Funds is one of America's oldest fund families. Its
largest member, Sentinel Group Funds, Inc., was originally incorporated as Group
Securities, Inc. in the state of Delaware on December 3, 1933. Designed as a
series type of investment company, its main objectives were to offer
shareholders the benefits of "group security investing" along with the ability
to invest in individual industries or industrial groups readily and
conveniently, each in the form of a single stock.
Shares of 17 individual classes of stock were first offered to the public at
$1.10 per share on January 12, 1934 - virtually at the bottom of the Great
Depression.
Following several additions and deletions, 21 classes of stock were maintained
for an extended period of time. Subsequent consolidations, mergers and name
changes combined the classes of stock into what are today the two original
remaining funds in Sentinel Group Funds, Inc., Sentinel Common Stock Fund and
Sentinel Balanced Fund. Sentinel Growth Fund and Sentinel Bond Fund were
organized by National Life Insurance Company in 1969 and merged into the
Sentinel Group in 1978. Two more additions, Sentinel Government Securities Fund
and Sentinel Tax-Free Income Fund, were introduced on September 2, 1986 and
October 1, 1990, respectively.
In May, 1981, Sentinel Cash Management Fund, Inc. was organized as a no-load
money market fund. The "Cash Fund" was also organized as a series fund, and was
designed to operate independently of Sentinel Group Funds, Inc., while at the
same time sharing the Group's management, distribution, transfer agent and other
servicing and administrative arrangements.
On March 1, 1993, National Life Insurance Company and Provident Mutual Life
Insurance Company of Philadelphia entered into a joint venture arrangement which
resulted in the merging of the nine ProvidentMutual Funds into the Sentinel
Family of Funds. With the merger, three new classes of stock were added to
Sentinel Group Funds, Inc., and a fourth new member of the broader Sentinel
Family of Funds was added. The three new members of Sentinel Group Funds, Inc.
are Sentinel Emerging Growth Fund, Sentinel World Fund and Sentinel U.S.
Treasury Money Market Fund. The fourth new member of the Sentinel Family of
Funds is Sentinel Pennsylvania Tax-Free Trust (the "Trust"). The Trust operates
as a separate investment company with respect to Sentinel Group Funds, Inc., but
shares management, distribution, fund accounting, transfer agent and other
arrangements with the Sentinel Group.
Also on March 1, 1993, Sentinel Cash Management Fund, Inc. was merged into the
Sentinel U.S. Treasury Money Market Fund.
On March 27, 1995, Penn Mutual Life Insurance Company joined National Life
Insurance Company and Provident Mutual Life Insurance Company in their mutual
fund operation. This resulted in the merging of seven funds of The Independence
Capital Group of Funds into Sentinel Group Funds, Inc., and the creation of two
new classes of stock - Sentinel New York Tax-Free Income Fund and Sentinel
Short-Intermediate Government Fund.
Effective April 1, 1996, six Sentinel Funds offered two classes of shares:
Sentinel Emerging Growth, Sentinel World, Sentinel Common Stock, Sentinel
Balanced, Sentinel Bond and Sentinel Tax-Free Income funds. The new class is
called "Class B Shares" while the original class is called "Class A Shares."
Sentinel U.S. Treasury Money Market Fund also has Class B Shares which are
available only through exchanges from the other Class B Shares.
The twelve funds in the Sentinel Family of Funds, which includes the eleven
funds in Sentinel Group Funds, Inc., and the Sentinel Pennsylvania Tax-Free
Trust, now represent net assets of $2.3 billion which are managed on behalf of
approximately 102,300 individual, corporate and institutional shareholders
located across the country and around the world. Shares are distributed by
registered representatives and independent broker/dealers through Sentinel
Financial Services Company, an affiliate of the partnership between National
Life, Provident Mutual and Penn Mutual. Sentinel Advisors Company and Sentinel
Administrative Service Company, which are also affiliates of the partnership,
provide respective investment management and shareholder services to the funds.
88
<PAGE>
Sentinel Funds
Integrity Since 1934
Sentinel Emerging Growth Fund
Sentinel Growth Fund
Sentinel World Fund
Sentinel Common Stock Fund
Sentinel Balanced Fund
Sentinel Bond Fund
Sentinel New York Tax-Free Income Fund
Sentinel Tax-Free Income Fund
Sentinel Government Securities Fund
Sentinel Short-Intermediate Government Fund
Sentinel U.S. Treasury Money Market Fund
Sentinel Pennsylvania Tax-Free Trust
This report is authorized for distribution to prospective investors only when
preceded or accompanied by an effective prospectus.
Distributed by
Sentinel Financial Services Company
National Life Drive
Montpelier, Vermont 05604
(802) 229-3900
