<PAGE>
Sentinel Family of Funds
Annual Report
November 30, 1997
[PHOTO OF HOUSE APPEARS HERE]
<PAGE>
[LOGO APPEARS HERE]
Sentinel Group Funds, Inc. (SGF)
Sentinel Pennsylvania
Tax-Free Trust (PA)
National Life Drive,
Montpelier, Vermont 05604
(800) 282-FUND(3863)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table of Contents
<S> <C>
2 Message to Shareholders
4 Fund Performance
5 Sentinel Investment Team
6 Sentinel Common Stock Fund
12 Sentinel Balanced Fund
19 Sentinel Growth Fund
25 Sentinel Small Company Fund
31 Sentinel World Fund
36 Sentinel High Yield Bond Fund
41 Sentinel Bond Fund
47 Sentinel Government Securities Fund
53 Sentinel Short Maturity Government Fund
59 Sentinel U.S. Treasury Money Market Fund
64 Sentinel Tax-Free Income Fund
70 Sentinel New York Tax-Free Income Fund
75 Notes to Financial Statements (SGF)
80 Report of Independent Accountants (SGF)
81 Sentinel Pennsylvania Tax-Free Trust
86 Notes to Financial Statements (PA)
88 Report of Independent Accountants (PA)
89 Federal Tax Status of Dividends and Distributions
89 Privileges, Plans and Services for Shareholders
91 Directors/Trustees and Officers
93 A Brief History
</TABLE>
Cover: A Vermont maple "sugarhouse" reaches full boil in early spring.
Original oil by Douglas Fryer.
1
<PAGE>
Message to Shareholders
[PHOTO OF KENISTON P. MERRILL APPEARS HERE]
Keniston P. Merrill
Chairman
[PHOTO OF JOSEPH M. ROB APPEARS HERE]
Joseph M. Rob
Director and President
Dear Shareholder:
We are pleased to submit our annual report for the twelve months ended November
30, 1997. The just-completed fiscal year was one of significant opportunity in
the financial markets.
The Economy
The pattern of economic growth in 1997 was similar to that of 1996, with strong
growth during the first three months of 1997 (at about 5% in real GDP) slowing
to a more moderate 3% pace in the second half. Also similar to 1996, inflation
remained well under control at about 2.5% for 1997.
For a good part of the year, the very favorable environment of moderate growth,
low inflation and a declining federal budget deficit had a decidedly positive
impact on returns for financial assets. However, late in the year, external
forces, most notably financial crises in the lesser developed countries, and
continued difficulties with the Japanese economy, began to take a toll on
expectations for the U.S. economy. In particular, financial market participants
began to suspect that the continued strength of the U.S. dollar might result in
increasing difficulties for U.S. exporters combined with tough price competition
from imported goods, and may ultimately serve as a catalyst for slower growth
domestically.
Looking forward, while we see little in the purely domestic economy that would
alter the moderate growth, low inflation scenario, it appears probable that the
growing interdependency of economies worldwide may have a greater impact on our
domestic situation than has been the case during the post-war years. We will
remain vigilant in evaluating how these interdependencies may impact the
economic outlook, the potential returns on financial assets, and, particularly,
the investments in your Funds.
The Financial Markets
Stock and bond markets achieved strong returns for the third consecutive year.
Volatility also increased significantly.
For the year ended November 30, 1997, the Lehman Brothers Aggregate Bond Index,
a widely used measure of overall bond market performance, achieved a total
return of 7.6%, moderately above long-term historical norms. The ride in the
bond market was hardly a smooth one, however. The 10-year Treasury hit a low
near 6.00% three times during the year and reached a high of almost 7.00% in
April. As investors became more wary of overseas markets late in the year and
sought the safe haven of a strong currency, the U.S. fixed income markets
rallied strongly, ending the year at a high point with the 10-year Treasury at
around 5.85%, and the 30-year bond at 6.00%.
Looking forward, we are generally positive with respect to the U.S. bond market.
Continuing economic difficulties in the developing nations may again lead to a
"flight to quality," increasing the demand for U.S. fixed income investments and
in particular obligations of the U.S. Treasury. As well, the problems in the Far
East and South America may result in a decline in U.S. exports to
2
<PAGE>
those regions, keeping a lid on U.S. economic growth. This in turn may help to
continue to constrain inflationary pressures. As we have seen in recent years, a
moderate growth rate and a relatively low inflation rate provide near ideal
conditions for the U.S. fixed income markets.
Stock market returns were again extraordinary, especially during the first half
of 1997. For the twelve months ended November 30, 1997, the Standard & Poor's
500 Index achieved a total return of 28.5%. The Russell 2000, a widely used
measure of returns for smaller capitalization stocks, advanced 23.2% for the
period. Continued strong earnings growth, and very positive developments in
Washington (in the form of a balanced budget compromise and a reduction in
capital gains tax rates), fueled the stock market advance through the summer
months. Virtually every major stock market index set new all-time highs. With
global economic conditions deteriorating in the fall, however, the market began
to discount the possibility of slower earnings growth in 1998, and traded down
modestly from its highs. Although there was much publicity surrounding the steep
one day drop in stock prices during October, the market recovered all of the
lost ground in a matter of weeks. As the year drew to a close, the stock market
continued to exhibit a great deal of day-to-day volatility, and a number of the
more cyclical stock groups continued to show signs of weakness. Nevertheless, at
fiscal year end the stock market remained less than 10% below all-time highs set
earlier in the year.
Consensus estimates for S&P 500 profits for 1998 now hover in the $45-47 range,
about 10% higher than the figures for 1997. Based on those estimates, the
current price-earnings multiple on 1998 earnings is 21 times. After three
exceptionally strong years of stock market returns, the current price-earnings
multiple has risen to the high end of its normal range, a level which can
perhaps be justified given the low level of interest rates, but which may not be
sustainable should there be significant reductions in earnings growth
expectations. We believe it is a particularly appropriate time to emphasize the
long-term, value-oriented investment discipline that is the hallmark of the
Sentinel Funds.
As always, we appreciate your support and look forward to continuing to help you
achieve your long-term investment goals.
In closing, as Chairman of the Sentinel Funds and co-author of this message, I'm
happy to report that in anticipation of my retirement on December 31, 1997, the
board of directors on December 11, 1997, elected Patrick E. Welch, Chairman and
Chief Executive Officer of National Life Insurance Company, as Chairman of the
Sentinel Funds Board of Directors. Following my retirement, I will remain on the
Sentinel board as a director/trustee, and look forward to continuing to serve
the Sentinel Funds and its shareholders in that capacity.
Sincerely,
/s/ Keniston P. Merrill
Keniston P. Merrill
Chairman
/s/ Joseph M. Rob
Joseph M. Rob
Director & President
December 15, 1997
3
<PAGE>
Fund Performance
Performance data for each Sentinel Fund is provided in this table. Financial
data is contained in the following pages.
<TABLE>
<CAPTION>
11/30/96 - 11/30/97
-----------------------------------------------------------------------
11/30/97
Net Asset Capital
Value Per Income Gain Total Lipper
Share Dividends Distributions Return* Average**
<S> <C> <C> <C> <C> <C> <C>
Sentinel
Fund
Small Company "A" Shares $ 6.30 $.01 $ .04 23.0% 21.0%
- ----------------------------------------------------------------------------------------------------------------------------
"B" Shares 6.18 - .04 21.6 -
- ----------------------------------------------------------------------------------------------------------------------------
Growth 18.73 .02 2.80 27.3 22.0
- ----------------------------------------------------------------------------------------------------------------------------
World "A" Shares 17.25 .11 .24 12.5 4.9
- ----------------------------------------------------------------------------------------------------------------------------
"B" Shares 17.05 .04 .24 11.5 -
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock "A" Shares 44.09 .57 3.54 20.9 23.5
- ----------------------------------------------------------------------------------------------------------------------------
"B" Shares 44.03 .26 3.54 19.9 -
- ----------------------------------------------------------------------------------------------------------------------------
Balanced "A" Shares 20.29 .55 .45 15.4 16.1
- ----------------------------------------------------------------------------------------------------------------------------
"B" Shares 20.32 .41 .45 14.6 -
- ----------------------------------------------------------------------------------------------------------------------------
Bond "A" Shares 6.36 .40 - 6.7 6.9
- ----------------------------------------------------------------------------------------------------------------------------
"B" Shares 6.38 .34 - 5.9 -
- ----------------------------------------------------------------------------------------------------------------------------
Government Securities 10.09 .59 - 7.2 6.5
- ----------------------------------------------------------------------------------------------------------------------------
Tax-Free Income 13.64 .65 .13 6.9 6.9
- ----------------------------------------------------------------------------------------------------------------------------
PA Tax-Free Trust 13.34 .64 .08 6.1 6.7
- ----------------------------------------------------------------------------------------------------------------------------
Short Maturity Government 9.82 .56 - 6.0 5.2
- ----------------------------------------------------------------------------------------------------------------------------
High Yield Bond *** "A" Shares 10.41 .32 - 7.3 5.3+
- ----------------------------------------------------------------------------------------------------------------------------
*** "B" Shares 10.40 .31 - 7.2 -
- ----------------------------------------------------------------------------------------------------------------------------
NY Tax-Free Income 11.88 .60 .09 7.7 6.7
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Market "A" Shares 1.00 .04 - 4.6 -
- ----------------------------------------------------------------------------------------------------------------------------
"B" Shares 1.00 .05 - 4.7 -
- ----------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500+ - - - 28.5 -
- ----------------------------------------------------------------------------------------------------------------------------
Lehman Aggregate Bond Index++ - - - 7.6 -
- ----------------------------------------------------------------------------------------------------------------------------
Lehman Municipal Bond Index+++ - - - 7.2 -
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return is computed assuming the reinvestment of dividends and capital
gain distributions using net asset values. Past performance is no guarantee
of future performance.
** Average performance of category of funds with similar investment objectives
as tracked by Lipper Analytical Services.
*** 6/23/97 Inception Date
+ 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.
+ Reflects total return for the five month period ended 11/30/97.
4
<PAGE>
The Sentinel Investment Team
[PHOTO 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: Daniel J. Manion, CFA, Assistant Vice President & Co-
Portfolio Manager/Analyst - Sentinel Common Stock Fund; Thomas H. Brownell, CFA,
Vice President & Portfolio Manager; David M. Brownlee, CFA, Vice President &
Portfolio Manager - Sentinel Government Securities Fund and Sentinel Short
Maturity Government Fund; Kenneth J. Hart, Vice President & Portfolio Manager -
Sentinel Tax-Free Income Fund, New York Tax-Free Income Fund and Pennsylvania
Tax-Free Trust; William C. Kane, CFA, Vice President & Co-Portfolio Manager -
Sentinel Bond Fund; Bruce R. Bottamini, CFA, Vice President, Director of Fixed
Income Research; Richard D. Temple, Vice President & Portfolio Manager -
Sentinel Bond Fund, Co-Manager - Sentinel Balanced Fund, Charles C. Schwartz,
Assistant Equity Analyst; Scott T. Brayman, CFA, Assistant Vice President & Co-
Portfolio Manager/Analyst - Sentinel Small Company Fund; Robert L. Lee, CFA,
Vice President & Portfolio Manager - Sentinel Growth Fund, Co-Manager - Sentinel
Small Company Fund; Gary M. Reich, CPA, CFA, Equity Analyst.
Seated, left to right: Darlene A. Coppola, Money Market Trader - Sentinel U.S.
Treasury Money Market Fund; Richard A. Pender, CFA, Vice President & Portfolio
Manager - Sentinel Common Stock Fund, Co-Manager - Sentinel Balanced Fund;
Keniston P. Merrill, Chairman & CEO Sentinel Advisors Company, Co-Manager -
Sentinel Common Stock Fund and Sentinel Small Company Fund; Rodney A. Buck, CFA,
Senior Vice President - Sentinel Advisors Company, Manager - Sentinel Balanced
Fund.
Not pictured: Erik B. Granade, CFA, Manager - Sentinel World Fund; Prescott B.
Crocker, CFA, Manager - Sentinel High Yield Bond Fund.
5
<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
In the U.S., the economic environment continues to be quite healthy, as steady
growth combined with modest inflation and falling interest rates provides a
nearly ideal backdrop for the stock market.
The Sentinel Common Stock Fund produced a total return of 20.9% for the fiscal
year ended November 30, 1997. This figure was below the 23.5% average return for
the universe of Lipper Growth & Income Funds and the 28.5% return for the
Standard & Poor's 500.
While the domestic stock market produced another year of impressive returns,
with 1997 likely to be the third successive year of 20% plus gains for the major
equity indices, the latter part of the year was particularly volatile. Most of
the market's gains were made in the earlier portion of the year, with little
headway made during the fall, a period of increasing unease in the international
financial markets.
In the U.S., the economic environment continues to be quite healthy, as steady
growth combined with modest inflation and falling interest rates provides a
nearly ideal backdrop for the stock market. However, the recent Asian and
Brazilian currency crises and stock market declines, along with the expected
economic slowdown in these regions, could have a major impact on what is an
increasingly global economy. Many U.S.-based multinational firms have made
significant investments in emerging market economies and may have to deal with a
demand slowdown and a more difficult export environment, given the continued
strength of the U.S. dollar. Additionally, producers in these countries will
increasingly look to export markets to absorb excess capacity and will do so
with weakened currencies, a development which could effect even mostly domestic
industries in the U.S.
Within the past year, the stock market has shifted favor between large and small
stocks and among various market sectors. The largest capitalization issues
performed well during the earlier part of the year before a pronounced shift in
favor to small caps this past summer. This trend has apparently reversed of
late, with the shares of larger companies, which constitute the bulk of the
Sentinel Common Stock Fund's holdings, once again dominating as year-end
approaches.
Technology issues were strong throughout most of the year and the Fund's
relatively limited exposure to this sector negatively impacted relative
performance. However, some of our concerns about the valuation levels of many of
these stocks and the sustainability of profit margins in the midst of falling
product prices and excessive capacity growth are proving valid. The
above-mentioned Asian market turmoil has also begun to take a toll on technology
issues. As a
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Annual
Total Return -
Class A Shares
Through 11/30/97
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 14.8% 20.9%
- --------------------------------------------------------------------------------
5 Years 15.7% 16.9%
- --------------------------------------------------------------------------------
10 Years 15.7% 16.3%
- --------------------------------------------------------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Common Stock Fund Performance -- Class A Shares
Ten Years Ended 11/30/97
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Standard &
Sentinel Common Lipper Growth & Poor's 500
Date Stock Fund Income Fund Avgerage Stock Index
---- ---------- -------------------- -----------
<S> <C> <C> <C>
Nov. '87 9,500 10,000 10,000
Nov. '88 11,378 12,160 12,323
Nov. '89 14,293 15,105 16,119
Nov. '90 13,951 14,212 15,561
Nov. '91 16,894 17,187 18,723
Nov. '92 19,715 20,278 22,174
Nov. '93 21,441 22,545 24,408
Nov. '94 21,053 22,618 24,670
Nov. '95 27,965 29,539 33,777
Nov. '96 35,560 36,919 43,273
Nov. '97 42,976 45,595 55,610
</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 share class expenses.
Chart Ending Values & Legend
Ten years ended 11/30/97
Sentinel Common Stock Fund $42,976
Standard & Poor's 500 Stock Index* $55,610
Lipper Growth & Income Fund Average $45,595
*An unmanaged index of stocks reflecting average prices in the stock market.
6
<PAGE>
result, the gap in performance between the Fund and its peer group that had
developed during August and September as a result of a technology stock rally
and a shift into smaller capitalization issues has narrowed considerably.
Financials were once again a strong sector and the Common Stock Fund's ample
representation here impacted performance positively as our holdings in banks,
insurance companies and diversified financial companies enjoyed substantial
appreciation. The Fund also had excellent gains in its advertising and
publishing related holdings. Within the energy sector, the Fund's holdings in
oil service were strong relative performers despite some recent profit taking.
Also beneficial was the Fund's limited exposure to highly cyclical, basic
commodity industries such as papers, metals and mining, which despite compelling
valuation levels, continued to perform poorly in an environment of excess
capacity and weak pricing.
With a number of high-flying stocks giving back some of their gains as our
fiscal year came to a close, investors sought refuge in more defensive issues
such as utility shares, and consumer staples stocks including foods and
pharmaceuticals. The Common Stock Fund has significant representation in these
areas, especially the electric utilities, which have exhibited relative strength
in recent months amid increased investor uncertainty and an ongoing bond market
rally.
Looking ahead to 1998, we expect the trends of modest economic growth and
restrained inflation to continue. While this environment should be generally
favorable for common stocks, given what appear to be somewhat lofty valuation
levels and high investor expectations for corporate earnings, we must once again
urge investor caution about extrapolating recent exceptional stock market
returns indefinitely into the future.
As mentioned above, the Fund participated in a positive way from the market's
preference for larger capitalization issues. In our stock selection processes,
we have increasingly found better values in some of the mid-cap stocks and have
been selectively adding to our holdings of some of these high quality issues.
The portfolio maintains its traditional value focus, with a dividend yield above
that of the overall market and price to earnings ratios and other valuation
measures below those of the averages. At the same time, we continue to focus on
those companies with strong finances, good fundamental operating environments
and the ability to deliver consistent and relatively strong earnings growth. We
believe that the Sentinel Common Stock Fund's conservative investment approach
will continue to serve our shareholders well in both the strong market
environments investors have grown accustomed to, and the more difficult periods
that may lie ahead. As always, we appreciate your continued support.
/s/ Keniston P. Merrill
Keniston P. Merrill
/s/ Richard A. Pender
Richard A. Pender, CFA
/s/ Daniel J. Manion
Daniel J. Manion, CFA
7
<PAGE>
Sentinel Common Stock Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Shares Value
(Note 1)
- -----------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 95.6%
Aerospace 2.6%
Boeing Co. 160,000 $ 8,500,000
Goodrich (B.F.) 750,000 33,375,000
--------------
41,875,000
--------------
Automobiles & Auto Parts 3.9%
Chrysler Corp. 700,000 24,018,750
Ford Motor 800,000 34,400,000
Meritor Automotive Inc. 141,666 3,169,777
--------------
61,588,527
--------------
Banks 9.8%
BankAmerica Corp. 400,000 29,200,000
Bank of New York 550,000 29,562,500
Chase Manhattan Corp. 287,200 31,197,100
Citicorp 190,000 22,788,125
First Union Corp. 553,200 26,968,500
Morgan (J.P.) 135,000 15,415,312
--------------
155,131,537
--------------
Building Materials 1.8%
Sherwin - Williams 1,000,000 28,562,500
--------------
Computer Products 1.4%
Hewlett Packard 350,000 21,371,875
--------------
Consumer & Business Svcs 2.1%
Omnicom Group 450,000 33,356,250
--------------
Consumer Products 5.1%
Fortune Brands 875,000 31,664,063
Kimberly - Clark 650,000 33,840,625
Rubbermaid 650,000 15,762,500
--------------
81,267,188
--------------
Drugs 4.0%
American Home Products 450,000 31,443,750
Pfizer, Inc. 450,000 32,737,500
--------------
64,181,250
--------------
Electrical Equipment 3.4%
Emerson Electric 500,000 27,500,000
General Electric 350,000 25,812,500
--------------
53,312,500
--------------
Energy 8.2%
Amoco 259,600 23,364,000
Chevron 240,000 19,245,000
Exxon 475,000 28,975,000
Mobil 420,000 30,213,750
Royal Dutch Petroleum 550,000 28,978,125
--------------
130,775,875
--------------
Financial 3.3%
American Express 425,000 33,521,875
Traveler's Group 375,000 18,937,500
--------------
52,459,375
--------------
Foods 4.4%
CPC International 325,000 33,596,875
Sara Lee 700,000 37,012,500
--------------
70,609,375
--------------
Industrial-Diversified 9.1%
Crown Cork & Seal 625,000 30,507,812
PPG Industries 325,000 18,829,688
Parker-Hannifin 975,000 43,387,500
Praxair Inc. 700,000 30,756,250
Rockwell Int'l. 425,000 20,718,750
--------------
144,200,000
--------------
Insurance 7.4%
Allstate Corp. 425,000 36,496,875
American General 625,000 33,671,875
American Int'l. Group 300,000 30,243,750
Jefferson-Pilot 225,000 17,170,313
--------------
117,582,813
--------------
Lodging 1.3%
Marriott International 275,000 19,920,312
--------------
Medical - Equipment & Supplies 2.0%
Johnson & Johnson 500,000 31,468,750
--------------
Oil Field Equipment & Services 3.8%
Halliburton Co. 570,000 30,744,375
Schlumberger Ltd. 360,000 29,632,500
--------------
60,376,875
--------------
Publishing 3.1%
Gannett 500,000 29,031,250
McGraw-Hill 300,000 20,531,250
--------------
49,562,500
--------------
Railroads 3.8%
Canadian Pacific 1,100,000 31,143,750
Union Pacific Corp. 481,100 28,866,000
--------------
60,009,750
--------------
Retail 2.9%
May Department Stores 366,980 19,725,175
Sears, Roebuck 580,800 26,607,900
--------------
46,333,075
--------------
Tobacco 1.1%
Philip Morris 390,000 16,965,000
--------------
Utilities - Electric 7.1%
Duke Energy 650,000 33,800,000
FPL Group 450,000 25,171,875
Florida Progress 650,000 23,034,375
Pacificorp 1,300,000 30,306,250
--------------
112,312,500
--------------
Utilities - Gas 2.3%
Enron Corp. 525,000 20,343,750
Sonat, Inc. 380,000 16,553,750
--------------
36,897,500
--------------
Utilities - Telephone 1.7%
GTE Corp. 540,000 27,303,750
--------------
Total Common Stocks
(Cost $801,020,121) 1,517,424,077
--------------
Preferred Stock 0.8%
Microsoft Corp. Series A
(Cost $11,393,362) 142,500 12,620,156
--------------
<CAPTION>
- -----------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- -----------------------------------------------------------------------------
<S> <C> <C>
Corporate Short-Term Notes 3.4%
Assoc. Corp. of N.A.
5.52%, 12/10/97 14,000M $ 13,980,680
Beneficial Corp
5.57%, 12/18/97 11,000M 10,971,067
Merrill Lynch
5.57%, 12/02/97 10,000M 9,998,452
Norwest Financial
5.57%, 12/15/97 6,900M 6,885,054
Prudential Funding
5.56%, 12/05/97 12,500M 12,492,278
---------------
Total Corporate Short-Term Notes
(Cost $54,327,531) 54,327,531
---------------
Total Investments
(Cost $866,741,014)* 1,584,371,764
Excess of Other Assets
Over Liabilities 0.2% 2,927,005
---------------
Net Assets $1,587,298,769
===============
</TABLE>
- -----------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997, unrealized
appreciation for federal income tax purposes aggregated $717,630,750 of which
$722,780,642 related to appreciated securities and $5,149,892 related to
depreciated securities.
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
Sentinel Common Stock Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<S> <C>
Assets
Investments at value $1,584,371,764
Cash and cash equivalents 833,239
Receivable for fund shares sold 433,955
Receivable for dividends and interest 4,718,442
---------------
Total Assets 1,590,357,400
---------------
Liabilities
Payable for fund shares repurchased 538,252
Accrued expenses 534,865
Management fee payable 710,483
Distribution fee payable (Class A Shares) 1,071,213
Distribution fee payable (Class B Shares) 59,430
Fund service fee payable 144,388
---------------
Total Liabilities 3,058,631
---------------
Net Assets Applicable to Outstanding shares $1,587,298,769
===============
Net Asset Value and Offering Price per Share
Class A Shares
$1,509,999,349 / 34,246,432 shares outstanding $ 44.09
Sales Charge -- 5.00% of offering price 2.32
---------------
Maximum Offering Price $ 46.41
===============
Class B Shares
$77,299,420 / 1,755,409 shares outstanding $ 44.03
===============
Net Assets Represent
Capital stock at par value $ 360,018
Paid-in capital 696,738,228
Accumulated undistributed net investment income 3,560,582
Accumulated undistributed net realized gain
on investments 169,009,191
Unrealized appreciation of investments 717,630,750
---------------
Net Assets $1,587,298,769
===============
Investments at Cost $ 866,741,014
===============
</TABLE>
<TABLE>
<CAPTION>
Sentinel Common Stock Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<S> <C>
Investment Income
Income:
Dividends $ 30,455,034
Interest 5,011,831
---------------
Total Income 35,466,865
---------------
Expenses:
Management advisory fee 7,992,617
Transfer agent and custodian 1,871,420
Distribution expense (Class A Shares) 4,100,000
Distribution expense (Class B Shares) 500,000
Accounting services 512,680
Auditing fees 119,600
Legal fees 58,800
Reports and notices to shareholders 137,314
Directors' fees and expenses 159,140
Other 110,893
---------------
Total Expenses 15,562,464
Expense Offset (127,795)
---------------
Net Expenses 15,434,669
---------------
Net Investment Income 20,032,196
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 169,148,488
Net change in unrealized appreciation 84,198,889
---------------
Net Realized and Unrealized Gain on Investments 253,347,377
---------------
Net Increase in Net Assets from Operations $273,379,573
===============
</TABLE>
See Notes to Financial Statements.
See Notes to Financial Statements.
9
<PAGE>
Sentinel Common Stock Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ---------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 20,032,196 $ 19,052,646
Net realized gain on sales of investments 169,148,488 116,444,973
Net change in unrealized appreciation 84,198,889 148,127,314
--------------- ---------------
Net increase in net assets from operations 273,379,573 283,624,933
--------------- ---------------
Distributions to Shareholders
From net investment income
Class A Shares (19,255,324) (19,249,840)
Class B Shares (313,742) (42,698)
From net realized gain on investments
Class A Shares (113,937,213) (82,958,132)
Class B Shares (2,471,535) -
--------------- ---------------
Total distributions to shareholders (135,977,814) (102,250,670)
--------------- ---------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 108,947,565 109,605,903
Class B Shares 44,336,849 24,776,151
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 109,313,469 83,386,533
Class B Shares 2,719,384 37,935
--------------- ---------------
265,317,267 217,806,522
Less: Payments for shares reacquired
Class A Shares (146,100,510) (122,853,547)
Class B Shares (3,169,265) (421,513)
--------------- ---------------
Increase in net assets from capital share transactions 116,047,492 94,531,462
--------------- ---------------
Total Increase in Net Assets for period 253,449,251 275,905,725
Net Assets: Beginning of period 1,333,849,518 1,057,943,793
--------------- ---------------
Net Assets: End of period $1,587,298,769 $1,333,849,518
=============== ===============
Undistributed Net Investment Income
at End of Period $ 3,560,582 $ 3,097,452
=============== ===============
</TABLE>
See Notes to Financial Statements.
10
<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 11/30/97 11/30/96 11/30/95 11/30/94 11/20/93
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 40.60 $ 35.21 $ 28.25 $ 29.63 $ 29.71
---------------- ---------------- ---------------- --------------- ---------------
Income from Investment Operations
Net investment income 0.57 0.59 0.72 0.83 0.79
Net realized and unrealized gain (loss)
on investments 7.03 8.18 8.09 (1.35) 1.66
---------------- ---------------- ---------------- --------------- ---------------
Total from investment operations 7.60 8.77 8.81 (0.52) 2.45
---------------- ---------------- ---------------- --------------- ---------------
Less Distributions
Dividends from net investment income 0.57 0.61 0.74 0.80 0.82
Distributions from realized gains on 3.54 2.77 1.11 0.06 1.71
investments ---------------- ---------------- ---------------- --------------- ---------------
Total Distributions 4.11 3.38 1.85 0.86 2.53
---------------- ---------------- ---------------- --------------- ---------------
Net asset value at end of period $ 44.09 $ 40.60 $ 35.21 $ 28.25 $ 29.63
================ ================ ================ =============== ===============
Total Return (%) * 20.9 27.2 32.8 (1.8) 8.8
Ratios/Supplemental Data
Ratio of net expenses to average
net assets (%) 1.04 1.06 1.09 1.02 0.93
Ratio of expenses to average net assets
before expense reductions (%)** 1.05 1.07 1.10 1.02 0.93
Ratio of net investment income to average
net assets (%) 1.41 1.64 2.29 2.82 2.68
Portfolio turnover rate (%) 24 22 22 15 9
Average commission rate paid per share $ 0.0600 $ 0.0600 N/A N/A N/A
Net assets at end of period (000 omitted) $1,509,999 $1,306,592 $1,057,944 $839,335 $897,836
<CAPTION>
- --------------------------------------------------------------------------------------
Year Eight Months
Ended Ended
Class B Shares 11/30/97 11/30/96(A)
---------------- ----------------
<S> <C> <C>
Net asset value at beginning of period $ 40.57 $ 35.43
---------------- ----------------
Income from Investment Operations
Net investment income 0.27 0.22
Net realized and unrealized gain
on investments 6.99 5.05
---------------- ----------------
Total from investment operations 7.26 5.27
---------------- ----------------
Less Distributions
Dividends from net investment income 0.26 0.13
Distributions from realized gains
on investments 3.54 -
---------------- ----------------
Total Distributions 3.80 0.13
---------------- ----------------
Net asset value at end of period $ 44.03 $ 40.57
================ ================
Total Return (%) * 19.9 14.9 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.79 1.91 +
Ratio of expenses to average net assets before
expense reductions (%)** 1.80 1.92 +
Ratio of net investment income to
average net assets (%) 0.66 0.80 +
Portfolio turnover rate (%) 24 22
Average commission rate paid per share $ 0.0600 $ 0.0600
Net assets at end of period (000 omitted) $ 77,299 $ 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. 11
<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 Sentinel Balanced Fund began the fiscal year with a mix of 59% stocks, 31%
bonds and 10% cash. Early in the year, most of the cash position was moved into
longer-term investments, which impacted performance positively in light of the
strong returns in both the stock and bond markets.
The Sentinel Balanced Fund produced a total return of 15.4% for the fiscal year
ended November 30, 1997. The Balanced Fund's results were modestly lower than
the 16.1% return of the average balanced fund as measured by Lipper Analytical
Services, and fell between the 28.5% return for the Standard & Poor's 500 and
the 7.6% return for the Lehman Aggregate Bond Index.
The last twelve months were again a period of extraordinary volatility in the
financial markets. The bond market was particularly fitful, dropping on any hint
of robust economic activity, and rallying back when the mist cleared and the
slow growth, low inflation environment again appeared intact. The ten-year
Treasury yield zigged and zagged between 6.00% and 7.00% for most of the year,
but by fiscal year-end, the strong "flight to quality" rally in the Treasury
market resulted in the ten-year yield falling below 6.00%, and the thirty-year
bond quickly approaching that level. The stock market achieved well-above
average returns for the third consecutive year; stocks have not declined even
for a calendar quarter since late in 1994. The ride in the stock market was also
a wild one, with a very strong technology rally in the summer, a 500 point
decline in the Dow Jones Industrial Average on a single day in October, a
year-end recovery rally, and a decided shift behind the major market averages
from a more speculative, growth-oriented market earlier in the year to a
safe-haven, defensive stance as the international financial turmoil increased in
the fall.
The Sentinel Balanced Fund began the fiscal year with a mix of 59% stocks, 31%
bonds and 10% cash. Early in the year, most of the cash position was moved into
longer-term investments, which impacted performance positively in light of the
strong returns in both the stock and bond markets. As of November 30, 1997, the
Balanced Fund's asset allocation was 62% stocks, 35% bonds and 3% cash. During
the year, the Fund again benefited from its long-standing positions in the
financial services sector, as well as a meaningful position in energy service
companies. However, results for the stock portion overall lagged the market
modestly, due primarily to a significantly underweighted position in the strong,
volatile technology sector. Although the de-emphasis of technology stocks hurt
performance during the summer months, a significant correction is ongoing in the
sector as
- --------------------------------------------------
Average Annual Total Return - Class A Shares
Through 11/30/97
<TABLE>
<CAPTION>
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 9.7% 15.4%
- --------------------------------------------------
5 Years 11.0% 12.1%
- --------------------------------------------------
10 Years 11.8% 12.4%
- --------------------------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
=======================================================================
Sentinel Balanced Fund Performance -- Class A Shares
Ten Years Ended 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sentinel Lipper Standard & Lehman
Balanced Balanced Poor's 500 Aggregate
Fund Fund Average Stock Index* Bond Index+
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Nov.'87 9,500 10,000 10,000 10,000
Nov.'88 10,883 11,594 12,323 10,923
Nov.'89 12,848 13,906 16,119 12,491
Nov.'90 13,074 13,709 15,561 13,437
Nov.'91 15,361 16,324 18,723 15,374
Nov.'92 17,258 18,655 22,174 16,736
Nov.'93 18,939 20,645 24,408 18,559
Nov.'94 18,248 20,277 24,670 17,991
Nov.'95 22,703 25,299 33,777 21,165
Nov.'96 26,468 30,150 43,273 22,450
Nov.'97 30,553 35,003 55,610 24,146
</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 share class expenses.
Chart Ending Values & Legend
Ten years ended 11/30/97
<TABLE>
<S>
<C>
Sentinel Balanced Fund $30,553
Standard & Poor's 500 Stock Index* $55,610
Lehman Aggregate Bond Index+ $24,146
Lipper Balanced Fund Average $35,003
</TABLE>
* An unmanaged index of stocks reflecting average prices in the stock market.
+ An unmanaged index of bonds reflecting average prices in the bond market.
12
<PAGE>
the fiscal year comes to a close, and Fund performance is being positively
impacted in the current environment.
Looking ahead to 1998, we continue to expect that the economy will grow at a
more moderate rate than has been the case in the last several years, and that
inflation should remain restrained. The financial turmoil in the lesser
developed countries of Asia, and coincident currency weakness, will likely lead
to a tougher export market for U.S. companies. As well, they will likely face a
more difficult environment at home competing with cheap imports. This will
hinder corporate America's ability to raise prices, keeping inflation in the low
range of recent years. While the lower growth, low inflation environment
suggests a continued positive outlook for the fixed income markets, the
potential for slower earnings growth may keep a lid on equities. We do not
anticipate a repeat of the extraordinary stock market returns of the last three
years, and believe that a disciplined, value-oriented focus on quality companies
with consistent earnings growth profiles will be the key to successful stock
market investing next year.
We continue to believe that a balanced investment program, with diversified
exposure to both the stock and bond markets, will serve our shareholders well.
We appreciate your continuing support of our efforts.
/s/ Rodney A. Buck
Rodney A. Buck, CFA
/s/ Richard A. Pender
Richard A. Pender, CFA
/s/ Richard D. Temple
Richard D. Temple
13
<PAGE>
Sentinel Balanced Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations 21.3%
U.S. Treasury Obligations 11.3%
5-Year:
Note 5.5%, '00 2550M $ 2,527,126
-------------
10-Year:
Note 5.75%, '03 5000M 4,977,900
Note 7.25%, '04 2250M 2,421,068
Note 7.5%, '05 4750M 5,193,128
Note 6.875%, '06 750M 798,098
Note 7%, '06 2500M 2,681,775
Note 6.125%, '07 16500M 16,830,330
-------------
32,902,299
-------------
30-Year:
Note 7.25%, '16 1000M 1,126,270
Note 6.375%, '27 2000M 2,080,420
-------------
3,206,690
-------------
Total U.S. Treasury Obligations 38,636,115
-------------
U.S. Government Agency Obligations 10.0%
Federal Home Loan Mortgage Corporation 2.8%
15-Year:
6.5%, '08 1593M 1,597,717
7%, '10 1071M 1,084,248
7.5%, '10 1840M 1,894,404
7.5%, '10 1507M 1,551,704
7.5%, '11 1522M 1,561,431
-------------
7,689,504
-------------
30-Year:
8%, '08 1739M 1,817,410
-------------
Total Federal Home Loan Mortgage Corporation 9,506,914
-------------
Federal National Mortgage Association 5.3%
Collateralized Mortgage Obligations:
CMO Trust Series
22(Y) 7.95%, '17 2284M 2,348,078
-------------
7-Year Balloon:
7%, '04 2468M 2,497,993
-------------
15-Year:
7.5%, '06 740M 760,147
7.5%, '07 1134M 1,161,735
7.5%, '07 2274M 2,331,996
7%, '12 3905M 3,949,363
7.5%, '12 4939M 5,056,183
-------------
13,259,424
-------------
Total Federal National Mortgage Association 18,105,495
-------------
Government National Mortgage Association 1.9%
15-Year:
8.5%, '02 3290M 3,429,984
-------------
30-Year:
9%, '09 42M 45,097
7.75%, '26 2985M 3,072,521
-------------
3,117,618
-------------
Total Government National Mortgage Association 6,547,602
-------------
Total U.S. Government Agency Obligations 34,160,011
-------------
Total U.S. Government Obligations
(Cost $71,432,820) 72,796,126
-------------
Bonds 14.2%
Beverages 0.2%
Anheuser Busch 8.5%, '17 771M 800,876
-------------
Financial Institutions 3.4%
First Union Corp. 6.824%, '26 2325M 2,435,438
Lehman Brothers Holdings 8.5%, '15 2800M 3,213,000
PNC Funding Co. 6.875%, '07 3500M 3,561,250
Provident Capital Trust 8.6%, '26 2500M 2,596,875
-------------
11,806,563
-------------
Foreign Financial Institutions 4.2%
Bank Austria 7.25%, '17 3000M 3,157,500
Banque National 7.2%, '07 4000M 4,145,000
BCH Cayman Islands Ltd. 7.7%, '06 2500M 2,665,625
Credit Suisse 7.9%, '07 2000M 2,142,500
Midland Bank 7.65%, '25 800M 878,000
Societe Generale 7.85%, '49 1300M 1,360,125
-------------
14,348,750
-------------
Industrial - Diversified 0.6%
Dimon Inc. 8.875%, '06 1800M 1,935,000
-------------
Insurance 1.0%
Farmers Insurance Exchange 8.625%, '24 3000M 3,442,500
-------------
Sovereign Credit 0.3%
Korea Development Bank 6.75%, '05 1000M 888,750
-------------
Telecommunications 2.3%
Comcast Cablevision 8.375%, '07 3250M 3,591,250
Comsat 8.05%, '06 2000M 2,233,240
Continental Cablevision 8.3%, '06 2000M 2,187,500
-------------
8,011,990
-------------
Utility-Electric 2.0%
New Orleans Public Service 8%, '06 2000M 2,120,000
Niagara Mohawk Power 8.5%, '23 2500M 2,668,750
Western Resource Co. 6.875%, '04 1875M 1,912,500
-------------
6,701,250
-------------
Utility-Gas 0.2%
Consolidated Natural Gas 8.625%, '11 623M 652,592
-------------
Total Bonds (Cost $46,798,069) 48,588,271
-------------
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 61.4%
Aerospace 1.7%
Boeing Co 22,060 $ 1,171,937
Goodrich (B.F.) 100,000 4,450,000
-------------
5,621,937
-------------
Automobiles & Auto Parts 2.4%
Chrysler Corp. 90,000 3,088,125
Ford Motor 107,500 4,622,500
Meritor Automotive Inc. 21,666 484,777
-------------
8,195,402
-------------
Banks 5.5%
BankAmerica Corp. 45,000 3,285,000
Bank of New York 72,500 3,896,875
Chase Manhattan Corp. 26,000 2,824,250
Citicorp 25,000 2,998,437
First Union Corp. 72,000 3,510,000
Morgan (J.P.) 20,000 2,283,750
-------------
18,798,312
-------------
Building Materials 1.1%
Sherwin-Williams 130,000 3,713,125
-------------
Computer Products 0.8%
Hewlett Packard 45,000 2,747,813
-------------
Consumer & Business Services 1.4%
Omnicom Group 65,000 4,818,125
-------------
Consumer Products 3.2%
Fortune Brands 120,000 4,342,500
Kimberly-Clark 84,000 4,373,250
Rubbermaid 90,000 2,182,500
-------------
10,898,250
-------------
Drugs 2.7%
American Home Products 60,000 4,192,500
Pfizer, Inc. 70,000 5,092,500
-------------
9,285,000
-------------
Electrical Equipment 3.2%
Emerson Electric 75,000 4,125,000
General Electric 42,000 3,097,500
Grainger, (W.W.) 40,000 3,745,000
-------------
10,967,500
-------------
Energy 5.5%
Amoco 44,000 3,960,000
Chevron 35,000 2,806,562
Exxon 65,000 3,965,000
Mobil 60,100 4,323,444
Royal Dutch Petroleum 72,000 3,793,500
-------------
18,848,506
-------------
Financial 1.7%
American Express 42,500 3,352,188
Travelers Group 45,000 2,272,500
-------------
5,624,688
-------------
Foods 2.7%
CPC International 45,000 4,651,875
Sara Lee 87,500 4,626,562
-------------
9,278,437
-------------
</TABLE>
(continued)
14
<PAGE>
Sentinel Balanced Fund
Investment in Securities (cont'd.)
at November 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------
Shares Value
(Note 1)
- ----------------------------------------------------
<S> <C> <C>
Industrial-Diversified 6.2%
Crown Cork & Seal 82,500 $ 4,027,031
Dover 30,000 2,011,875
PPG Industries 50,000 2,896,875
Parker-Hannifin 112,500 5,006,250
Praxair Inc. 90,000 3,954,375
Rockwell Int'l. 65,000 3,168,750
-------------
21,065,156
-------------
Insurance 3.8%
Allstate Corp. 42,500 3,649,688
American General 65,000 3,501,875
American Int'l. Group 34,000 3,427,625
Jefferson-Pilot 32,500 2,480,156
-------------
13,059,344
-------------
Lodging 0.9%
Marriott International 40,000 2,897,500
-------------
Medical-Equipment & Supplies 1.3%
Johnson & Johnson 72,000 4,531,500
-------------
Oil Field Equipment & Services 2.3%
Halliburton Co. 75,000 4,045,313
Schlumberger Ltd. 48,000 3,951,000
-------------
7,996,313
-------------
Publishing 2.4%
Gannett 70,000 4,064,375
McGraw-Hill 60,000 4,106,250
-------------
8,170,625
-------------
Railroads 3.1%
Canadian Pacific 135,000 3,822,188
Illinois Central Corp. 82,500 2,975,156
Union Pacific Corp. 61,800 3,708,000
-------------
10,505,344
-------------
Retail 2.1%
May Department Stores 55,000 2,956,250
Sears, Roebuck 89,700 4,109,381
-------------
7,065,631
-------------
Tobacco 0.7%
Philip Morris 54,000 2,349,000
-------------
Utilities-Electric 4.1%
Duke Energy Co. 80,000 4,160,000
FPL Group 60,000 3,356,250
Florida Progress 80,000 2,835,000
Pacificorp 160,000 3,730,000
-------------
14,081,250
-------------
Utilities-Gas 1.6%
Enron Corp. 75,000 2,906,250
Sonat, Inc. 60,000 2,613,750
-------------
5,520,000
-------------
Utilities-Telephone 1.0%
GTE Corp. 70,000 3,539,375
-------------
Total Common Stocks
(Cost $117,842,456) 209,578,133
-------------
Preferred Stock 0.5%
Microsoft Corp. Series A
(Cost $1,575,174) 19,700 1,744,681
-------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ----------------------------------------------------
<S> <C> <C>
Corporate Short-Term Notes 6.7%
Beneficial Corp. 5.7%,
12/17/97 16700M $16,657,693
Texaco Group, Inc. 5.58%
12/01/97 6200M 6,200,000
-------------
Total Corporate Short-Term Notes
(Cost $22,857,693) 22,857,693
-------------
Total Investments
(Cost $260,506,212)* 355,564,904
Excess of Liabilities
Over Other Assets (4.1%) (14,024,423)
-------------
Net Assets $341,540,481
=============
</TABLE>
- ----------------------------------------------------
* Also cost for federal income tax purposes. At
November 30, 1997, net unrealized appreciation for
federal income tax purposes aggregated $95,058,692
of which $95,669,205 related to appreciated
securities and $610,513 related to depreciated
securities.
See Notes to Financial Statements.
15
<PAGE>
Sentinel Balanced Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $355,564,904
Cash and cash equivalents 694,536
Receivable for securities sold 33,347
Receivable for fund shares sold 212,179
Receivable for dividends and interest 2,365,197
---------------
Total Assets 358,870,163
---------------
Liabilities
Payable for securities purchased 16,749,833
Payable for fund shares repurchased 82,537
Accrued expenses 114,894
Management fee payable 172,795
Distribution fee payable (Class A Shares) 149,733
Distribution fee payable (Class B Shares) 22,355
Fund service fee payable 37,535
---------------
Total Liabilities 17,329,682
---------------
Net Assets Applicable to Outstanding Shares $341,540,481
===============
Net Asset Value and Offering Price per Share
Class A Shares
$314,947,831/15,519,009 shares outstanding $ 20.29
Sales Charge -- 5.00% of offering price 1.07
---------------
Maximum Offering Price $ 21.36
===============
Class B Shares
$26,592,650/1,308,557 shares outstanding $ 20.32
===============
Net Assets Represent
Capital stock at par value $ 168,276
Paid-in capital 225,328,557
Accumulated undistributed net investment income 1,371,840
Accumulated undistributed net realized gain
on investments 19,613,116
Unrealized appreciation of investments 95,058,692
---------------
Net Assets $341,540,481
===============
Investments at Cost $260,506,212
===============
</TABLE>
Sentinel Balanced Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
<S> <C>
Income:
Dividends $ 4,346,925
Interest 8,818,913
---------------
Total Income 13,165,838
---------------
Expenses:
Management advisory fee 2,020,909
Transfer agent and custodian 522,167
Distribution expense (Class A Shares) 913,800
Distribution expense (Class B Shares) 187,785
Accounting services 114,130
Auditing fees 26,250
Legal fees 14,600
Reports and notices to shareholders 40,744
Directors' fees and expenses 35,269
Other 35,337
---------------
Total Expenses 3,910,991
Expense Offset (45,567)
---------------
Net Expenses 3,865,424
---------------
Net Investment Income 9,300,414
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 19,528,942
Net change in unrealized appreciation 17,871,222
---------------
Net Realized and Unrealized Gain on Investments 37,400,164
---------------
Net Increase in Net Assets from Operations $46,700,578
===============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Sentinel Balanced Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/97 11/30/96
-------------- --------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 9,300,414 $ 8,845,963
Net realized gain on sales of investments 19,528,942 7,530,121
Net change in unrealized appreciation 17,871,222 27,684,174
-------------- --------------
Net increase in net assets from operations 46,700,578 44,060,258
-------------- --------------
Distributions to Shareholders
From net investment income
Class A Shares (8,713,721) (8,766,564)
Class B Shares (386,612) (39,537)
From net realized gain on investments
Class A Shares (7,122,678) (6,598,524)
Class B Shares (285,241) -
-------------- --------------
Total distributions to shareholders (16,508,252) (15,404,625)
-------------- --------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 34,678,474 38,066,491
Class B Shares 14,295,999 10,345,842
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 14,292,974 13,951,023
Class B Shares 615,243 34,337
-------------- --------------
63,882,690 62,397,693
Less: Payments for shares reacquired
Class A Shares (59,461,675) (49,751,264)
Class B Shares (1,308,672) (169,001)
-------------- --------------
Increase in net assets from capital share
transactions 3,112,343 12,477,428
-------------- --------------
Total Increase in Net Assets for period 33,304,669 41,133,061
Net Assets: Beginning of period 308,235,812 267,102,751
-------------- --------------
Net Assets: End of period $341,540,481 $308,235,812
============== ==============
Undistributed Net Investment Income
at End of Period $ 1,371,840 $ 1,259,431
============== ==============
</TABLE>
See Notes to Financial Statements.
17
<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 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 18.55 $ 16.84 $ 14.08 $ 15.27 $ 14.82
---------------- ---------------- ---------------- --------------- ---------------
Income from Investment Operations
Net investment income 0.56 0.54 0.58 0.58 0.59
Net realized and unrealized gain (loss) on
investments 2.18 2.13 2.78 (1.12) 0.80
---------------- ---------------- ---------------- --------------- ---------------
Total from investment operations 2.74 2.67 3.36 (0.54) 1.39
---------------- ---------------- ---------------- --------------- ---------------
Less Distributions
Dividends from net investment income 0.55 0.54 0.59 0.56 0.58
Distributions from realized gains on
investments 0.45 0.42 0.01 0.09 0.36
---------------- ---------------- ---------------- --------------- ---------------
Total Distributions 1.00 0.96 0.60 0.65 0.94
---------------- ---------------- ---------------- --------------- ---------------
Net asset value at end of period $ 20.29 $ 18.55 $ 16.84 $ 14.08 $ 15.27
================ ================ ================ =============== ===============
Total Return (%) * 15.4 16.6 24.4 (3.6) 9.7
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.16 1.20 1.27 1.21 1.14
Ratio of expenses to average net assets before
expense reductions (%) ** 1.17 1.22 1.29 1.21 1.14
Ratio of net investment income to average net
assets (%) 2.93 3.13 3.77 3.97 3.88
Portfolio turnover rate (%) 63 83 110 66 72
Average commission rate paid per share $ 0.0600 $ 0.0600 N/A N/A N/A
Net assets at end of period (000 omitted) $ 314,948 $ 297,288 $ 267,103 $ 226,328 $ 229,632
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Eight Months
Ended Ended
Class B Shares 11/30/97 11/30/96(A)
---------------- ----------------
<S> <C> <C>
Net asset value at beginning of period $ 18.58 $ 17.09
Income from Investment Operations
Net investment income 0.42 0.26
Net realized and unrealized loss on
investments 2.18 1.37
---------------- ----------------
Total from investment operations 2.60 1.63
---------------- ----------------
Less Distributions
Dividends from net investment income 0.41 0.14
Distributions from realized gains on
investments 0.45 -
---------------- ----------------
Total Distributions 0.86 0.14
---------------- ----------------
Net asset value at end of period $ 20.32 $ 18.58
================ ================
Total Return (%) * 14.6 9.6 ++
Ratios/Supplemental Data
Ratio of net expenses to average
net assets (%) 1.88 2.12 +
Ratio of expenses to average
net assets before expense
reductions (%) ** 1.89 2.13 +
Ratio of net investment income to
average net assets (%) 2.21 2.21 +
Portfolio turnover rate (%) 63 83
Average commission rate paid per share $ 0.0600 $ 0.0600
Net assets at end of period (000 omitted) $ 26,593 $ 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.
18
<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
As you are no doubt aware, the stock market was extremely volatile during 1997.
Fortunately, the Fund was able to benefit from that volatility by moving quickly
to take advantage of attractive investment opportunities throughout the year in
certain key market sectors.
The Sentinel Growth Fund earned a total return of 27.3% during the fiscal year
ended November 30, 1997. The average fund in the Lipper Growth Fund universe
earned a 22.0% return and the Standard & Poor's 500 produced a 28.5% return. We
are pleased with the results of the Fund this year as the Sentinel Growth Fund
finished the twelve month period in the top 20% of all growth funds in the
Lipper universe.
As you are no doubt aware, the stock market was extremely volatile during 1997.
Fortunately, the Fund was able to benefit from that volatility by moving quickly
to take advantage of attractive investment opportunities throughout the year in
certain key market sectors. Early in the year, several of our holdings in the
semiconductor equipment industry doubled in price, producing substantial gains
for the fund. At mid-year, we decided to sell most of our holdings in this
sector because we felt that the stocks had reached fair value. The decision to
reduce our positions served us well in the second half of the year when the
equipment stocks traded down to significantly lower prices.
Similar opportunities arose in the biotechnology and water treatment industries.
During the first half of the year, we earned significant profits in Centocor,
which benefited from positive test results on two key products under
development. In the water treatment industry, the Fund was helped by a strong
performance by U.S. Filter, which continued to execute successfully its strategy
of acquiring smaller rivals and of becoming a "one-stop" source for its
customers. Our holdings in both Centocor and U.S. Filter were reduced
substantially following sharp price gains at mid-year.
Another tactic that served us well during the year was our decision to reduce
our holdings in large capitalization stocks. The stocks of large companies, such
as Intel and Johnson & Johnson, performed extremely well early in the year and,
by the end of May, were no longer inexpensive. We decided at that time to
concentrate our new purchases in the less expensive mid-size sector of the
market. Mid-cap stocks performed strongly in the second half of the year and our
focus on this market segment contributed in part to the Fund's strong results in
the July-October time frame.
<TABLE>
<CAPTION>
- -----------------------------
Average Annual
Total Return
Through 11/30/97
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 20.9% 27.3%
- -----------------------------
5 Years 11.6% 12.8%
- -----------------------------
10 Years 13.0% 13.5%
- -----------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Growth Fund Performance
Ten Years Ended 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sentinel Growth Lipper Growth Standard & Poor's
Fund Fund Average 500 Stock Index
---- ------------ ---------------
<S> <C> <C> <C>
Nov.'87 9,500 10,000 10,000
Nov.'88 10,612 12,196 12,323
Nov.'89 13,555 15,792 16,119
Nov.'90 13,371 14,771 15,561
Nov.'91 15,403 18,788 18,723
Nov.'92 18,554 22,257 22,174
Nov.'93 18,310 24,448 24,408
Nov.'94 17,369 24,526 24,670
Nov.'95 21,688 32,338 33,777
Nov.'96 26,589 40,187 43,273
Nov.'97 33,837 49,030 55,610
</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 11/30/97
Sentinel Growth $33,837
Fund
Standard & Poor's $55,610
500 Stock Index*
Lipper Growth $49,030
Fund Average
*An unmanaged index of stocks reflecting average prices in the stock market.
19
<PAGE>
The common theme underlying our approach is a continued emphasis on owning
companies that are market leaders (preferably market dominant) in growth
industries. Typically, our largest sector weights are in the fastest growing
areas of the market such as financial services, technology, health care, and
consumer growth stocks. With regard to individual holdings, we seek to own
"franchise" companies that are selling at modest price/earnings and price/cash
flow multiples and are demonstrating positive revenue and earnings trends. Risk
is buffered by the Fund's broad diversification 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
20
<PAGE>
Sentinel Growth Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Shares Value
(Note 1)
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 93.9%
Aerospace 2.5%
Goodrich (B F) Co. 50,000 $ 2,225,000
-------------
Banks 9.4%
BankAmerica Corp. 30,000 2,190,000
Citicorp 13,500 1,619,156
Cullen Frost Bankers, Inc. 17,800 945,625
First Union Corp. 18,000 877,500
Mercantile Bankshares 78,000 2,642,250
-------------
8,274,531
-------------
Biotechnology 2.2%
Amgen Inc. 30,000 1,533,750
* Centocor Inc. 10,000 435,000
------------
1,968,750
-------------
Computers/Computer Services 0.9%
Hewlett Packard 13,000 793,812
-------------
Business Services 4.9%
Analysts International 17,100 814,388
Omnicom Group 34,800 2,579,550
* Sterling Commerce 27,000 938,250
-------------
4,332,188
-------------
Drugs & Drug Delivery 4.5%
* Scherer (R P) 14,000 858,375
Schering Plough Corp. 50,000 3,134,375
-------------
3,992,750
-------------
Electronics 0.6%
Methode Electronics 15,000 243,750
Motorola 5,000 314,375
-------------
558,125
-------------
Financial 3.6%
American Express Co. 32,000 2,524,000
SLM Holdings Corp. 5,000 645,625
-------------
3,169,625
-------------
Hotels/Restaurants 2.1%
Marriott International 25,000 1,810,937
-------------
Healthcare Providers 3.5%
Columbia/HCA Healthcare 105,000 3,097,500
-------------
Industrial - Diversified 2.6%
Crown Cork & Seal 15,000 732,188
Parker-Hannifin 35,000 1,557,500
-------------
2,289,688
-------------
Insurance 7.7%
Allstate Corp. 30,000 2,576,250
Enhance Financial Services 13,000 726,375
Executive Risk Inc. 13,900 903,500
Jefferson Pilot Corp. 22,200 1,694,138
Life Reassurance Corp. 15,000 856,875
-------------
6,757,138
-------------
Medical - Equipment & Supplies 4.2%
Dentsply International 70,000 $ 1,898,750
Hillenbrand Industries 40,000 1,782,500
-------------
3,681,250
-------------
Oil Field Equipment & Services 10.8%
Chevron Oil 31,400 2,517,887
Halliburton Co. 45,000 2,427,188
Mobil Corp. 23,800 1,712,112
Schlumberger Ltd. 35,200 2,897,400
-------------
9,554,587
-------------
Publishing/Educational Information 3.1%
McGraw-Hill Inc. 39,900 2,730,656
-------------
Restaurants 6.2%
Ruby Tuesday Inc. 85,000 2,231,250
* Outback Steakhouse 32,000 958,000
Sbarro Inc. 80,000 2,240,000
-------------
5,429,250
-------------
Retail 8.0%
CVS Corp. 17,000 1,128,375
Ethan Allen Interiors 63,200 2,433,200
* Staples Inc. 60,000 1,691,250
TJX Companies 53,000 1,828,500
-------------
7,081,325
-------------
Semiconductors &
Semiconductor Equipment 2.8%
* Applied Materials Inc. 37,000 1,221,000
* KLA Instruments 33,000 1,278,750
-------------
2,499,750
-------------
Software 4.3%
* Microsoft Corp. 27,000 3,820,500
-------------
Telecommunications 4.5%
* Airtouch Communications 55,000 2,158,750
Lucent Technologies 22,300 1,786,788
-------------
3,945,538
-------------
Tobacco 5.5%
Philip Morris 45,000 1,957,500
UST Inc. 94,000 2,902,250
-------------
4,859,750
-------------
Total Common Stocks
(Cost $75,087,721) 82,872,650
-------------
<CAPTION>
- ------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ------------------------------------------------------------------------------
Corporate Short-Term Notes 5.6%
<S> <C> <C>
Beneficial Corp.
5.57%, 12/10/97 1700M $ 1,697,633
CIT Group Holdings
5.48%, 12/02/97 1500M 1,499,771
Merrill Lynch
5.58%, 12/05/97 1700M 1,698,946
-------------
Total Corporate Short-Term Notes
(Cost $4,896,350) 4,896,350
-------------
Total Investments
(Cost $79,984,071)** 87,769,000
Excess of Other Assets
Over Liabilities 0.5% 415,483
-------------
Net Assets $88,184,483
=============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** Also cost for federal income tax purposes. At November 30, 1997, net
unrealized appreciation for federal income tax purposes aggregated $7,784,929
of which $10,081,170 related to appreciated securities and $2,296,241 related
to depreciated securities.
See Notes to Financial Statements.
21
<PAGE>
Sentinel Growth Fund
Statement of Assets and Liabilities
at November 30, 1997
- -----------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $87,769,000
Cash and cash equivalents 485,510
Receivable for fund shares sold 28,177
Receivable for dividends 97,228
---------------
Total Assets 88,379,915
---------------
Liabilities
Payable for fund shares repurchased 28,500
Accrued expenses 49,828
Management fee payable 44,946
Distribution fee payable 56,179
Fund service fee payable 15,979
---------------
Total Liabilities 195,432
---------------
Net Assets Applicable to Outstanding Shares $88,184,483
===============
Net Asset Value and Offering Price Per Share
$88,184,483/4,707,977 shares outstanding $ 18.73
Sales Charge--5.00% of Offering Price 0.99
---------------
Maximum Offering Price Per Share $ 19.72
===============
Net Assets Represent
Capital stock at par value $ 47,080
Paid-in capital 56,186,674
Accumulated distributions in excess of
net investment income (27,862)
Accumulated undistributed net realized gain
on investments 24,193,662
Unrealized appreciation of investments 7,784,929
---------------
Net Assets $88,184,483
===============
Investments at Cost $79,984,071
===============
</TABLE>
Sentinel Growth Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends $ 733,875
Interest 164,564
---------------
Total Income 898,439
---------------
Expenses:
Management advisory fee 492,664
Transfer agent and custodian 226,820
Distribution expense 234,750
Accounting services 27,770
Auditing fees 7,450
Legal fees 3,500
Reports and notices to shareholders 19,350
Directors' fees and expenses 8,686
Other 11,684
---------------
Total Expenses 1,032,674
Expense Offset (19,836)
---------------
Net Expenses 1,012,838
---------------
Net Investment Loss (114,399)
---------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 24,318,310
Net change in unrealized appreciation (depreciation) (5,377,151)
---------------
Net Realized and Unrealized Gain on Investments 18,941,159
---------------
Net Increase in Net Assets from Operations $18,826,760
===============
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
Sentinel Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ---------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income (loss) $ (114,399) $ 98,077
Net realized gain on sales of investments 24,318,310 11,151,783
Net change in unrealized appreciation (depreciation) (5,377,151) 1,875,022
--------------- ----------------
Net increase in net assets from operations 18,826,760 13,124,882
--------------- ----------------
Distributions to Shareholders
From net investment income (59,692) (258,814)
From net realized gain on investments (11,151,823) (9,038,321)
--------------- ----------------
Total distributions to shareholders (11,211,515) (9,297,135)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares 10,603,174 6,445,280
Net asset value of shares in reinvestment
of dividends and distributions 10,331,592 8,450,217
--------------- ----------------
20,934,766 14,895,497
Less: Payments for shares reacquired (10,181,809) (9,353,332)
--------------- ----------------
Increase in net assets from capital share transactions 10,752,957 5,542,165
--------------- ----------------
Total Increase in Net Assets for period 18,368,202 9,369,912
Net Assets: Beginning of period 69,816,281 60,446,369
--------------- ----------------
Net Assets: End of period $88,184,483 $69,816,281
=============== ================
Accumulated undistributed Net Investment
Income (Loss) at End of Period $ (27,862) $ 21,641
=============== ================
</TABLE>
See Notes to Financial Statements.
23
<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
11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 17.57 $ 16.93 $ 16.15 $ 17.51 $ 18.56
---------- ---------- ---------- ---------- ----------
Income from Investment Operations
Net investment income (loss) (0.02) 0.03 0.07 0.05 0.04
Net realized and unrealized gain (loss)
on investments 4.00 3.23 3.33 (0.92) (0.28)
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.98 3.26 3.40 (0.87) (0.24)
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends from net investment income 0.02 0.07 0.05 0.03 0.04
Distributions from realized gains on
investments 2.80 2.55 2.57 0.46 0.77
---------- ---------- ---------- ---------- ----------
Total Distributions 2.82 2.62 2.62 0.49 0.81
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $ 18.73 $ 17.57 $ 16.93 $ 16.15 $ 17.51
========== ========== ========== ========== ==========
Total Return (%) * 27.3 22.6 24.9 (5.1) (1.3)
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.29 1.40 1.50 1.43 1.31
Ratio of expenses to average net assets before
expense reductions (%) ** 1.32 1.43 1.54 1.43 1.31
Ratio of net investment income (loss)
to average net assets (%) (0.15) 0.16 0.42 0.30 0.22
Portfolio turnover rate (%) 161 98 84 58 12
Average commission rate paid per share $0.0600 $0.0600 N/A N/A N/A
Net assets at end of period (000 omitted) $88,184 $69,816 $60,446 $50,447 $57,833
</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.
24
<PAGE>
Sentinel Small Company 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 Small Company Fund
Looking forward to 1998, the Fund's investments will continue to be focused on
companies that are solving problems for their customers. Companies with products
or services that provide attractive solutions to customers' needs should enjoy
the increasingly rare ability to increase unit volume and preserve pricing
power.
The Sentinel Small Company Fund achieved a return of 23.0% for the twelve month
period ending November 30, 1997. This compares favorably to the 21.0% return of
the average small company fund (as measured by Lipper Analytical Services), and
was similar to the 23.2% returned by the Russell 2000 index.
Some notable events in your Fund this year included Tyco International's
acquisition of ADT, Ltd., Hewlett Packard's acquisition of Verifone and Emerson
Electric's recent agreement to acquire Computational Systems. Ethan Allen was
the best performing stock in the portfolio this past year. Your Fund's
investments in Tootsie Roll, Analyst International, Donaldson Co., Duff and
Phelps Credit Rating, Mercantile Bankshares, Wilmington Trust, Halliburton and
Smith International were also particularly rewarding.
Looking forward to 1998, the Fund's investments will continue to be focused on
companies that are solving problems for their customers. Companies with products
or services that provide attractive solutions to customers' needs should enjoy
the increasingly rare ability to increase unit volume and preserve pricing
power. Of course, we also will continue to seek exposure to those small
companies that are poised to benefit from important long-term trends. More
specifically, we continue to favor selected health care opportunities related to
drug delivery and the manufacturing of supplies for the biotechnology and
pharmaceutical industries. As for technology, we are focused on companies that
should benefit from the growth of electronic commerce and the large need for
more efficient (paperless) document storage/retrieval systems. Computer service
companies also are likely to prosper due to the often underestimated corporate
and government need to address Year 2000 software bugs, migrate from mainframe
to client server applications and establish Internet capabilities. Although the
energy service stocks recently have been under selling pressure due to lower
crude oil prices, we continue to believe that this industry is in the midst of a
secular boom that probably has several more years of duration. As long as oil
prices do not collapse, the need of major oil
<TABLE>
<CAPTION>
- ------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/97
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 16.8% 23.0%
- ------------------------------
3 Years 16.9% 18.9%
- ------------------------------
Since
Inception* 12.2% 13.4%
- ------------------------------
</TABLE>
*3/1/93
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Small Company Fund Performance -- Class A Shares
3/1/93 inception through 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sentinel Small Lipper Small Company Russell 2000
Company Fund Growth Fund Average Index*
------------------ ---------------- -----
<S> <C> <C> <C>
3/1/93 9,500 10,000 10,000
11/30/93 9,800 11,013 11,384
11/30/94 10,259 11,167 11,257
11/30/95 11,505 14,796 14,465
11/30/96 14,036 17,855 16,854
11/30/97 17,257 21,605 20,758
</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 share class expenses.
Chart Ending Values & Legend
3/1/93 inception through 11/30/97
Sentinel Small $17,257
Company Fund
Russell 2000 $20,758
Index*
Lipper Small $21,605
Company Growth
Fund Average
*An unmanaged stock index of small capitalization companies which includes the
reinvestment of all income.
25
<PAGE>
companies to replace reserves, coupled with the much lower finding costs that
have resulted from technology, should continue to fuel growth for this industry.
Selected retailers and other companies with exposure to relatively affluent
consumers should also continue to prosper. Finally, our preference for shares of
quality small companies that have developed, or are developing strong brand
names or attractive franchises should remain a rewarding long-term investment
strategy.
We believe our long-term shareholders will continue to be well served by the
Fund's broad diversification and conscious bias towards attractively valued,
financially sound and well-managed small companies that have realistic prospects
for superior growth. Our investment approach is designed to result in less
volatility than the average small company fund, yet produce superior long-term
returns than the majority of our peers. Your continued confidence in our efforts
is appreciated.
/s/ Keniston P. Merrill
Keniston P. Merrill
/s/ Scott T. Brayman
Scott T. Brayman, CFA
/s/ Robert L. Lee
Robert L. Lee, CFA
26
<PAGE>
Sentinel Small Company Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------
<S> <C> <C>
Common Stocks 90.6%
Banks 6.5%
Cullen Frost Bankers Inc. 39,000 $ 2,071,875
Mercantile Bankshares 96,000 3,252,000
Wilmington Trust Corp. 46,000 2,685,250
-------------
8,009,125
-------------
Beverages 1.5%
* Chalone Wine Group Ltd. 26,000 292,500
* Robert Mondavi `A' 33,000 1,563,375
-------------
1,855,875
-------------
Business Services 6.5%
Analysts Int'l. 53,700 2,557,463
* CACI Int'l. 70,000 1,382,500
* Healthcare Services Group 120,000 1,522,500
* Sterling Commerce 75,000 2,606,250
-------------
8,068,713
-------------
Clothing and Apparel - Retail 6.3%
* Gymboree 46,000 1,328,250
* Lands' End 90,000 3,178,125
* Wet Seal Inc - Class A 110,100 3,254,831
-------------
7,761,206
-------------
Communications 1.0%
* Dynatech Corp. 35,000 1,270,937
-------------
Cosmetics and Toiletries 3.1%
Alberto-Culver Co. Class A 143,400 3,818,025
-------------
Drugs & Drug Delivery 2.8%
* Scherer (R P) 56,600 3,470,287
-------------
Electronics 5.2%
Harman Int'l Industries 67,800 3,432,375
Methode Electronics `A' 180,000 2,925,000
-------------
6,357,375
-------------
Energy 1.5%
* CalEnergy Inc. 54,000 1,795,500
-------------
Environmental Control 6.5%
Calgon Carbon 110,900 1,219,900
Donaldson Co. 70,000 3,360,000
* TETRA Technologies 148,000 3,468,750
-------------
8,048,650
-------------
Financial 1.3%
Duff & Phelps Credit Rating 43,600 1,566,875
-------------
Food & Food Distributors 5.4%
GoodMark Foods 87,800 1,481,625
Smart & Final Inc. 55,000 1,003,750
Tootsie Roll Industries 65,200 4,189,100
-------------
6,674,475
-------------
Healthcare Providers 2.2%
* Genesis Health Ventures 64,950 1,575,038
Healthplan Services 56,000 1,081,500
-------------
2,656,538
-------------
Industrial - Diversified 8.8%
Aptargroup 33,000 1,881,000
* Bush Boake Allen 104,700 2,944,687
Cambrex Corp. 40,000 1,815,000
* Computational Systems 67,500 1,974,375
Lawter Int'l. 102,500 1,178,750
* Material Sciences 76,600 1,125,063
-------------
10,918,875
-------------
Insurance 3.2%
Enhance Financial
Service Group 25,000 $ 1,396,875
Executive Risk Inc. 19,000 1,235,000
Life Reassurance Corp. 24,000 1,371,000
-------------
4,002,875
-------------
Manufacturing - Diversified 2.4%
* Cannondale Corp. 30,000 624,375
Tyco International Ltd. 60,000 2,355,000
-------------
2,979,375
-------------
Medical - Equipment & Supplies 7.4%
Allergan Inc. 36,000 1,219,500
Ballard Medical Products 72,600 1,674,338
Hillenbrand Industries 59,000 2,629,188
Life Technologies 84,000 2,572,500
Minntech Corp. 88,400 1,038,700
-------------
9,134,226
-------------
Oil Field Equipment & Services 3.6%
Halliburton Co. 46,000 2,481,125
* Smith International 30,000 1,920,000
-------------
4,401,125
-------------
Real Estate 2.3%
Chateau Communities Inc. 93,050 2,838,025
-------------
Restaurants 4.9%
Applebee's Intl. 42,000 887,250
* Ruby Tuesday Inc. 96,100 2,522,625
Sbarro Inc. 93,000 2,604,000
-------------
6,013,875
-------------
Retail 5.4%
Casey's General Stores 89,000 2,097,062
Ethan Allen Interiors 117,300 4,516,050
-------------
6,613,112
-------------
Software 2.4%
* FileNet Corp. 104,000 2,853,500
-------------
Transportation 0.4%
* Railtex Inc. 30,000 446,250
-------------
Total Common Stocks
(Cost $84,071,111) 111,554,819
-------------
Preferred Stock 0.2%
Phoenix Duff & Phelps Cl A
(Cost $403,571) 10,000 264,375
-------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------
<S> <C> <C>
Corporate Short-Term Notes 8.6%
Assoc. Corp. of NA 5.52%,
12/12/97 1000M $ 998,313
Household Finance 5.56%,
12/09/97 1600M 1,598,023
Merrill Lynch 5.58%,
12/01/97 1500M 1,500,000
Norwest Financial 5.57%,
12/17/97 3500M 3,491,336
Prudential Funding 5.55%,
12/04/97 1000M 999,537
Prudential Funding 5.55%,
12/09/97 1000M 998,767
Prudential Funding 5.56%,
12/12/97 1000M 998,301
-------------
Total Corporate Short-Term Notes
(Cost $10,584,277) 10,584,277
-------------
Total Investments
(Cost $95,058,959)** 122,403,471
Excess of Other Assets
Over Liabilities 0.6% 784,058
-------------
Net Assets $123,187,529
=============
</TABLE>
- --------------------------------------------------
* Non-income producing.
** Also cost for federal income tax purposes.
At November 30, 1997, net unrealized appreciation for federal income tax
purposes aggregated $27,344,512 of which $29,559,145 related to appreciated
securities and $2,214,633 related to depreciated securities.
See Notes to Financial Statements.
27
<PAGE>
Sentinel Small Company Fund
Statement Assets and Liabilities
at November 30, 1997
- -------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $122,403,471
Cash and cash equivalents 632,303
Receivable for securities sold 329,956
Receivable for fund shares sold 23,374
Receivable for dividends and interest 38,608
---------------
Total Assets 123,427,712
---------------
Liabilities
Payable for fund shares repurchased 42,240
Accrued expenses 37,335
Management fee payable 62,513
Distribution fee payable (Class A Shares) 63,926
Distribution fee payable (Class B Shares) 6,773
Fund service fee payable 27,396
---------------
Total Liabilities 240,183
---------------
Net Assets Applicable to Outstanding Shares $123,187,529
===============
Net Asset Value and Offering Price per Share
Class A Shares
$115,531,634/18,330,365 shares outstanding $ 6.30
Sales Charge-- 5.00% of offering price 0.33
---------------
Maximum Offering Price $ 6.63
===============
Class B Shares
$7,655,895/1,238,948 shares outstanding $ 6.18
===============
Net Assets Represent
Capital stock at par value $ 195,693
Paid-in capital 80,730,606
Accumulated undistributed net investment income 272,080
Accumulated undistributed net realized gain
on investments 14,644,638
Unrealized appreciation of investments 27,344,512
---------------
Net Assets $123,187,529
===============
Investments at Cost $ 95,058,959
===============
</TABLE>
Sentinel Small Company Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends $ 942,761
Interest 978,876
---------------
Total Income 1,921,637
---------------
Expenses:
Management advisory fee 698,939
Transfer agent and custodian 388,394
Distribution expense (Class A Shares) 321,320
Distribution expense (Class B Shares) 46,440
Accounting services 39,355
Auditing fees 9,750
Legal fees 4,050
Reports and notices to shareholders 21,253
Directors' fees and expenses 12,187
Other 22,044
---------------
Total Expenses 1,563,732
Expense Offset (21,763)
---------------
Net Expenses 1,541,969
---------------
Net Investment Income 379,668
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 14,644,582
Net change in unrealized appreciation 7,565,634
---------------
Net Realized and Unrealized Gain on Investments 22,210,216
---------------
Net Increase in Net Assets from Operations $ 22,589,884
===============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
Sentinel Small Company Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ----------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 379,668 $ 216,690
Net realized gain on sales of investments 14,644,582 772,415
Net change in unrealized appreciation 7,565,634 17,429,645
--------------- ----------------
Net increase in net assets from operations 22,589,884 18,418,750
--------------- ----------------
Distributions to Shareholders
From net investment income
Class A Shares (134,035) (438,193)
Class B Shares - -
From realized gain on investments
Class A Shares (755,382) (16,243,656)
Class B Shares (17,013) -
--------------- ----------------
Total distributions to shareholders (906,430) (16,681,849)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 13,878,046 14,896,129
Class B Shares 5,225,981 1,943,806
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 809,158 15,171,070
Class B Shares 16,917 -
--------------- ----------------
19,930,102 32,011,005
Less: Payments for shares reacquired
Class A Shares (19,403,606) (21,663,864)
Class B Shares (358,156) (69,477)
--------------- ----------------
Increase in net assets from capital share
transactions 168,340 10,277,664
--------------- ----------------
Total Increase in Net Assets for period 21,851,794 12,014,565
Net Assets: Beginning of period 101,335,735 89,321,170
--------------- ----------------
Net Assets: End of period $123,187,529 $101,335,735
=============== ================
Undistributed Net Investment Income
at End of Period $ 272,080 $ 26,447
=============== ================
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
Sentinel Small Company 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 Year Ended Months Ended
Class A Shares 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93(A)
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 5.17 $ 5.20 $ 5.53 $ 6.87 $ 6.49
------------- ------------- ------------- ------------ ------------
Income from Investment Operations
Net investment income (loss) 0.02 0.01 0.02 (0.04) (0.06)
Net realized and unrealized gain on investments 1.16 0.95 0.56 0.18 0.44
------------- ------------- ------------- ------------ ------------
Total from investment operations 1.18 0.96 0.58 0.14 0.38
------------- ------------- ------------- ------------ ------------
Less Distributions
Dividends from net investment income 0.01 0.03 - - -
Distributions from realized gains on investments 0.04 0.96 0.91 1.48 -
------------- ------------- ------------- ------------ ------------
Total Distributions 0.05 0.99 0.91 1.48 -
------------- ------------- ------------- ------------ ------------
Net asset value at end of period $ 6.30 $ 5.17 $ 5.20 $ 5.53 $ 6.87
============= ============= ============= ============ ============
Total Return (%) * 23.0 22.0 12.2 2.0 5.9++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.34 1.47 1.56 1.58 1.52+
Ratio of expenses to average net assets before
expense reductions (%) ** 1.36 1.51 1.60 1.58 1.52+
Ratio of net investment income (loss)
to average net assets (%) 0.38 0.23 0.26 (0.74) (1.01)+
Portfolio turnover rate (%) 45 60 79 46 61
Average commission rate paid per share $ 0.0600 $ 0.0600 N/A N/A N/A
Net assets at end of period (000 omitted) $ 115,532 $ 99,393 $ 89,321 $ 88,420 $ 105,176
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Months
Ended Ended
Class B Shares 11/30/97 11/30/96(B)
------------ ------------
<S> <C> <C>
Net asset value at beginning of period $ 5.12 $ 4.82
------------ ------------
Income from Investment Operations
Net investment loss (0.03) (0.03)
Net realized and unrealized gain on investments 1.13 0.33
------------ ------------
Total from investment operations 1.10 0.30
------------ ------------
Less Distributions
Dividends from net investment income - -
Distributions from realized gains on investments 0.04 -
------------ ------------
Total Distributions 0.04 -
------------ ------------
Net asset value at end of period $ 6.18 $ 5.12
============ ============
Total Return (%) * 21.6 6.2++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.35 2.62+
Ratio of expenses to average net assets before
expense reductions (%) ** 2.36 2.64+
Ratio of net investment income (loss)
to average net assets (%) (0.62) (0.91)+
Portfolio turnover rate (%) 45 60
Average commission rate paid per share $ 0.0600 $ 0.0600
Net assets at end of period (000 omitted) $ 7,656 $ 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.
30
<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
During the twelve months ending November 30, 1997, the Sentinel World Fund
returned 12.5%, which compares favorably to the 4.9% gain for the average
international equity fund in the Lipper universe and the 0.1% decline in the
Europe, Australia, and Far East Index (EAFE).
During the twelve months ending November 30, 1997, the Sentinel World Fund
returned 12.5%, which compares favorably to the 4.9% gain for the average
international equity fund in the Lipper universe and the 0.1% decline in the
Europe, Australia, and Far East Index (EAFE). Relative performance was bolstered
by the Fund's conservative posturing, limited exposure to the smaller Asian
markets, and emphasis on high-quality stocks.
Activity in the Pacific Rim dominated events during the most recent fiscal year,
with the severe currency devaluations in the smaller Asian countries and
continued troubles in Japan's financial system resulting in poor performance
across the region. The larger markets of Japan, Hong Kong and Singapore all
declined by roughly 25%, while many of the emerging markets in the region fell
by as much as 70% in U.S. dollar terms in the period. The Sentinel World Fund
benefited from its significant underweighting in Japanese equities, as well as
its focus on the more defensive markets within Southeast Asia. Looking forward,
we continue to find selective opportunities among Japan's leading export-
oriented companies, and expect Hong Kong's premier companies will once again
return to favor for their superior long-term growth prospects related to China.
European equities fared very well over the past year, gaining about 22% in U.S.
dollar terms. Contributing to this strong rise has been the prospect of a single
European currency, accelerating economic growth, and significant corporate
developments, including both mergers and restructuring activity. We continue to
emphasize European stocks on a regional basis in the Fund, as we have in recent
years, with a particular focus on interest-rate sensitive and stable growth
issues.
In 1998, we envision increasingly volatile global financial markets, although we
remain constructive on the long-term outlook for stock prices. As always, the
Sentinel World Fund will mainly target the developed countries represented in
the EAFE Index, and will invest in a broadly diversified list of
well-established, high quality companies that are attractively valued on a
global basis.
/s/ Erik B. Granade
Erik B. Granade, CFA
- ------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/97
<TABLE>
<CAPTION>
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 6.9% 12.5%
- ------------------------------
3 Years 10.8% 12.7%
- ------------------------------
Since
Inception* 13.5% 14.7%
- ------------------------------
</TABLE>
*3/1/93
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel World Fund Performance -- Class A Shares
3/1/93 inception through 11/30/97
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Morgan
Stanley's
Capital
Lipper International
Sentinel International EAFE
World Fund Fund Average Index*
---------- ------------- -------------
<S> <C> <C> <C>
3/1/93 9,500 10,000 10,000
11/30/93 11,786 12,083 12,027
11/30/94 12,746 13,230 13,837
11/30/95 14,050 13,936 14,930
11/30/96 16,226 15,976 16,736
11/30/97 18,258 16,755 16,734
</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 share class expenses.
Chart Ending Values & Legend
3/1/93 inception through 11/30/97
Sentinel World Fund $18,258
Morgan Stanley's Capital International "EAFE"
(Europe, Australia, Far East) Index* $16,734
Lipper International Fund Average $16,755
*An unmanaged index of 1,114 companies representing the stock markets of Europe,
Australia, New Zealand and the Far East.
31
<PAGE>
Sentinel World Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------
<S> <C> <C>
Common Stocks 93.0%
Argentina 1.3%
YPF S. A. (ADR) 40,000 $ 1,342,500
-----------
Australia 5.6%
National Australia 146,880 1,938,201
News Corporation 350,000 1,864,581
Rio Tinto Limited 109,625 1,202,381
Westpac Bank Corp Ord. 96,008 601,076
-----------
5,606,239
-----------
Denmark 3.3%
Den Danske Bank 15,000 1,779,547
Novo Nordisk (ADR) 25,000 1,535,938
-----------
3,315,485
-----------
Finland 0.8%
Cultor 15,400 811,172
-----------
France 6.7%
Alcatel Alsthom (ADR) 40,005 990,124
Elf Aquitaine (ADR) 28,785 1,647,941
Group Danone 10,500 1,674,596
Guyenne et Gascogne 2,940 922,343
Societe Generale 10,850 1,425,480
-----------
6,660,484
-----------
Germany 3.7%
Bayer A.G. Ord. 35,000 1,289,656
Deutsche Bank 25,000 1,611,327
Siemens A.G. 13,000 769,754
-----------
3,670,737
-----------
Hong Kong 3.4%
Cheung Kong 125,000 881,272
China Light & Power Co. 310,000 1,563,976
HSBC Holdings 40,890 986,506
-----------
3,431,754
-----------
Italy 3.3%
Istituto Mobiliare
Italia (ADR) 55,000 1,708,437
Telecom Italia (ADR) 25,000 1,553,125
-----------
3,261,562
-----------
Japan 15.4%
Canon 50,000 1,204,772
Daiichi Pharmaceuticals 70,000 837,864
Dai Nippon Printing Co. 70,000 1,385,488
Fuji Photo Film 38,000 1,364,522
Hitachi Koki Co. Ord. 175,000 722,863
Ito-Yokado 23,000 1,036,417
Kirin Beverage 50,000 754,938
Kyocera Corp. 18,000 867,436
Mitsubishi Heavy Industry 400,000 1,570,898
Murata Manufacturing 33,000 988,774
Nintendo Co. 20,000 2,065,324
Sankyo Co. LTD 40,000 1,273,616
Sekisui House 120,000 861,803
Teijin 180,000 471,739
-----------
15,406,454
-----------
Mexico 1.4%
Telefonos de Mexico (ADR) 27,500 1,361,250
-----------
Netherlands 7.8%
ABN Amro Bank 84,876 1,617,702
Akzo Nobel N.V. 10,500 1,846,014
Hollandsche Beton
Groep N.V. 60,000 1,086,246
ING Groep N.V. 27,290 1,108,892
Unilever N.V. (ADR) 36,000 2,090,250
-----------
7,749,104
-----------
Norway 1.5%
Norsk Hydro (ADR) 30,000 1,554,375
-----------
Portugal 1.6%
Portugal Telecom (ADR) 35,000 1,605,625
-----------
Singapore 2.5%
Development Bank
of Singapore 75,000 705,772
Jardine Matheson 141,232 748,530
Singapore Int'l. Airlines 160,000 1,043,915
-----------
2,498,217
-----------
South Korea 0.3%
Pohang Iron & Steel Co. 6,740 261,647
-----------
Spain 7.0%
Banco Popular 30,000 1,909,548
Banco Santander 36,000 1,087,839
Endesa (ADR) 50,000 937,500
Repsol (ADR) 40,000 1,725,000
Telefonica de
Espana S.A. (ADR) 15,000 1,297,500
-----------
6,957,387
-----------
Sweden 4.3%
Aga B Free 85,000 1,067,134
Astra AB B Free 121,333 2,025,802
Volvo AB B 45,625 1,216,462
-----------
4,309,398
-----------
Switzerland 4.5%
Nestle A.G. Registered 1,575 2,316,404
Novartis A.G. Registered 1,348 2,152,642
-----------
4,469,046
-----------
United Kingdom 18.6%
Albright & Wilson 450,000 1,151,578
Assoc. Brit. Food 180,000 1,663,137
British Telecom plc (ADR) 25,000 1,950,000
Carlton Communications 150,000 1,165,513
Glaxo Hldg. plc (ADR) 37,500 1,713,281
Guinness plc 160,000 1,452,669
Johnson Matthey plc 100,000 926,499
National Westminster
Bank plc 111,342 1,680,435
Powergen plc 125,000 1,621,584
Severn Trent Water plc 103,235 1,644,398
Shell Transport
& Trading (ADR) 39,000 1,625,813
Tesco plc 250,503 2,023,654
-----------
18,618,561
-----------
Total Common Stocks
(Cost $76,914,055) 92,890,997
-----------
Preferred Stock 1.9%
Germany
RWE A.G.
(Cost $1,239,670) 45,660 $ 1,844,666
-----------
Total Investments
(Cost $78,153,725)* 94,735,663
Excess of Other Assets
Over Liabilities 5.1% 5,125,431
-----------
Net Assets $99,861,094
===========
</TABLE>
- --------------------------------------------------------
Summary of Foreign Securities
by Industry Classification
<TABLE>
<CAPTION>
Percent of Value
Industry Net Assets (Note 1)
<S> <C> <C>
Airlines 1.0% $ 1,043,915
Automobiles, Auto Parts 1.2% 1,216,462
Banks 16.1% 16,065,364
Biotechnology 2.0% 2,025,802
Broadcasting 1.9% 1,864,581
Building Materials, Construction 2.0% 1,948,049
Chemicals 5.8% 5,826,121
Distributors, Food & Health 3.4% 3,337,733
Electrical Components 1.6% 1,637,190
Entertainment 3.2% 3,230,837
Financial Services 3.0% 2,976,670
Foods, Grocery 2.1% 2,090,250
Foods, Beverage 3.0% 3,018,779
Gold, Precious Metals 2.1% 2,128,880
Healthcare Drug/Pharmacy 7.5% 7,513,341
Machinery 2.3% 2,293,761
Manufacturing & Process 1.8% 1,737,304
Office Equipment & Supply 1.2% 1,204,772
Oil 7.9% 7,895,629
Photography 1.4% 1,364,522
Printing, Publishing 1.4% 1,385,488
Retail Food 5.3% 5,262,401
Retail General 1.0% 1,036,417
Steel 0.3% 261,647
Telecommunications 8.8% 8,757,624
Utilities - Electric 7.6% 7,612,124
------- ------------
94.9% $94,735,663
======= ============
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997, net
unrealized appreciation for federal income tax purposes aggregated $16,581,938
of which $22,102,326 related to appreciated securities and $5,520,388 related
to depreciated securities.
(ADR) - American Depository Receipt
See Notes to Financial Statements.
32
<PAGE>
Sentinel World Fund
Statement of Assets and Liabilities
at November 30, 1997
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $94,735,663
Cash and cash equivalents 924,904
Foreign currency (cost $4,126,335) 4,154,413
Receivable for fund shares sold 115,794
Receivable for dividends and interest 204,688
---------------
Total Assets 100,135,462
---------------
Liabilities
Payable for fund shares repurchased 108,572
Accrued expenses 43,405
Management fee payable 50,328
Distribution fee payable (Class A Shares) 47,027
Distribution fee payable (Class B Shares) 8,663
Fund service fee payable 16,373
---------------
Total Liabilities 274,368
---------------
Net Assets Applicable to Outstanding Shares $99,861,094
===============
Net Asset Value and Offering Price per Share
Class A Shares
$89,740,090/5,202,345 shares outstanding $ 17.25
Sales Charge -- 5.00% of offering price 0.91
---------------
Maximum Offering Price $ 18.16
===============
Class B Shares
$10,121,004/593,750 shares outstanding $ 17.05
===============
Net Assets Represent
Capital stock at par value $ 57,961
Paid-in capital 78,858,817
Accumulated undistributed net investment income 595,020
Accumulated undistributed net realized gain
on investments and foreign exchange 3,742,566
Unrealized appreciation in investments
and foreign exchange 16,606,730
---------------
Net Assets $99,861,094
===============
Investments at Cost $78,153,725
===============
</TABLE>
Sentinel World Fund
Statement of Operations
For the Year Ended November 30, 1997
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
<S> <C>
Income:
Dividends $2,011,512 *
Interest 113,192
---------------
Total Income 2,124,704
---------------
Expenses:
Management advisory fee 548,359
Transfer agent and custodian 270,515
Distribution expense (Class A Shares) 244,390
Distribution expense (Class B Shares) 62,680
Accounting services 24,200
Auditing fees 8,150
Legal fees 3,650
Reports and notices to shareholders 15,000
Directors' fees and expenses 9,621
Other 18,778
---------------
Total Expenses 1,205,343
Expense Offset (21,940)
---------------
Net Expenses 1,183,403
---------------
Net Investment Income 941,301
---------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from:
Investments 3,774,361
Foreign currency transactions (339,899)
---------------
Net realized gain 3,434,462
---------------
Net change in unrealized appreciation during the
period:
Investments 5,019,058
Foreign currency transactions 58,211
---------------
Net change in unrealized appreciation 5,077,269
---------------
Net Realized and Unrealized Gain on Investments 8,511,731
---------------
Net Increase in Net Assets from Operations $9,453,032
===============
</TABLE>
* Net of Foreign Tax Withholding of $257,648
See Notes to Financial Statements.
33
<PAGE>
Sentinel World Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ---------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 941,301 $ 581,489
Net realized gain on sales of investments 3,434,462 1,086,639
Net change in unrealized appreciation 5,077,269 7,057,255
--------------- ---------------
Net increase in net assets from operations 9,453,032 8,725,383
--------------- ---------------
Distributions to Shareholders
From net investment income
Class A Shares (509,018) (471,463)
Class B Shares (9,446) -
From realized gain on investments
Class A Shares (1,108,321) (228,430)
Class B Shares (52,020) -
--------------- ---------------
Total distributions to shareholders (1,678,805) (699,893)
--------------- ---------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 24,615,024 27,277,778
Class B Shares 6,914,575 3,168,407
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 1,510,239 660,554
Class B Shares 58,245 -
--------------- ---------------
33,098,083 31,106,739
Less: Payments for shares reacquired
Class A Shares (15,247,343) (12,059,284)
Class B Shares (409,118) (129,688)
--------------- ---------------
Increase in net assets from capital share 17,441,622 18,917,767
transactions --------------- ---------------
Total Increase in Net Assets for period 25,215,849 26,943,257
Net Assets: Beginning of period 74,645,245 47,701,988
--------------- ---------------
Net Assets: End of period $ 99,861,094 $ 74,645,245
=============== ===============
Undistributed Net Investment Income
at End of Period $ 595,020 $ 512,082
=============== ===============
</TABLE>
See Notes to Financial Statements.
34
<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 Ended Year Ended Year Ended Year Ended Months Ended
Class A Shares 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93(B)
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 15.69 $ 13.78 $ 12.74 $ 11.86 $ 9.56
---------------- ---------------- ---------------- --------------- ---------------
Income from Investment Operations
Net investment income 0.11 0.12 0.14 0.08 0.02
Net realized and unrealized gain on
investments 1.80 1.99 1.14 0.89 2.28
---------------- ---------------- ---------------- --------------- ---------------
Total from investment operations 1.91 2.11 1.28 0.97 2.30
---------------- ---------------- ---------------- --------------- ---------------
Less Distributions
Dividends from net investment income 0.11 0.13 0.09 0.03 -
Distributions from realized gains on
investments 0.24 0.07 0.15 0.06 -
---------------- ---------------- ---------------- --------------- ---------------
Total Distributions 0.35 0.20 0.24 0.09 -
---------------- ---------------- ---------------- --------------- ---------------
Net asset value at end of period $ 17.25 $ 15.69 $ 13.78 $ 12.74 $ 11.86
================ ================ ================ =============== ===============
Total Return (%) ** 12.5 15.5 10.2 8.2 24.1 ++
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 1.29 1.43 1.56 1.58 2.00 +
Ratio of expenses to average net assets
before expense reductions (%) *** 1.32 1.48 1.63 1.58 2.12 +
Ratio of net investment income to average
net assets (%) 1.14 0.94 0.79 0.62 0.41 +*
Portfolio turnover rate (%) 21 14 32 30 66
Average commission rate paid per share $0.0411 $0.0455 N/A N/A N/A
Net assets at end of period (000 omitted) $89,740 $71,458 $47,702 $41,970 $ 16,872
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Months
Ended Ended
Class B Shares 11/30/97 11/30/96(C)
---------------- ----------------
<S> <C> <C>
Net asset value at beginning of period $ 15.58 $ 14.49
---------------- ----------------
Income from Investment Operations
Net investment income (loss) 0.01 (0.08)
Net realized and unrealized gain on
investments 1.74 1.17
---------------- ----------------
Total from investment operations 1.75 1.09
---------------- ----------------
Less Distributions
Dividends from net investment income 0.04 -
Distributions from realized gains on
investments 0.24 -
---------------- ----------------
Total Distributions 0.28 -
---------------- ----------------
Net asset value at end of period $ 17.05 $ 15.58
================ ================
Total Return (%) ** 11.5 7.5 ++
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 2.16 2.56 +
Ratio of expenses to average net assets
before expense reductions (%) *** 2.18 2.59 +
Ratio of net investment income (loss)
to average net assets (%) 0.23 (0.19)+
Portfolio turnover rate (%) 21 14
Average commission rate paid per share $0.0411 $0.0455
Net assets at end of period (000 omitted) $10,121 $ 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.
35
<PAGE>
Sentinel High Yield Bond Fund seeks high current income and total return by
investing primarily in lower rated corporate debt securities.
Since its inception, investors have enthusiastically welcomed the Sentinel High
Yield Bond Fund, which has seen its assets grow to $45 million in only five
months. We are pleased with this reception and warmly welcome shareholders into
the Fund.
Sentinel High Yield Bond Fund
The Sentinel High Yield Bond Fund commenced operations on June 23, 1997. The
Fund's total return from that date through the end of the November 30, 1997
fiscal year was 7.3%. This compares very favorably with the 5.3% return on the
Lipper High Yield Corporate Bond Index for the five month period, as well as the
5.0% return on the broader-based Lehman Aggregate Bond Index.
Interest rates generally declined during this time period, as inflationary
pressures remained dormant and economic statistics confirmed a slowing of growth
rates through Labor Day. Early indications of a resumption of economic growth
reported in the fall were by year-end, more than offset by concerns about the
potential for worldwide price deflation and economic slowdown brought on by the
Asian financial and currency crises. Over this period, short-term interest rates
have remained essentially unchanged at 5.20%, while long Treasury yields have
dropped 63 basis points, or some 10%, to 6.06%. Effectively, the financial
markets have looked through current indicators of accelerating economic strength
and are pricing in future deflationary effects of the Asian crisis.
High yield corporate bond spreads tightened some 30 basis points from June to
late October, subsequently backing off during the bond market's flight to
quality as stock markets worldwide reacted to the Asian events. Current high
yield spreads of 350 basis points are expected to contract moving forward into
the new year. Looking forward into 1998, we are optimistic that current
disinflationary price trends will lead interest rates lower, while we expect the
U.S. economy to continue a moderate growth track with stable profitability. In
this environment, the outlook for high yield bonds must be considered positive.
Since its inception, investors have enthusiastically welcomed the Sentinel High
Yield Bond Fund, which has seen its assets grow to $45 million in only five
months. We are pleased with this reception and warmly welcome shareholders into
the Fund. We are excited about the investment merits of the high yield asset
class, and want to thank you for your early support.
/s/ Prescott Crocker
Prescott Crocker
36
<PAGE>
Sentinel High Yield Bond Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ----------------------------------------------------
<S> <C> <C>
U.S.Government Agency
Obligations 3.5%
Federal Home Loan Bank 3.5%
Agency Discount Note:
5.60%, 12/01/97
(Cost $1,557,000) 1557M $1,557,000
---------------
Bonds 91.8%
Broadcasting 6.9%
ACME Television
0%/10.875%, '04 1000M 737,500
Azteca Holdings 11%, '02 500M 510,000
Capstar Broadcasting
0%/12.75%, '09 750M 521,250
Fox Kids Worldwide Inc.
0%/10.25%, '07 800M 460,000
Grupo Televisa
0%/13.25%, '08 800M 608,000
TV Azteca SA 10.5%, '07 250M 261,250
---------------
3,098,000
---------------
Cable/Other Video Distribution 10.4%
Charter Communications
11.25%, '06 500M 549,375
Echostar Communications
0%/13.125%, '04 750M 618,750
Frontiervision
0%/11.875%, '07 1250M 871,875
Fundy Cable Ltd. 11%, '05 500M 540,000
Iridium LLC 11.25%, '05 1000M 970,000
Marcus Cable
0%/14.25%, '05 750M 633,750
TCI Satellite 0%/12.25%, '07 750M 480,000
---------------
4,663,750
---------------
Chemicals 4.4%
PCI Chemicals Canada Inc.
9.25%, '07 750M 744,375
Polymer Group 9%, '07 500M 495,000
RCN Corp. 10%, '07 750M 751,875
---------------
1,991,250
---------------
Consumer Products 2.7%
Drypers Corp. 10.25%, '07 500M 506,250
Revlon Worldwide 0%, '01 1000M 690,000
---------------
1,196,250
---------------
Diversified Media 1.7%
Big Flower Press
8.875%, '07 750M 759,375
---------------
Energy 10.5%
Anker Coal Group 9.75%, '07 750M 757,500
Benton Oil & Gas 9.375%, '07 750M 759,375
Dawson Production Services
9.375%, '07 500M 527,500
Energy Corp. 9.5%, '07 500M 497,500
Mariner Energy Inc.
10.5%, '06 500M 525,000
Rutherford-Moran Oil
10.75%, '04 750M 759,375
Transamerican Energy
11.5%, '02 900M 902,250
---------------
4,728,500
---------------
Financial 1.5%
Arcadia Financial 11.5%, '07 650M $ 651,625
---------------
Food/Drug/Supermarkets 1.7%
Jitney-Jungle Stores
10.375%, '07 750M 778,125
---------------
Food/Tobacco 4.6%
Aurora Foods 9.875%, '07 500M 522,500
Friendly Ice Cream 10.5%, '07 500M 505,000
Iowa Select Finance
10.75%, '05 500M 505,000
Sun World International
11.25%, '04 500M 537,500
---------------
2,070,000
---------------
Foreign Government 1.5%
Venezuela 9.25%, '27 750M 652,500
---------------
Gaming 7.8%
Hollywood Entertainment
10.625%, '04 650M 651,625
Hollywood Park 9.5%, '07 500M 525,000
Horseshoe Gaming
9.375%, '07 500M 517,500
Majestic Star Casino
12.75%, '03 750M 808,125
Six Flags Theme Parks
0%/12.25%, '05 500M 522,500
Trump Atlantic City
11.25%, '06 500M 496,250
---------------
3,521,000
---------------
Healthcare Providers 3.1%
Integrated Health Services
9.5%, '07 750M 760,313
Paragon Health Networks
9.5%, '07 650M 651,625
---------------
1,411,938
---------------
Housing 0.6%
Nortek Inc. 9.125%, '07 250M 252,500
---------------
Information Technology 2.9%
Unisys Corp. 11.75%, '04 500M 570,000
Unisys Corp. 9.75%, '16 750M 753,750
---------------
1,323,750
---------------
Manufacturing 6.4%
Axiohm Transaction Solutions
9.75%, '07 750M 761,250
Delta Mills 9.625%, '07 750M 759,375
International Knife & Saw
11.375%, '06 750M 813,750
Oxford Automotive
10.125%, '07 500M 522,500
---------------
2,856,875
---------------
Metals/Minerals 4.0%
Algoma Steel 12.375%, '05 500M 585,000
Kaiser Aluminum 12.75%, '03 750M 804,375
Republic Engineered Steel
9.875%, '01 425M 411,187
---------------
1,800,562
---------------
Retail 2.3%
Central Tractor 10.625%, '07 500M 528,125
Finlay Enterprises
0%/12%, '05 500M 486,250
---------------
1,014,375
---------------
Service 2.4%
AFC Enterprises 10.25%, '07 500M $ 525,000
FRD Acquisition 12.5%, '04 500M 545,000
---------------
1,070,000
---------------
Telecommunications 9.5%
BTI Telecom 10.5%, '07 375M 376,875
Brooks Fiber Properties
0%/11.875%, '06 500M 396,250
Diamond Cable
0%/10.75%, '07 750M 496,875
Hyperion Telecom
12.25%, '04 500M 538,750
Intermedia Communications
0%/11.25%, '07 575M 395,313
McLeodUSA Inc. 9.25%, '07 850M 867,000
Talton Holdings 11%, '07 750M 802,500
Telewest Communications
0%/11%, '07 500M 381,250
---------------
4,254,813
---------------
Transportation 4.2%
Kitty Hawk Inc. 9.95%, '04 750M 757,500
Pegasus Shipping
11.875%, '04 500M 490,000
Stena AB 8.75%, '07 650M 650,000
---------------
1,897,500
---------------
Wireless Communications 2.7%
Nextel Communications
0%/9.75%, '04 850M 733,125
Tricom SA 11.375%, '04 500M 490,000
---------------
1,223,125
---------------
Total Bonds
(Cost $40,760,435) 41,215,813
---------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------
<S> <C> <C>
Preferred Stock 4.1%
Cable/Other Video Distribution 4.1%
Adelphia Communications
13% 6,500 760,500
Cablevision Systems Corp.
11.125% 5,139 585,846
Echostar Communications
12.125% 500 515,000
---------------
Total Preferred Stock
(Cost $1,690,150) 1,861,346
---------------
Total Investments
(Cost $44,007,585)* 44,634,159
Excess of Other Assets
Over Liabilities 0.6% 257,727
---------------
Net Assets $44,891,886
===============
</TABLE>
- ----------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997 unrealized
appreciation for federal income tax purposes aggregated $626,574 of which
$825,417 related to appreciated securities and $198,843 related to depreciated
securities.
See Notes to Financial Statements.
37
<PAGE>
Sentinel High Yield Bond Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments at value $44,634,159
Cash and cash equivalents 1,235,768
Receivable for fund shares sold 274,460
Receivable for interest 727,588
---------------
Total Assets 46,871,975
---------------
Liabilities
Payable for securities purchased 1,913,938
Payable for fund shares repurchased 1,474
Accrued expenses 22,967
Management fee payable 26,781
Distribution fee payable (Class A Shares) 2,171
Distribution fee payable (Class B Shares) 10,031
Fund service fee payable 2,727
---------------
Total Liabilities 1,980,089
---------------
Net Assets Applicable to Outstanding Shares $44,891,886
===============
Net Asset Value and Offering Price per Share
Class A Shares
$11,084,365/1,064,882 shares outstanding $ 10.41
Sales Charge--4.00% of offering price 0.43
---------------
Maximum Offering Price $ 10.84
===============
Class B Shares
$33,807,521/3,250,551 shares outstanding $ 10.40
===============
Net Assets Represent
Capital stock at par value $ 43,154
Paid-in capital 43,819,729
Accumulated undistributed net investment income 3,779
Accumulated undistributed net realized gain
on investments 398,650
Unrealized appreciation of investments 626,574
---------------
Net Assets $44,891,886
===============
Investments at Cost $44,007,585
===============
</TABLE>
Sentinel High Yield Bond Fund
Statement of Operations
For the Period Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
<S> <C>
Income:
Dividends $ 13,906
Interest 1,247,975
---------------
Total Income 1,261,881
---------------
Expenses:
Management advisory fee 105,178
Transfer agent and custodian 21,288
Distribution expense (Class A Shares) 5,175
Distribution expense (Class B Shares) 30,050
Accounting services 4,605
Auditing fees 3,600
Legal fees 1,250
Reports and notices to shareholders 596
Directors' fees and expenses 1,555
Other 11,402
---------------
Total Expenses 184,699
Expense Offset (6,528)
---------------
Net Expenses 178,171
---------------
Net Investment Income 1,083,710
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 398,650
Net change in unrealized appreciation 626,574
---------------
Net Realized and Unrealized Gain on Investments 1,025,224
---------------
Net Increase in Net Assets from Operations $2,108,934
===============
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
Sentinel High Yield Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period
6/23/97 to
11/30/97
---------------
<S> <C>
Increase in Net Assets from Operations
Net investment income $ 1,083,710
Net realized gain on sales of investments 398,650
Net change in unrealized appreciation 626,574
---------------
Net increase in net assets from operations 2,108,934
---------------
Distributions to Shareholders
From net investment income
Class A Shares (211,310)
Class B Shares (868,621)
From net realized gain on investments
Class A Shares -
Class B Shares -
---------------
Total distributions to shareholders (1,079,931)
---------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 11,052,160
Class B Shares 33,231,276
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 142,566
Class B Shares 127,228
---------------
44,553,230
Less: Payments for shares reacquired
Class A Shares (241,707)
Class B Shares (448,640)
---------------
Increase in net assets from capital share
transactions 43,862,883
---------------
Total Increase in Net Assets for period 44,891,886
Net Assets: Beginning of period -
---------------
Net Assets: End of period $44,891,886
===============
Undistributed Net Investment Income
at End of Period $ 3,779
===============
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
Sentinel High Yield 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>
Period Ended
Class A Shares 11/30/97(A)
----------------
<S> <C>
Net asset value at beginning of period $ 10.00
----------------
Income from Investment Operations
Net investment income 0.32
Net realized and unrealized gain on investments 0.41
----------------
Total from investment operations 0.73
----------------
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 $ 10.41
================
Total Return (%) * 7.3++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.20+
Ratio of expenses to average net assets before
expense reductions (%) ** 1.26+
Ratio of net investment income to average net assets (%) 7.80+
Portfolio turnover rate (%) 133
Net assets at end of period (000 omitted) $11,084
- --------------------------------------------------------------------------------
<CAPTION>
Period
Ended
Class B Shares 11/30/97(A)
----------------
<S> <C>
Net asset value at beginning of period $ 10.00
----------------
Income from Investment Operations
Net investment income 0.32
Net realized and unrealized gain on investments 0.39
----------------
Total from investment operations 0.71
----------------
Less Distributions
Dividends from net investment income 0.31
Distributions from realized gains on investments -
----------------
Total Distributions 0.31
----------------
Net asset value at end of period $ 10.40
================
Total Return (%) * 7.2++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.30+
Ratio of expenses to average net assets before
expense reductions (%) ** 1.34+
Ratio of net investment income to average net assets (%) 7.70+
Portfolio turnover rate (%) 133
Net assets at end of period (000 omitted) $33,808
</TABLE>
(A) Commenced operations June 23, 1997.
+ 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.
See Notes to Financial Statements.
40
<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.
We intend to maintain the Fund's current interest rate sensitivity and focus on
higher quality bonds.
Sentinel Bond Fund
For the fiscal year ended November 30, 1997, the Sentinel Bond Fund produced a
total return of 6.7%, slightly below the 6.9% average return of the A-rated
Corporate Debt Funds tracked by Lipper Analytical Services. The Lehman Aggregate
Index, which is considered a good proxy for the overall bond market, returned
7.6% for the same time period.
The ten-year U.S. Treasury peaked at 6.98% on April 14, 1997, following a
mid-March 25-basis point tightening by the Federal Reserve. From there,
long-term interest rates commenced a relatively steady descent, as the market
became increasingly comfortable with the concept of the "new age" economy,
characterized by strong, consistent growth, low unemployment and limited
inflationary pressures. Year-over-year, short rates rose 10 to 20 basis points
while long rates (30-year U.S. Treasury Index) declined 30 basis points.
Long-dated assets significantly outperformed short-dated assets. The Sentinel
Bond Fund, with its primary focus on intermediate maturity bonds, underperformed
slightly during this period.
The decline in interest rates was briefly interrupted in mid-summer when various
economic statistics came in somewhat stronger than expected. Rates resumed their
decline shortly after Labor Day when the market began to detect signs of
economic slowing. The final thrust downward occurred in mid-October when the
currency crisis in Southeast Asia spread to Hong Kong (and the Hong Kong
dollar). Events in Hong Kong precipitated a massive sell-off in worldwide equity
markets, and a flight to quality ensued, pushing U.S. Treasury prices upward and
causing interest rates to drop sharply again. Expectations of reduced economic
growth in many Asian countries, in the wake of the recent currency crisis, and
the resultant forecasts of slower economic growth in the U.S., further fueled
the decline in rates occurring in the final weeks of the fiscal year.
Corporate bond spreads narrowed throughout this year as the demand for higher
yielding bonds was unrelenting. However, this trend reversed temporarily when
the threat to the Hong Kong dollar emerged. As the environment in Asia began to
stabilize, spreads began to tighten again, albeit to somewhat wider levels than
existed before the Asian problems first developed.
<TABLE>
<CAPTION>
- ------------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/97
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 2.4% 6.7%
- ------------------------------------
5 Years 6.6% 7.5%
- ------------------------------------
10 Years 8.6% 9.1%
- ------------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Bond Fund Performance - Class A Shares
Ten Years Ended 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper A-Rated Lehman
Sentinel Corp. Bond Aggregate
Bond Fund Fund Average Bond Index*
--------- -------------- -----------
<S> <C> <C> <C>
Nov. '87 9,600 10,000 10,000
Nov. '88 10,563 10,910 10,923
Nov. '89 11,926 12,316 12,491
Nov. '90 12,620 12,982 12,437
Nov. '91 14,589 14,889 15,374
Nov. '92 15,971 16,288 16,736
Nov. '93 18,165 18,330 18,559
Nov. '94 17,273 17,453 17,991
Nov. '95 20,518 20,527 21,165
Nov. '96 21,438 21,602 22,450
Nov. '97 22,875 23,098 24,146
</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 share class expenses.
Chart Ending Values & Legend
Ten years ended 11/30/97
Sentinel Bond Fund $22,875
Lehman Aggregate Bond Index* $24,146
Lipper A-Rated Corp. Bond Fund Average $23,098
*An unmanaged index of bonds reflecting average prices in the bond market.
41
<PAGE>
While a number of recent economic statistics are indicative of a strengthening
economy, and even suggestive of a Fed tightening, the situation in Asia is
likely to slow economic growth in the U.S. beginning in the first half of 1998.
Given the uncertain outlook for the U.S. economy and interest rates, we intend
to maintain the Fund's current interest rate sensitivity and focus on higher
quality bonds.
/s/ Richard D. Temple
Richard D. Temple
/s/ William C. Kane
William C. Kane, CFA
42
<PAGE>
Sentinel Bond Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S.Government Obligations 39.5%
U.S. Treasury Obligations 19.6%
5-Year:
Note 5.5%, '00 550M $ 545,067
------------
10-Year:
Note 7.25%, '04 2250M 2,421,067
Note 7.5%, '05 3500M 3,826,515
Note 7%, '06 2500M 2,681,775
Note 6.125%, '07 7000M 7,140,140
------------
16,069,497
------------
30-Year:
Note 6.375%, '27 2300M 2,392,483
------------
Total U.S. Treasury Obligations 19,007,047
------------
U.S. Government Agency Obligations 19.9%
Federal Home Loan Mortgage Corporation 5.1%
15-Year:
6.5%, '08 1593M 1,597,717
7.5%, '11 1521M 1,561,431
------------
3,159,148
------------
30-Year:
8%, '08 1739M 1,817,410
------------
Total Federal Home Loan
Mortgage Corporation 4,976,558
------------
Federal National Mortgage Association 12.1%
Collateralized Mortgage Obligations:
CMO Trust Series
22(Y) 7.95%, '17 2283M 2,348,077
------------
7-Year Balloon:
7%, '04 987M 999,237
------------
10-Year:
7.5%, '04 778M 798,273
------------
15-Year:
7.5%, '06 1013M 1,041,095
7.5%, '07 3513M 3,603,994
7%, '12 2929M 2,962,022
------------
7,607,111
------------
Total Federal National
Mortgage Association 11,752,698
------------
Government National Mortgage Association 2.7%
15-year:
8.5%, '02 2467M 2,572,488
------------
30-year:
13%, '11 7M 9,007
13%, '13 1M 850
------------
9,857
------------
Total Government National
Mortgage Association 2,582,345
------------
Total U.S. Government
Agency Obligations 19,311,601
------------
Total U.S. Government Obligations
(Cost $37,678,922) 38,318,648
------------
Bonds 56.9%
Beverages 1.0%
Anheuser Busch 8.5%, '17 964M 1,001,355
------------
Financial Institutions 12.7%
First Union Corp.
6.824%, '26 2325M 2,435,437
Lehman Brothers Holdings
8.5%, '15 3000M 3,442,500
PNC Funding Co
6.875%, '07 3750M 3,815,625
Provident Capital Trust
8.6%, '26 2500M 2,596,875
------------
12,290,437
------------
Foreign Financial Institutions 14.7%
Bank Austria 7.25%, '17 2000M 2,105,000
Banque National 7.2%, '07 3000M 3,108,750
BCH Cayman Islands Ltd.
7.7%, '06 2500M 2,665,625
Credit Suisse 7.9%, '07 2000M 2,142,500
Midland Bank 7.65%, '25 2600M 2,853,500
Societe Generale 7.85%, '49 1300M 1,360,125
------------
14,235,500
------------
Industrial - Diversified 4.2%
Dimon Inc. 8.875%, '06 1860M 1,999,500
General Dynamics
9.95%, '18 2000M 2,110,000
------------
4,109,500
------------
Insurance 3.7%
Farmers Insurance Exchange
8.625%, '24 3100M 3,557,250
------------
Sovereign Credit 2.7%
Export-Import Bank Korea
6.5%, '06 2000M 1,752,500
Korea Development Bank
6.75%, '05 1000M 888,750
------------
2,641,250
------------
Telecommunications 8.0%
Comcast Cablevision
8.375%, '07 3000M 3,315,000
Comsat 8.05%, '06 2000M 2,233,240
Continental Cablevision
8.3%, '06 2000M 2,187,500
------------
7,735,740
------------
Utilities - Electric 7.5%
New Orleans Public Service
8%, '06 2500M 2,650,000
Niagara Mohawk Power
8.5%, '23 2500M 2,668,750
Western Resource Co.
6.875%, '04 1875M 1,912,500
------------
7,231,250
------------
Utilities - Gas 0.7%
Consolidated Natural Gas
8.625%, '11 623M 652,593
------------
Utilities - Telephone 1.7%
NYNEX Capital Funding
7.63%, '09 1500M 1,658,370
------------
Total Bonds
(Cost $53,614,756) 55,113,245
------------
Corporate Short-Term Notes 8.9%
Beneficial Corp. 5.7%,
12/17/97 4000M 3,989,867
Merrill Lynch 5.58%,
12/02/97 1600M 1,599,752
Texaco Group, Inc. 5.56%,
12/17/97 3000M 2,992,586
------------
Total Corporate Short-Term Notes
(Cost $8,582,205) 8,582,205
------------
Total Investments
(Cost $99,875,883)* 102,014,098
Excess of Liabilities
Over Other Assets (5.3%) (5,143,032)
------------
Net Assets $ 96,871,066
============
</TABLE>
- ------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997 unrealized
appreciation for federal income tax purposes aggregated $2,138,215 of which
$2,486,296 related to appreciated securities and $348,081 related to
depreciated securities.
See Notes to Financial Statements.
43
<PAGE>
Sentinel Bond Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $102,014,098
Cash and cash equivalents 539,103
Receivable for securities sold 33,347
Receivable for fund shares sold 71,073
Receivable for interest 1,494,371
---------------
Total Assets 104,151,992
---------------
Liabilities
Payable for securities purchased $ 7,105,724
Payable for fund shares repurchased 34,704
Accrued expenses 56,623
Management fee payable 42,481
Distribution fee payable (Class A Shares) 24,436
Distribution fee payable (Class B Shares) 6,760
Fund service fee payable 10,198
---------------
Total Liabilities 7,280,926
---------------
Net Assets Applicable to Outstanding Shares $ 96,871,066
===============
Net Asset Value and Offering Price per Share
Class A Shares
$88,755,649/13,944,583 shares outstanding $ 6.36
Sales Charge--4.00% of offering price 0.27
---------------
Maximum Offering Price $ 6.63
===============
Class B Shares
$8,115,417/1,272,634 shares outstanding $ 6.38
===============
Net Assets Represent
Capital stock at par value $ 152,172
Paid-in capital 98,953,238
Accumulated distributions in excess of
net investment income (14,366)
Accumulated undistributed net realized loss
on investments (4,358,193)
Unrealized appreciation of investments 2,138,215
---------------
Net Assets $ 96,871,066
===============
Investments at Cost $ 99,875,883
===============
</TABLE>
Sentinel Bond Fund
Statement of Operations
For the Year Ended November 30, 1997
- -------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $ 7,202,589
---------------
Expenses:
Management advisory fee 520,556
Transfer agent and custodian 161,468
Distribution expense (Class A Shares) 183,535
Distribution expense (Class B Shares) 62,170
Accounting services 34,655
Auditing fees 8,600
Legal fees 4,300
Reports and notices to shareholders 11,616
Directors' fees and expenses 10,551
Other 31,413
---------------
Total Expenses 1,028,864
Expense Offset (22,633)
---------------
Net Expenses 1,006,231
---------------
Net Investment Income 6,196,358
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 40,248
Net change in unrealized appreciation 2,486
---------------
Net Realized and Unrealized Gain on Investments 42,734
---------------
Net Increase in Net Assets from Operations $ 6,239,092
===============
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
Sentinel Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ----------------
<S> <C> <C>
Increase in Net Assets from Operations
Net Investment income $ 6,196,358 $ 6,740,031
Net realized gain (loss) on sales of investments 40,248 (1,050,714)
Net change in unrealized appreciation 2,486 (1,254,923)
--------------- ----------------
Net increase in net assets from operations 6,239,092 4,434,394
--------------- ----------------
Distributions to Shareholders
From net investment income
Class A Shares (5,792,899) (6,671,766)
Class B Shares (339,384) (77,872)
From net realized gain on investments
Class A Shares - -
Class B Shares - -
--------------- ----------------
Total distributions to shareholders (6,132,283) (6,749,638)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 11,715,128 18,125,838
Class B Shares 4,004,623 4,597,141
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,914,792 4,701,495
Class B Shares 231,042 64,317
--------------- ----------------
19,865,585 27,488,791
Less: Payments for shares reacquired
Class A Shares (26,313,113) (29,739,584)
Class B Shares (910,853) (65,876)
--------------- ----------------
Decrease in net assets from capital share
transactions (7,358,381) (2,316,669)
--------------- ----------------
Total Decrease in Net Assets for period (7,251,572) (4,631,913)
Net Assets: Beginning of period 104,122,638 108,754,551
--------------- ----------------
Net Assets: End of period $ 96,871,066 $104,122,638
=============== ================
Distributions in Excess of Net Investment Income
at End of Period $ (14,366) $ (17,259)
=============== ================
</TABLE>
See Notes to Financial Statements.
45
<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 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 6.35 $ 6.49 $ 5.85 $ 6.90 $ 6.56
---------------- ---------------- ---------------- --------------- ---------------
Income from Investment Operations
Net investment income 0.40 0.41 0.42 0.39 0.41
Net realized and unrealized gain (loss)
on investments 0.01 (0.14) 0.64 (0.70) 0.46
---------------- ---------------- ---------------- --------------- ---------------
Total from investment operations 0.41 0.27 1.06 (0.31) 0.87
---------------- ---------------- ---------------- --------------- ---------------
Less Distributions
Dividends from net investment income 0.40 0.41 0.42 0.39 0.41
Distributions from realized gains on
investments - - - 0.35 0.12
---------------- ---------------- ---------------- --------------- ---------------
Total Distributions 0.40 0.41 0.42 0.74 0.53
---------------- ---------------- ---------------- --------------- ---------------
Net asset value at end of period $ 6.36 $ 6.35 $ 6.49 $ 5.85 $ 6.90
================ ================ ================ =============== ===============
Total Return (%) * 6.7 4.5 18.8 (4.9) 13.7
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 0.97 0.98 0.99 0.98 0.92
Ratio of expenses to average net assets before
expense reductions (%) ** 0.99 1.00 1.03 0.98 0.92
Ratio of net investment income to average net
assets (%) 6.37 6.46 6.81 6.34 5.98
Portfolio turnover rate (%) 130 176 237 133 147
Net assets at end of period (000 omitted) $88,756 $99,408 $108,755 $80,487 $83,387
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Months
Ended Ended
Class B Shares 11/30/97 11/30/96(A)
---------------- ----------------
<S> <C> <C>
Net asset value at beginning of period $ 6.36 $ 6.30
---------------- ----------------
Income from Investment Operations
Net investment income 0.34 0.21
Net realized and unrealized gain on
investments 0.02 0.06
---------------- ----------------
Total from investment operations 0.36 0.27
---------------- ----------------
Less Distributions
Dividends from net investment income 0.34 0.21
Distributions from realized gains on
investments - -
---------------- ----------------
Total Distributions 0.34 0.21
---------------- ----------------
Net asset value at end of period $ 6.38 $ 6.36
================ ================
Total Return (%) * 5.9 4.5++
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 1.87 2.16+
Ratio of expenses to average net assets
before expense reductions (%) ** 1.90 2.18+
Ratio of net investment income to average
net assets (%) 5.46 5.28+
Portfolio turnover rate (%) 130 176
Net assets at end of period (000 omitted) $ 8,115 $ 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.
46
<PAGE>
Sentinel Government Securities Fund seeks as high a level of current income
as is consistent with safety of principal through primary
investments in securities issued or guaranteed by
the United States government, its agencies and instrumentalities.
Sentinel Government Securities Fund
The Fund's fiscal year performance was enhanced by its early relative
overweighting to the mortgage-backed securities (MBS) sector as well as its
gradual lengthening of duration.
For the fiscal year ended November 30, 1997, the Sentinel Government Securities
Fund produced a total return of 7.2%, easily exceeding the 6.5% return of the
Lipper U.S. Government Fund Average. The Lehman Government Bond Index returned
7.4% over the same period.
The twelve-month period ended November 30, 1997 can once again 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 position themselves accordingly. The Federal Reserve did tighten
monetary policy once over the twelve-month period, in March 1997, as the target
level of Federal Funds was increased one-quarter percent to 5.50%.
Early in the year, the bond market had discounted additional Fed tightenings, as
real U.S. economic growth exceeded 4.0% and the U.S. unemployment rate fell
below 5.0%, the perceived level of full employment. Yields on the 30-year U.S.
Treasury Bond rose to 7.17% in April, up from 6.36% as of November 30, 1996.
However, after seven consecutive monthly declines in wholesale prices, as
measured by the Producer Price Index, market psychology changed abruptly, as
more bond market participants embraced the notion of a "new economic era" of
strong growth and low inflation. Interest rates began to decline systematically
for the balance of the year, with long-term rates falling more than short-term
rates by a wide margin.
Over the fiscal year, the Fund gradually increased its portfolio duration from
4.3 years to 5.4 years. This was accomplished by swapping mortgage-backed
securities in favor of intermediate and long U.S. Treasuries. Exposure to
mortgage-backed securities declined to 56% of assets, down from 75% as of
November 30, 1996. The Fund actively engaged in U.S. Treasury dollar rolls, a
strategy which added approximately 20 basis points to the Fund's
- -----------------------------
Average Annual
Total Return
Through 11/30/97
<TABLE>
<CAPTION>
w/sales w/o sales
Period charge+ charge
1 Year 3.0% 7.2%
- -----------------------------
<S> <C> <C>
5 Years 5.7% 6.6%
- -----------------------------
10 Years 7.9% 8.4%
- -----------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Government Securities Fund Performance
Ten Years Ended 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sentinel Government Lipper General U.S. Lehman Government Lehman Mortgage
Securities Fund Government Fund Average Bond Index* Index*
------------------- ----------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Nov. '87 9,600 10,000 10,000 10,000
Nov. '88 10,390 10,793 10,790 11,073
Nov. '89 11,642 12,090 12,351 12,632
Nov. '90 12,603 12,907 13,245 13,837
Nov. '91 14,309 14,532 14,999 15,960
Nov. '92 15,539 15,722 16,355 17,192
Nov. '93 17,184 17,382 18,333 18,456
Nov. '94 16,413 16,544 17,675 18,161
Nov. '95 19,352 19,342 20,750 21,118
Nov. '96 19,954 20,198 21,850 22,644
Nov. '97 21,400 21,518 23,455 24,442
</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
Ten years ended 11/30/97
Sentinel Government Securities Fund $21,400
Lehman Government Bond Index* $23,455
Lehman Mortgage Index* $24,442
Lipper General U.S. Government Fund Average $21,518
*An unmanaged index of bonds reflecting average prices in the bond market.
47
<PAGE>
return. The Fund's fiscal year performance was enhanced by its early relative
overweighting to the mortgage-backed securities (MBS) sector as well as its
gradual lengthening of duration.
In summary, we are committed to achieving the Fund's goals of high current
income and capital preservation through all market conditions, and appreciate
your continued support.
/s/ David M. Brownlee
David M. Brownlee, CFA
48
<PAGE>
Sentinel Government Securities Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations 121.9%
U.S. Treasury Obligations 43.3%
5-Year:
Note 5.75%, '02 3000M $ 2,990,940
------------
10-Year:
Note 6.125%, '07 18000M 18,360,360
------------
Note 6.375%, '27 11000M 11,442,310
------------
Total U.S. Treasury Obligations 32,793,610
------------
U.S. Government Agency Obligations 78.6%
Federal Home Loan Mortgage Corporation 33.6%
Agency Discount Notes:
5.5%, 12/05/97 8800M 8,794,622
5.49%, 12/05/97 8000M 7,995,120
------------
16,789,742
------------
15-Year:
8.5%, '98 7M 7,608
9%, '04 747M 775,764
9.5%, '05 806M 845,847
9%, '06 127M 131,087
6.5%, '07 1533M 1,558,283
7.5%, '11 1033M 1,059,624
------------
4,378,213
------------
30-Year:
8.25%, '05 160M 168,063
11%, '09 16M 18,298
10.5%, '13 39M 42,590
11%, '15 4M 4,320
11%, '15 47M 52,583
11%, '15 57M 62,980
11%, '15 33M 36,608
11%, '16 6M 6,756
11%, '16 8M 8,824
11%, '17 13M 15,002
11%, '17 121M 134,272
10.5%, '18 153M 169,032
10.5%, '18 21M 23,378
8%, '23 3425M 3,570,055
------------
4,312,761
------------
Total Federal Home Loan
Mortgage Corporation 25,480,716
------------
Federal National Mortgage Association 20.9%
Collateralized Mortgage Obligations:
CMO Trust Series
22(Y) 7.95%, '17 3349M 3,443,847
------------
15-Year:
8.25%, '02 97M 100,544
9.75%, '04 388M 409,766
7.75%, '05 2140M 2,233,414
7%, '12 3515M 3,554,426
7.5%, '12 4939M 5,056,183
------------
11,354,333
------------
30-Year:
9.25%, '09 373M 399,920
8%, '16 617M 645,318
------------
1,045,238
------------
Total Federal National
Mortgage Association 15,843,418
------------
Government National
Mortgage Association 24.1%
10-Year:
7%, '03 645M 657,423
7%, '03 909M 926,235
------------
1,583,658
------------
15-Year:
10%, '01 27M 28,928
8.5%, '02 3290M 3,429,984
------------
3,458,912
------------
30-Year:
8%, '08 3141M 3,317,682
9.75%, '12 245M 264,167
11%, '14 59M 65,887
10.5%, '15 58M 63,860
10.5%, '16 81M 90,158
10.5%, '17 19M 21,580
10.5%, '17 17M 18,381
10.5%, '19 51M 56,752
10.5%, '19 21M 23,675
10.5%, '19 52M 57,504
10.5%, '19 106M 117,520
10.5%, '19 31M 34,424
10.5%, '19 12M 13,370
8.25%, '26 2003M 2,087,994
7.75%, '26 1873M 1,928,140
7.5%, '27 4996M 5,099,057
------------
13,260,151
------------
Total Government National
Mortgage Association 18,302,721
------------
Total U.S. Government
Agency Obligations 59,626,855
------------
Total U.S. Government Obligations
(Cost $91,081,271) 92,420,465
------------
Corporate Short-Term Notes 18.4%
Beneficial Corp. 5.70%,
12/17/97 3700M 3,690,626
GTE Funding Inc. 5.69%,
12/16/97 3700M 3,691,228
IBM Credit Corp. 5.56%,
12/17/97 2900M 2,892,834
Texaco, Inc. 5.56%,
12/17/97 3700M 3,690,857
------------
Total Corporate Short-Term Notes
(Cost $13,965,545) 13,965,545
------------
Repurchase Agreement 2.2%
Repurchase agreement with Prudential Securities
dated 11/28/97 at 5.68% to be repurchased at
$1,700,805 on 12/01/97, collateralized by a $1,814,467
FNMA Pool # 308211 due 07/01/24 valued at $1,746,651.
(Cost $1,700,000) 1700M 1,700,000
------------
Total Investments
(Cost $106,746,816)* 108,086,010
Excess of Liabilities
Over Other Assets (42.5%) (32,276,460)
------------
Net Assets $ 75,809,550
============
</TABLE>
- ---------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997, unrealized
appreciation for federal income tax purposes aggregated $1,339,194 of which
$1,376,233 related to appreciated securities and $37,039 related to
depreciated securities.
See Notes to Financial Statements.
49
<PAGE>
Sentinel Government Securities Fund
Statement Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $108,086,010
Cash and cash equivalents 9,091
Receivable for securities sold 3,032,840
Receivable for fund shares sold 42,865
Receivable for interest 248,233
---------------
Total Assets 111,419,039
---------------
Liabilities
Payable for securities purchased 35,510,401
Payable for fund shares repurchased 3,963
Accrued expenses 30,459
Management fee payable 33,306
Distribution fee payable 22,566
Fund service fee payable 8,794
---------------
Total Liabilities 35,609,489
---------------
Net Assets Applicable to Outstanding Shares $ 75,809,550
===============
Net Asset Value and Offering Price Per Share
$75,809,550 / 7,513,605 shares outstanding $ 10.09
Sales Charge -- 4.00% of Offering Price 0.42
---------------
Maximum Offering Price Per Share $ 10.51
===============
Net Assets Represent
Capital stock at par value $ 75,136
Paid-in capital 80,318,395
Accumulated distributions in excess of
net investment income (16,276)
Accumulated undistributed net realized loss
on investments (5,906,899)
Unrealized appreciation of investments 1,339,194
---------------
Net Assets $ 75,809,550
===============
Investments at Cost $106,746,816
===============
</TABLE>
See Notes to Financial Statements.
Sentinel Government Securities Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $ 5,809,166
---------------
Expenses:
Management advisory fee 430,776
Transfer agent and custodian 144,248
Distribution expense 161,500
Accounting services 28,675
Auditing fees 6,000
Legal fees 2,300
Reports and notices to shareholders 10,845
Directors' fees and expenses 8,701
Other 12,540
---------------
Total Expenses 805,585
Expense Offset (5,538)
---------------
Net Expenses 800,047
---------------
Net Investment Income 5,009,119
---------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 370,658
Net change in unrealized appreciation
(depreciation) (65,921)
---------------
Net Realized and Unrealized Gain on Investments 304,737
---------------
Net Increase in Net Assets from Operations $ 5,313,856
===============
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
Sentinel Government Securities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ----------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 5,009,119 $ 6,169,447
Net realized gain (loss) on sales of investments 370,658 (3,051,420)
Net change in unrealized appreciation (depreciation) (65,921) (475,659)
--------------- ----------------
Net increase in net assets from operations 5,313,856 2,642,368
--------------- ----------------
Distributions to Shareholders
From net investment income (4,829,535) (6,067,900)
From net realized gain on investments - -
--------------- ----------------
Total distributions to shareholders (4,829,535) (6,067,900)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares 6,651,510 11,859,191
Net asset value of shares in reinvestment
of dividends and distributions 3,691,450 4,652,285
--------------- ----------------
10,342,960 16,511,476
Less: Payments for shares reacquired (27,316,752) (28,887,111)
--------------- ----------------
Decrease in net assets from capital share transactions (16,973,792) (12,375,635)
--------------- ----------------
Total Decrease in Net Assets for period (16,489,471) (15,801,167)
Net Assets: Beginning of period 92,299,021 108,100,188
--------------- ----------------
Net Assets: End of period $ 75,809,550 $ 92,299,021
=============== ================
Accumulated undistributed Net Investment
Income (Loss) at End of Period $ (16,276) $ 1,010
=============== ================
</TABLE>
See Notes to Financial Statements.
51
<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
11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.30 $ 9.31 $ 10.45 $ 10.18
---------------- ---------------- ---------------- --------------- ---------------
Income from Investment Operations
Net investment income 0.59 0.61 0.63 0.59 0.62
Net realized and unrealized gain (loss) on
investments 0.09 (0.30) 0.99 (1.04) 0.42
---------------- ---------------- ---------------- --------------- ---------------
Total from investment operations 0.68 0.31 1.62 (0.45) 1.04
---------------- ---------------- ---------------- --------------- ---------------
Less Distributions
Dividends from net investment income 0.59 0.61 0.63 0.58 0.60
Distributions from realized gains on
investments - - - 0.11 0.17
---------------- ---------------- ---------------- --------------- ---------------
Total Distributions 0.59 0.61 0.63 0.69 0.77
---------------- ---------------- ---------------- --------------- ---------------
Net asset value at end of period $ 10.09 $ 10.00 $ 10.30 $ 9.31 $ 10.45
================ ================ ================ =============== ===============
Total Return (%) * 7.2 3.2 17.9 (4.5) 10.6
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 0.98 1.00 1.03 1.00 0.98
Ratio of expenses to average net assets
before expense reductions (%) ** 0.99 1.01 1.04 1.00 0.98
Ratio of net investment income to average
net assets (%) 6.15 6.18 6.50 5.95 6.06
Portfolio turnover rate (%) 249 614 367 149 97
Net assets at end of period (000 omitted) $75,810 $92,299 $108,100 $104,457 $134,749
</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.
52
<PAGE>
Sentinel Short Maturity Government Fund seeks as high a level of current
income as is consistent with safety of principal through primary investments in
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities.
Sentinel Short Maturity Government Fund
Given the volatility of interest rates over the last four years, the Sentinel
Short Maturity 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, 1997, the Sentinel Short Maturity
Government Fund produced a total return of 6.0%. This compares favorably to an
average return of 5.2% as reported by Lipper Analytical Services Inc. for Short
U.S. Government Funds. The Lehman 1-3 Year Government Index returned 6.0% for
the same period.
The investment goal of the Fund is to provide a high level of current
income, consistent with safety of principal, by investments in U.S. government
securities, including its agencies and instrumentalities. The Fund attempts to
earn a competitive 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 will be 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 (MBS) 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, 1997, proved to be one of interest
rate 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, yields on
the 2-year U.S. Treasury Note rose 17 basis points to 5.75%, while the 30-year
U.S. Treasury Bond fell 32 basis points to 6.04%.
Given the volatility of interest rates over the last four years, the Sentinel
Short Maturity Government Fund is structured to experience relatively minor
price fluctuations in its NAV,
- -----------------------------
Average Annual
Total Return
Through 11/30/97
<TABLE>
<CAPTION>
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 5.0% 6.0%
- -----------------------------
Since
Inception* 6.3% 6.7%
- -----------------------------
</TABLE>
*3/27/95
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Short Maturity Government Fund Performance
Inception as of opening of business 3/27/95 through 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sentinel Lipper Lehman
Short-Maturity Short U.S. Government 1-3 Yr. Government
Government Fund Fund Average Bond Index*
--------------- --------------------- ------------------
<S> <C> <C> <C>
3/27/95 9,900
3/31/95 9,900 10,000 10,000
4/30/95 9,984 10,082 10,089
5/31/95 10,191 10,235 10,262
6/30/95 10,221 10,283 10,317
7/31/95 10,240 10,309 10,358
8/31/95 10,301 10,374 10,420
9/30/95 10,342 10,425 10,471
10/30/95 10,421 10,503 10,558
11/30/95 10,525 10,588 10,648
12/31/95 10,615 10,665 10,728
1/31/96 10,678 10,741 10,819
2/29/96 10,618 10,697 10,777
3/31/96 10,614 10,686 10,769
4/30/96 10,603 10,693 10,780
5/30/96 10,620 10,707 10,804
6/30/96 10,695 10,777 10,883
7/31/96 10,734 10,814 10,925
8/31/96 10,753 10,843 10,965
9/30/96 10,898 10,934 11,065
10/31/96 11,021 11,045 11,190
11/30/96 11,119 11,123 11,273
12/31/96 11,103 11,124 11,275
1/31/97 11,182 11,173 11,329
2/28/97 11,201 11,201 11,357
3/31/97 11,162 11,182 11,347
4/30/97 11,267 11,264 11,441
5/31/97 11,344 11,330 11,521
6/30/97 11,443 11,391 11,600
7/31/97 11,568 11,511 11,727
8/31/97 11,585 11,516 11,738
9/30/97 11,688 11,595 11,827
10/31/97 11,768 11,676 11,915
11/30/97 11,790 11,702 11,945
</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 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.
Chart Ending Values & Legend
3/27/95 inception through 11/30/97
Sentinel Short-Maturity Gov't Fund $11,790
Lehman 1-3 Yr. Gov't Bond Index $11,945
Lipper Short U.S. Gov't. Fund Average $11,702
*An unmanaged index of bonds reflecting average prices in the bond market.
53
<PAGE>
while offering a yield in excess of those available on money market securities.
As of November 30, 1997, the Fund was positioned 94% in short mortgage-backed
securities, 2% in U.S. Treasury/Agency notes, and 4% 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 strong performance during the period.
We look forward to helping you achieve your investment goals in the coming year.
/s/ David M. Brownlee
David M. Brownlee, CFA
54
<PAGE>
Sentinel Short Maturity Government Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Obligations 94.8%
U.S. Treasury Obligations 2.2%
5-Year:
Note 5.75%, '02 1000M $ 996,980
-----------
U.S. Government Agency Obligations 92.6%
Federal Home Loan Mortgage Corporation 39.7%
Collateralized Mortgage Obligations:
1057(D), 8%, '00 689M 704,079
1317-E, 7%, '04 263M 262,722
53(A) P11, 9.5%, '20 5M 5,367
Merril Lynch Trust
Series 5(B), 6%, '18 89M 85,666
-----------
1,057,834
-----------
10-Year:
6.5%, '04 701M 714,411
-----------
15-Year:
8.5%, '01 577M 596,444
9%, '01 256M 265,665
9%, '01 223M 231,772
9.5%, '01 2M 1,749
9.5%, '01 3M 3,672
7.5%, '02 526M 540,904
8%, '02 601M 623,942
9%, '02 559M 580,524
9.5%, '03 4M 3,790
9.5%, '03 315M 331,665
9.5%, '04 160M 167,699
10%, '05 124M 131,059
9%, '06 612M 641,043
8.5%, '07 53M 54,706
9%, '07 474M 496,901
8%, '08 231M 238,698
5.5%, '09 946M 931,017
8%, '11 1127M 1,165,165
8%, '12 477M 492,895
-----------
7,499,310
-----------
30-Year:
8.5%, '03 745M 782,129
7%, '06 794M 805,002
6.5%, '07 792M 803,104
7%, '07 426M 431,809
8.25%, '07 568M 593,220
7.5%, '08 661M 682,756
7.5%, '08 954M 985,243
7.75%, '09 682M 707,061
8%, '09 306M 319,955
8.5%, '09 1460M 1,537,979
10.25%, '09 21M 23,271
8%, '23 891M 928,493
-----------
8,600,022
-----------
Total Federal Home Loan
Mortgage Corporation 17,871,577
===========
Federal National Mortgage Association 40.0%
Collateralized Mortgage Obligations:
1992 - 20(PG), 7%, '05 301M 301,200
-----------
7-Year Balloon:
7%, '04 953M 964,322
-----------
15-Year:
7.5%, '02 243M 249,798
9%, '02 5M 5,563
9%, 02 852M 890,128
10.5%, '03 47M 50,213
6%, '04 984M 990,647
7%, '05 680M 687,930
8%, '05 526M 546,368
7%, '07 442M 447,225
7.5%, '07 377M 385,678
7.5%, '08 343M 350,980
7.25%, '09 1349M 1,380,080
7.5%, '09 490M 501,837
7.5%, '09 721M 745,660
8%, '09 1246M 1,288,026
8%, '09 1171M 1,210,831
8.5%, '10 385M 400,168
7.5%, '12 988M 1,011,237
-----------
11,142,369
-----------
30-Year:
8%, '04 344M 359,613
8%, '04 293M 306,657
9%, '04 856M 894,161
7.75%, '06 615M 639,010
7%, '07 654M 669,880
7.5%, '07 234M 243,508
8%, '08 597M 624,366
8.75%, '09 188M 199,583
8%, '12 1112M 1,163,515
8.75%, '13 66M 69,632
8.25%, '17 431M 452,867
-----------
5,622,792
-----------
Total Federal National
Mortgage Association 18,030,683
-----------
Government National Mortgage Association 12.9%
Collateralized Mortgage Obligations:
Trust Series 27(A) 7.25%, '17 262M 262,778
MDC Asset Inv.
Trust XII 3, 8.94%, '18 960M 980,731
-----------
1,243,509
-----------
15-Year:
10.75%, '98 2M 1,636
10.75%, '98 6M 6,144
10.75%, '98 1M 1,356
11.25%, '98 0M 109
11.25%, '98 0M 68
11.25%, '98 0M 8
11.25%, '98 0M 327
9.5%, '99 5M 5,258
10.25%, '99 6M 6,924
11%, '00 5M 5,657
11.25%, '00 12M 13,341
9%, '01 24M 25,292
9.75%, '01 6M 6,323
9.75%, '01 2M 2,071
9.5%, '04 9M 9,431
9%, '07 31M 32,367
7.5%, '08 431M 442,344
8%, '08 459M 476,521
9%, '11 419M 442,591
-----------
1,477,768
-----------
20-Year:
9.25%, '07 41M 43,281
9.75%, '10 129M 138,849
-----------
182,130
-----------
30-Year:
6.5%, '03 274M 274,927
8%, '03 307M 321,888
9%, '09 159M 170,152
10%, '09 10M 10,838
10%, '16 15M 16,143
8%, '17 1737M 1,821,484
9.25%, '26 289M 310,735
-----------
2,926,167
-----------
Total Government National
Mortgage Association 5,829,574
-----------
Total U.S. Government
Agency Obligations 41,731,834
-----------
Total U.S. Government Obligations
(Cost $42,237,974) 42,728,814
-----------
Corporate Short-Term Notes 4.8%
Norwest Financial 5.63%,
12/01/97
(Cost $2,150,000) 2150M 2,150,000
-----------
Total Investments
(Cost $44,387,974)* 44,878,814
Excess of Other Assets
Over Liabilities 0.4% 165,444
-----------
Net Assets $45,044,258
===========
</TABLE>
- --------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997, unrealized
appreciation for federal income tax purposes aggregated $490,840 of which
$529,950 related to appreciated securities and $39,110 related to depreciated
securities.
See Notes to Financial Statements.
55
<PAGE>
Sentinel Short Maturity Government Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $44,878,814
Cash and cash equivalents 612,857
Receivable for securities sold 257,239
Receivable for fund shares sold 134,302
Receivable for interest 330,258
Receivable from fund administrator 31,698
---------------
Total Assets 46,245,168
---------------
Liabilities
Payable for securities purchased 999,078
Payable for fund shares repurchased 133,780
Accrued expenses 13,414
Management fee payable 19,086
Distribution fee payable 31,074
Fund service fee payable 4,478
---------------
Total Liabilities 1,200,910
---------------
Net Assets Applicable to Outstanding Shares $45,044,258
===============
Net Asset Value and Offering Price Per Share
$45,044,258/4,587,888 shares outstanding $ 9.82
Sales Charge--1.00% of Offering Price 0.10
---------------
Maximum Offering Price Per Share $ 9.92
===============
Net Assets Represent
Capital stock at par value $ 45,879
Paid-in capital 45,840,235
Accumulated undistributed net investment income 7,429
Accumulated undistributed net realized loss
on investments (1,340,125)
Unrealized appreciation of investments 490,840
---------------
Net Assets $45,044,258
===============
Investments at Cost $44,387,974
===============
</TABLE>
Sentinel Short Maturity Government Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $ 3,037,163
---------------
Expenses:
Management advisory fee 221,104
Transfer agent and custodian 72,696
Distribution expense 145,635
Accounting services 14,630
Auditing fees 4,750
Legal fees 2,000
Reports and notices to shareholders 4,500
Directors' fees and expenses 4,568
Other 22,493
---------------
Total Expenses 492,376
Expense Reimbursement (68,091)
Expense Offset (8,376)
---------------
Net Expenses 415,909
---------------
Net Investment Income 2,621,254
---------------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss on sales of investments (370,535)
Net change in unrealized appreciation 211,738
---------------
Net Realized and Unrealized Loss on Investments (158,797)
---------------
Net Increase in Net Assets from Operations $ 2,462,457
===============
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
Sentinel Short Maturity Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ----------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 2,621,254 $ 2,155,465
Net realized loss on sales of investments (370,535) (177,412)
Net change in unrealized appreciation 211,738 (73,058)
--------------- ----------------
Net increase in net assets from operations 2,462,457 1,904,995
--------------- ----------------
Distributions to Shareholders
From net investment income (2,412,181) (2,059,894)
From realized gain on sale of investments - -
--------------- ----------------
Total distributions to shareholders (2,412,181) (2,059,894)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares 34,463,483 32,166,653
Net asset value of shares in reinvestment
of dividends and distributions 1,991,335 1,660,864
--------------- ----------------
36,454,818 33,827,517
Less: Payments for shares reacquired (27,934,530) (25,615,589)
--------------- ----------------
Increase in net assets from capital share
transactions 8,520,288 8,211,928
--------------- ----------------
Total Increase in Net Assets for period 8,570,564 8,057,029
Net Assets: Beginning of period 36,473,694 28,416,665
--------------- ----------------
Net Assets: End of period $45,044,258 $36,473,694
=============== ================
Undistributed Net Investment Income
at End of Period $ 7,429 $ 1,384
=============== ================
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
Sentinel Short Maturity 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 Year Eight Months
Ended Ended Ended
11/30/97 11/30/96 11/30/95(A)
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value at beginning of period $ 9.81 $ 9.84 $ 9.64
----------- ----------- -----------
Income from Investment Operations
Net investment income 0.56 0.57 0.40
Net realized and unrealized gain (loss) on investments 0.01 (0.03) 0.20
----------- ----------- -----------
Total from investment operations 0.57 0.54 0.60
----------- ----------- -----------
Less Distributions
Dividends from net investment income 0.56 0.57 0.40
Distributions from realized gains on investments - - -
----------- ----------- -----------
Total Distributions 0.56 0.57 0.40
----------- ----------- -----------
Net asset value at end of period $ 9.82 $ 9.81 $ 9.84
=========== =========== ===========
Total Return (%) ** 6.0 5.6 6.3++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.00 1.00 1.00+
Ratio of expenses to average net assets before
expense reductions (%) *** 1.18 1.20 1.38+
Ratio of net investment income to average net assets (%) 6.20* 6.09* 6.07+*
Portfolio turnover rate (%) 61 120 58
Net assets at end of period (000 omitted) $ 45,044 $ 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 6.14%
in 1997, 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.
58
<PAGE>
Sentinel U.S. Treasury Money Market Fund is a no-load money market fund which
seeks high current income, safety of principal, 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, 1997, Sentinel U. S. Treasury Money Market Fund's net assets
stood at $89.3 million, an increase of 6.4% over the past year. Looking ahead,
we plan to lengthen the Fund's average maturity when the Treasury curve steepens
or as opportunities develop, and will continue to maintain the highest quality
money market fund possible.
For the 12-month period ended November 30, 1997, short-term interest rates
increased moderately, partly encouraged by the Federal Reserve's 25 basis point
increase in late March. At the end of the fiscal year, the federal funds rate
had decreased six basis points to 5.69% and the discount rate was unchanged at
5.00%. The 90-day Treasury bill increased 14 basis points to 5.22% and the prime
rate increased 25 basis points to 8.50%. On average, 90-day certificates of
deposit and commercial paper increased 33 basis points both ending the fiscal
year at 5.77%.
The economy's rapid growth carried over into 1997. In hopes of curbing inflation
and moderating growth, the Federal Reserve raised the federal funds rate 25
basis points on March 25, 1997. In spite of this move the economy experienced a
state of near utopia throughout 1997: the economy showed above average growth,
limited inflation and inflationary pressures, low interest rates, and a strong
stock market, as well as a tight labor market with an unemployment rate of 4.6%,
the lowest level since October 1973. Late in the third quarter of 1997, problems
in the Asian markets resulted in a flight to quality and a rally in U. S.
government securities. The Asian market uncertainties appear likely to slow U.S.
economic growth and help contain inflation well into 1998.
For the 12-month period, the Fund's maturity was shortened from 45 to 38 days
and the 7-day yield increased 27 basis points to 4.68%. As of November 30, 1997,
Sentinel U. S. Treasury Money Market Fund's net assets stood at $89.3 million,
an increase of 6.4% over the past year. Looking ahead, we plan to lengthen the
Fund's average maturity when the Treasury curve steepens or as opportunities
develop, and will continue to maintain the highest quality money market fund
possible.
/s/ Richard D. Temple
Richard D. Temple
/s/ Darlene A. Coppola
Darlene A. Coppola
59
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ------------------------------------------------------
<S> <C> <C>
U.S. Treasury Obligations 92.9%
U S Treasury Bill
4.73%, 12/04/97 2000M $ 1,999,212
U S Treasury Bill
4.965%, 12/11/97 1500M 1,497,931
U S Treasury Bill
5.535%, 12/16/97 10000M 9,976,937
U S Treasury Bill
4.945%, 12/18/97 1000M 997,665
U S Treasury Bill
4.925%, 12/26/97 750M 747,435
U S Treasury Note
6%, 12/31/97 10000M 10,005,581
U S Treasury Note
6%, 12/31/97 5000M 5,002,761
U S Treasury Note
6%, 12/31/97 4000M 4,002,232
U S Treasury Bill
4.87%, 01/08/98 1500M 1,492,289
U S Treasury Bill
4.91%, 01/08/98 5000M 4,974,086
U S Treasury Bill
4.935%, 01/08/98 7000M 6,963,536
U S Treasury Bill
4.935%, 01/08/98 1000M 994,791
U S Treasury Bill
5%, 01/08/98 2000M 1,989,444
U S Treasury Bill
5.005%, 01/08/98 4000M 3,978,868
U S Treasury Bill
5.135%, 01/22/98 1000M 992,583
U S Treasury Bill
5.15%, 01/22/98 4000M 3,970,244
U S Treasury Bill
5.19%, 01/22/98 1000M 992,503
U S Treasury Bill
5.2%, 01/22/98 1000M 992,489
U S Treasury Bill
5.215%, 01/22/98 5000M 4,962,336
U S Treasury Bill
5.245%, 01/22/98 2000M 1,984,848
U S Treasury Bill
4.96%, 01/29/98 1000M 991,871
U S Treasury Bill
4.96%, 02/05/98 1000M 990,907
U S Treasury Bill
5.005%, 02/05/98 1000M 990,824
U S Treasury Bill
5%, 02/12/98 1500M 1,484,792
U S Treasury Note
5.125%, 02/28/98 10000M 9,990,549
-----------
Total Investments
(Amortized Cost $82,966,714)* 82,966,714
Excess of Other Assets
Over Liabilities 7.1% 6,378,388
-----------
Net Assets $89,345,102
===========
</TABLE>
- ------------------------------------------------------
* Also cost for federal income tax purposes.
See Notes to Financial Statements.
60
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $82,966,714
Receivable for securities sold 15,403,125
Receivable for fund shares sold 2,315,248
Receivable for interest 607,314
-------------
Total Assets 101,292,401
-------------
Liabilities
Payable to custodian 1,282,071
Payable for securities purchased 9,976,938
Payable for fund shares repurchased 575,525
Dividends payable 23,582
Accrued expenses 47,278
Management fee payable 29,721
Fund service fee payable 12,184
-------------
Total Liabilities 11,947,299
-------------
Net Assets Applicable to Outstanding Shares $89,345,102
=============
Net Asset Value
Class A Shares
$85,911,496/85,911,496 shares outstanding $ 1.00
=============
Class B Shares
$3,433,606/3,433,606 shares outstanding $ 1.00
=============
Net Assets Represent
Capital stock at par value $ 893,451
Paid-in capital 88,451,651
-------------
Net Assets $89,345,102
=============
Investments at Cost $82,966,714
=============
</TABLE>
See Notes to Financial Statements.
Sentinel U.S. Treasury Money Market Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $ 4,570,494
-------------
Expenses
Management advisory fee 350,009
Transfer agent and custodian 218,131
Accounting services 30,955
Auditing fees 7,000
Legal fees 3,700
Reports and notices to shareholders 14,250
Directors' fees and expenses 9,361
Other 35,793
-------------
Total Expenses 669,199
Expense Offset (5,061)
-------------
Net Expenses 664,138
-------------
Net Investment Income and Net Increase in
Net Assets from Operations $ 3,906,356
=============
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ---------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 3,906,356 $ 3,680,039
--------------- ---------------
Distributions to Shareholders
From net investment income
Class A Shares (3,725,989) (3,581,171)
Class B Shares (180,367) (98,868)
--------------- ---------------
Total Distributions to Shareholders (3,906,356) (3,680,039)
--------------- ---------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 198,798,449 198,865,999
Class B Shares 7,962,012 7,608,971
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,338,706 3,213,012
Class B Shares 150,530 84,246
--------------- ---------------
210,249,697 209,772,228
Less: Payments for shares reacquired
Class A Shares (197,029,796) (201,938,785)
Class B Shares (7,839,276) (4,532,877)
--------------- ---------------
Increase in net assets from capital share
transactions 5,380,625 3,300,566
--------------- ---------------
Total Increase in Net Assets for period 5,380,625 3,300,566
Net Assets: Beginning of period 83,964,477 80,663,911
--------------- ---------------
Net Assets: End of period $ 89,345,102 $ 83,964,477
=============== ===============
</TABLE>
See Notes to Financial Statements.
62
<PAGE>
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Nine
Year Ended Year Ended Year Ended Year Ended Months Ended
Class A Shares 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93(A)
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------- ---------------- ---------------- --------------- ---------------
Income from Investment Operations
Net investment income 0.04 0.04 0.05 0.03 0.02
Net realized and unrealized gain (loss)
on investments - - - - -
---------------- ---------------- ---------------- --------------- ---------------
Total from investment operations 0.04 0.04 0.05 0.03 0.02
---------------- ---------------- ---------------- --------------- ---------------
Less Distributions
Dividends from net investment income 0.04 0.04 0.05 0.03 0.02
Distributions from realized gains
on investments - - - - -
---------------- ---------------- ---------------- --------------- ---------------
Total Distributions 0.04 0.04 0.05 0.03 0.02
---------------- ---------------- ---------------- --------------- ---------------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================ ================ ================ =============== ===============
Total Return (%) ** 4.6 4.6 5.0 3.1 1.7++
Ratios/Supplemental Data
Ratio of net expenses to average
net assets (%) 0.76 0.78 0.81 0.81 .85 +
Ratio of expenses to average net assets
before expense reductions (%) *** 0.77 0.78 0.82 0.81 .87 +
Ratio of net investment income
to average net assets (%) 4.46 4.38 4.83 3.01 2.20+*
Net assets at end of period (000 omitted) $85,911 $80,804 $80,664 $75,301 $72,252
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eight Months
Year Ended Ended
Class B Shares 11/30/97 11/30/96(B)
---------------- ----------------
<S> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00
---------------- ----------------
Income from Investment Operations
Net investment income 0.05 0.03
Net realized and unrealized gain (loss)
on investments - -
---------------- ----------------
Total from investment operations 0.05 0.03
---------------- ----------------
Less Distributions
Dividends from net investment income 0.05 0.03
Distributions from realized
gains on investments - -
---------------- ----------------
0.05 0.03
---------------- ----------------
Net asset value at end of period $ 1.00 $ 1.00
================ ================
Total Return (%) ** 4.7 3.0 ++
Ratios/Supplemental Data
Ratio of net expenses to average
net assets (%) 0.73 .76 +
Ratio of expenses to average net
assets before expense reductions (%)*** 0.73 .77 +
Ratio of net investment income to average
net assets (%) 4.50 4.40 +
Net assets at end of period (000 omitted) $ 3,434 $ 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.
*** 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 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.
Investors in municipal securities were rewarded with solid investment returns in
1997 as the economy exhibited strong growth, low unemployment and a rate of
inflation of less than 2.5%.
Sentinel Tax-Free Income Fund
For the fiscal year ended November 30, 1997, the Sentinel Tax-Free Income Fund
produced a total return of 6.9%, matching the average return of 6.9% for the
Lipper Analytical Services Inc. universe of general municipal debt funds. The
Lehman Municipal Bond Index returned 7.2% for the same period.
Investors in municipal securities were rewarded with solid investment returns in
1997 as the economy exhibited strong growth, low unemployment and a rate of
inflation of less than 2.5%. The performance of fixed income securities was
enhanced as interest rates declined reflecting the diminishing inflation
expectations of the market. Traditionally, strong economic growth and high
resource utilization has contributed to an increase in the rate of inflation
which would have had a negative impact on the price of bonds. However, strong
capital spending by U.S. corporations concentrated in high-technology equipment
has expanded the production capacity of the economy thereby increasing the rate
of economic growth that can be sustained without a pickup in inflation.
The current level of interest rates, combined with low inflation, provides
investors a high real rate of interest, which in the case of municipals is
sheltered from federal income tax. The taxable equivalent yield of the Sentinel
Tax-Free Income Fund as of 11/30/97 was 7.9% for an investor in the 39.6%
federal income tax bracket. This compares very favorably to the yield of
corporate, government and mortgage-backed securities for investors who are
looking to maximize risk-adjusted, after-tax cash flows in their fixed income
portfolios.
We believe that the positive economic fundamentals currently in place will
continue to benefit the holders of fixed income securities. Credit quality of
state and local governments that issue municipal bonds is excellent. Robust tax
receipts, a result of strong economic growth, has allowed municipal issuers to
accumulate surplus funds while reducing their dependency on borrowing. In this
environment, we will continue to structure the portfolio to take advantage of
changing market conditions, while striving to provide our shareholders with a
relatively high level of current income exempt from federal taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
- ----------------------------
Average Annual
Total Return
Through 11/30/97
<TABLE>
<CAPTION>
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 2.6% 6.9%
- ----------------------------
5 Years 5.7% 6.6%
- ----------------------------
Since
Inception* 7.2% 7.8%
- ----------------------------
</TABLE>
*10/1/90
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Tax-Free Income Fund Performance
10/1/90 inception through 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sentinel Lehman Lipper General
Tax-Free Municipal Municipal Debt
Date Income Fund Bond Index* Fund Average
- ------- ------------ ----------- ---------------
<S> <C> <C> <C>
10/01/90 9,500 10,000 10,000
11/90 9,890 10,386 10,382
11/91 10,897 11,452 11,418
11/92 11,988 12,600 12,565
11/93 13,416 13,997 14,004
11/94 12,739 13,262 13,021
11/95 14,780 15,769 15,407
11/96 15,418 16,695 16,163
11/97 16,475 17,892 17,274
</TABLE>
Chart Ending Values & Legend
10/1/90 inception through 11/30/97
Sentinel Tax-Free Income Fund $16,475
Lehman Municipal Bond Index* $17,892
Lipper General Municipal Debt Fund Average $17,274
*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.
64
<PAGE>
Sentinel Tax-Free Income Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
Municipal Bonds 97.7%
California 10.8%
California General Obligation
6.250%, 04/01/08 2000M $2,251,180
Foothill/Eastern CA Toll
6.500%, 01/01/32 3500M 3,771,775
San Mateo Cnty CA
Power Rev (AMBAC)
6.500%, 07/01/15 3000M 3,510,450
------------
9,533,405
------------
Colorado 2.0%
Arapahoe County Capital
Improvements
6.950%, 08/31/20 1500M 1,764,375
------------
Delaware 0.6%
Delaware Health Facility Auth
7.625%, 11/01/10 500M 551,495
------------
District of Columbia 0.6%
District of Columbia
G/O (AMBAC)
7.500%, 06/01/09 500M 532,675
------------
Florida 3.2%
Orange County Healthcare A
(MBIA)
6.250%, 10/01/13 1500M 1,697,955
University Community
Hospital Inc (FSA)
7.500%, 09/01/11 1000M 1,103,820
------------
2,801,775
------------
Hawaii 1.3%
Dept of Budget Financial
of HI (FSA)
7.650%, 07/01/19 1000M 1,132,470
Hawaii State Housing Finance
7.800%, 07/01/29 5M 5,235
------------
1,137,705
------------
Idaho 0.7%
Idaho Housing Agency
Series D-1
8.000%, 01/01/20 520M 585,587
------------
Illinois 6.0%
Illinois Educational
Facs Authority
6.100%, 12/15/16 560M 594,054
Illinois Housing
Development Authority
7.000%, 07/01/10 990M 1,066,428
Illinois State Sales Tax Revenue
6.500%, 06/15/13 1000M 1,158,300
Illinois State Sales Tax
6.000%, 06/15/12 2180M 2,396,103
------------
5,214,885
------------
Indiana 0.1%
Indianapolis IN Economic
Dev Revenue
7.800%, 12/01/17 55M 57,779
------------
Kansas 0.2%
Kansas City Leavenworth Cty &
City of Lenexa
Series A - Mtg Rev
8.400%, 05/01/15 140M $ 145,643
------------
Louisiana 0.6%
Jefferson LA Sales Tax (MBIA)
8.250%, 07/01/02 500M 531,360
------------
Massachusetts 4.8%
Massachusetts State G/O
6.875%, 07/01/10 1000M 1,103,430
Massachusetts State G/O (FGIC)
6.000%, 08/01/09 1000M 1,117,520
Mass State Health
& Educational Facs
New England Baptist
Hospital Revenue
7.300%, 07/01/11 1000M 1,077,870
Mass State Tpk Auth
Hwy Sys (MBIA)
5.000%, 01/01/37 1000M 949,100
------------
4,247,920
------------
Michigan 1.1%
Michigan State Building
Authority
6.250%, 10/01/20 170M 179,265
Royal Oak MI Hospital
Finance Authority
7.375%, 01/01/20 750M 791,190
------------
970,455
------------
Missouri 1.3%
Central MO State
University (MBIA)
7.000%, 07/01/14 1000M 1,111,070
Missouri Housing
Development Comm
9.375%, 04/01/16 50M 53,773
------------
1,164,843
------------
Nebraska 2.4%
Omaha Public Power District
7.625%, 02/01/12 1000M 1,005,150
Omaha Public Power District
6.150%, 02/01/12 1000M 1,127,040
------------
2,132,190
------------
New Hampshire 0.9%
New Hampshire Higher
Ed & Health (MBIA)
7.625%, 07/01/20 750M 804,623
------------
New Jersey 1.2%
University of Medicine
& Dentistry
7.200%, 12/01/19 1000M 1,078,230
------------
New Mexico 3.2%
Santa Fe County
NM Revenue (FSA)
6.000%, 02/01/27 2500M 2,782,150
------------
New York 29.0%
Monroe County NY G/O
6.000%, 03/01/14 1000M 1,111,420
Municipal Asst Corp for
NYC New York
5.750%, 07/01/03 1500M 1,602,180
New York City NY
(Prerefunded)
7.100%, 02/01/09 1035M 1,153,901
New York City NY
7.100%, 02/01/09 165M 181,505
New York City NY G/O
6.250%, 02/15/07 1500M 1,623,525
NYC Municipal Water
Fin Authority
7.000%, 06/15/07 250M 274,657
NY City Univ CTFS
of Participation
5.750%, 08/15/05 2000M 2,124,900
New York NY Series G
5.750%, 02/01/20 1600M 1,624,448
New York Dorm
Authority Revenue
5.500%, 05/15/09 1000M 1,050,280
NY State Dorm Authority
6.375%, 07/01/08 3000M 3,232,530
NY State Dorm Authority
6.000%, 08/15/16 2800M 3,027,024
NY State Environ
Facs Corp (Prerefunded)
7.250%, 06/15/10 40M 44,615
NY State Environmental
Facs Corp
6.600%, 09/15/12 1450M 1,595,783
NY State Environmental
Facs Corp
7.250%, 06/15/10 10M 11,101
NY State Medical Care
Facs (Prerefunded)
7.875%, 08/15/08 175M 194,700
NY State Medical Care Facs
7.875%, 08/15/08 75M 82,873
NY State TWY Authority Svc
5.750%, 04/01/08 2295M 2,415,671
Triborough Bridge &
Tunnel Authority
8.125%, 01/01/12 500M 511,550
Triborough Bridge &
Tunnel Authority
6.000%, 01/01/12 3250M 3,603,340
------------
25,466,003
------------
</TABLE>
(continued)
65
<PAGE>
Sentinel Tax-Free Income Fund
Investment in Securities (cont'd.)
at November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- -----------------------------------------------------------------------------
<S> <C> <C>
North Carolina 1.2%
NC Eastern Municipal
Power Agency
6.000%, 01/01/06 1000M $1,068,480
-------------
Ohio 0.7%
OH Housing Finance Authority
7.050%, 09/01/16 605M 640,864
-------------
Pennsylvania 5.6%
Montgomery Cty Higher Ed
& Health
8.300%, 06/01/10 500M 556,450
Pennsylvania State G/O
6.250%, 07/01/11 2000M 2,273,880
PA Higher Educational
Facs Auth C (MBIA)
7.200%, 07/01/19 1000M 1,066,400
PA State Educational
Facs Authority (MBIA)
5.600%, 11/15/10 1000M 1,060,580
-------------
4,957,310
-------------
Puerto Rico 3.2%
Puerto Rico Hwy &
Transportation
5.500%, 07/01/36 2750M 2,798,043
-------------
Tennessee 2.6%
Lawrenceburg TN Electrical
Revenue (MBIA)
6.625%, 07/01/18 1910M 2,256,684
-------------
Texas 1.3%
North Central TX Health
6.250%, 05/15/10 1000M 1,126,670
-------------
Utah 0.1%
Utah State Housing Finance
Authority
7.250%, 07/01/22 20M 21,296
-------------
Vermont 1.1%
Vermont Education &
Health Building
7.050%, 10/01/16 900M 994,410
-------------
Virginia 2.8%
Fairfax County Water Authority
7.250%, 01/01/27 1000M 1,080,460
VA State Housing Development
Authority
5.200%, 01/01/06 1355M 1,405,569
-------------
2,486,029
-------------
Washington 9.1%
King County WA G/O
5.200%, 12/01/03 1750M $ 1,833,388
Snohomish Cnty G/O
7.100%, 12/01/07 500M 544,975
Washington State G/O
6.200%, 03/01/11 1220M 1,364,216
Washington State Public Power
7.625%, 07/01/10 250M 278,483
Washington State Public Power
(MBIA)
7.125%, 07/01/16 3295M 3,986,818
-------------
8,007,880
-------------
Total Bonds
(Cost $79,589,518) 85,860,764
-------------
Short-Term Investments 0.2%
Port St Helens OR
General Electric Project
4.000%, 06/01/10 (a)
(Cost $200,000) 200M $ 200,000
-------------
Total Investments
(Cost $79,789,518)* 86,060,764
Excess of Other Assets
Over Liabilities 2.1% 1,874,701
-------------
Net Assets $87,935,465
=============
</TABLE>
- -----------------------------------------------------------------------------
* Also cost for federal income tax purposes.
At November 30, 1997, net unrealized appreciation for federal income tax
purposes aggregated $6,271,246 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 AMBAC
Indemnity 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.
66
<PAGE>
Sentinel Tax-Free Income Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $86,060,764
Cash and cash equivalents 216,864
Receivable for fund shares sold 2,839
Receivable for interest 1,794,551
---------------
Total Assets 88,075,018
---------------
Liabilities
Payable for fund shares repurchased 45,036
Accrued expenses 26,031
Management fee payable 38,479
Distribution fee payable 22,622
Fund service fee payable 7,385
---------------
Total Liabilities 139,553
---------------
Net Assets Applicable to Outstanding Shares $87,935,465
===============
Net Asset Value and Offering Price per Share
Class A Shares
$87,935,465/6,447,780 shares outstanding $ 13.64
Sales Charge -- 4.00% of offering price 0.57
---------------
Maximum Offering Price $ 14.21
===============
Net Assets Represent
Capital stock at par value $ 64,478
Paid-in capital 80,370,581
Accumulated undistributed net investment income 66
Accumulated undistributed net realized gain
on investments 1,229,094
Unrealized appreciation of investments 6,271,246
---------------
Net Assets $87,935,465
===============
Investments at Cost $79,789,518
===============
</TABLE>
Sentinel Tax-Free Income Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $5,337,249
---------------
Expenses:
Management advisory fee 492,243
Transfer agent and custodian 120,607
Distribution expense (Class A Shares) 183,560
Distribution expense (Class B Shares) 8,685
Accounting services 32,770
Auditing fees 7,575
Legal fees 4,035
Reports and notices to shareholders 7,895
Directors' fees and expenses 9,997
Other 29,745
---------------
Total Expenses 897,112
Expense Offset (43,792)
---------------
Net Expenses 853,320
---------------
Net Investment Income 4,483,929
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 1,229,122
Net change in unrealized appreciation 279,598
---------------
Net Realized and Unrealized Gain on Investments 1,508,720
---------------
Net Increase in Net Assets from Operations $5,992,649
===============
</TABLE>
See Notes to Financial Statements.
67
<PAGE>
Sentinel Tax-Free Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ----------------
Increase in Net Assets from Operations
<S> <C> <C>
Net investment income $ 4,483,929 $ 5,057,766
Net realized gain on sales of investments 1,229,122 1,068,481
Net change in unrealized appreciation 279,598 (1,972,048)
--------------- ----------------
Net increase in net assets from operations 5,992,649 4,154,199
--------------- ----------------
Distributions to Shareholders
From net investment income
Class A Shares (4,463,971) (5,039,025)
Class B Shares (32,187) (9,954)
From net realized gain on investments
Class A Shares (916,286) -
Class B Shares (8,418) -
--------------- ----------------
Total distributions to shareholders (5,420,862) (5,048,979)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 7,209,749 11,436,258
Class A Shares issued upon conversion from Class B 1,168,657
Class B Shares 519,027 825,932
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,629,221 3,258,113
Class B Shares 30,609 8,945
--------------- ----------------
12,557,263 15,529,248
Less: Payments for shares reacquired
Class A Shares (24,604,903) (24,320,856)
Class B Shares (152,989) (86,393)
Class B Shares reacquired upon conversion
into Class A shares (1,168,657)
--------------- ----------------
Decrease in net assets from capital share transactions (13,369,286) (8,878,001)
--------------- ----------------
Total Decrease in Net Assets for period (12,797,499) (9,772,781)
Net Assets: Beginning of period 100,732,964 110,505,745
--------------- ----------------
Net Assets: End of period $ 87,935,465 $100,732,964
=============== ================
Undistributed Net Investment Income
at End of Period $ 66 $ 12,295
=============== ================
</TABLE>
See Notes to Financial Statements.
68
<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 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 13.53 $ 13.62 $ 12.35 $ 13.81 $ 13.13
---------------- ---------------- ---------------- --------------- ---------------
Income from Investment Operations
Net investment income 0.65 0.65 0.67 0.68 0.73
Net realized and unrealized gain (loss)
on investments 0.24 (0.09) 1.27 (1.34) 0.79
---------------- ---------------- ---------------- --------------- ---------------
Total from investment operations 0.89 0.56 1.94 (0.66) 1.52
---------------- ---------------- ---------------- --------------- ---------------
Less Distributions
Dividends from net investment income 0.65 0.65 0.67 0.68 0.73
Distributions from realized gains on
investments 0.13 - - 0.12 0.11
---------------- ---------------- ---------------- --------------- ---------------
Total Distributions 0.78 0.65 0.67 0.80 0.84
---------------- ---------------- ---------------- --------------- ---------------
Net asset value at end of period $13.64 $13.53 $ 13.62 $ 12.35 $ 13.81
================ ================ ================ =============== ===============
Total Return (%) ** 6.9 4.3 16.0 (5.1) 11.9
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.91 0.94 0.90 0.75 0.64
Ratio of expenses to average net assets before
expense reductions (%) *** 0.95 0.97 0.99 0.94 0.90
Ratio of net investment income to average net
assets (%) 4.84 4.86 5.06* 5.11* 5.41*
Portfolio turnover rate (%) 47 112 112 92 39
Net assets at end of period (000 omitted) $87,935 $99,967 $110,506 $ 99,935 $111,968
<CAPTION>
Eleven Eight
Months Ended Months Ended
Class B Shares 10/31/97(B) 11/30/96(A)
------------- -------------
<S> <C> <C>
Net asset value at beginning of period $ 13.54 $ 13.28
------------- -------------
Income from Investment Operations
Net investment income 0.43 0.32
Net realized and unrealized gain on
investments 0.22 0.26
------------- -------------
Total from investment operations 0.65 0.58
------------- -------------
Less Distributions
Dividends from net investment income 0.44 0.32
Distributions from realized gains on
investments 0.13 -
------------- -------------
Total Distributions 0.57 0.32
Net asset value at end of period $ 13.62 $ 13.54
============= =============
Total Return (%) ** 5.0++ 4.5++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.17+ 2.18+
Ratio of expenses to average net assets before
expense reductions (%) *** 2.34+ 2.48+
Ratio of net investment income to average net
assets (%) 3.58+ 3.61+
Portfolio turnover rate (%) 45 112
Net assets at end of period (000 omitted) $ - $ 766
</TABLE>
(A) Commenced operations April 1, 1996.
(B) All Class B shares were converted to Class A shares as of October 31,
1997.
+ 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.
69
<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
The taxable equivalent yield of the Sentinel New York Tax-Free Income Fund as of
11/30/97 was 9.2% for a New York state resident in the 39.6% federal income tax
bracket.
For the fiscal year ended November 30, 1997, the Sentinel New York Tax-Free
Income Fund produced a total return of 7.7%. This compares favorably to an
average return of 6.7% for the Lipper Analytical Services Inc. universe of New
York state municipal debt funds. The Lehman Municipal Bond Index returned 7.2%
for the same period.
Investors in municipal securities were rewarded with solid investment returns in
1997 as the economy exhibited strong growth, low unemployment and a rate of
inflation of less than 2.5%. The performance of fixed income securities was
enhanced as interest rates declined reflecting the diminishing inflation
expectations of the market. Traditionally, strong economic growth and high
resource utilization has contributed to an increase in the rate of inflation
which would have had a negative impact on the price of bonds. However, strong
capital spending by U.S. corporations concentrated in high-technology equipment
has expanded the production capacity of the economy thereby increasing the rate
of economic growth that can be sustained without a pickup in inflation.
The current level of interest rates, combined with low inflation, provides
investors a high real rate of interest, which in the case of New York
municipals is sheltered from federal and New York state income taxes. The
taxable equivalent yield of the Sentinel New York Tax-Free Income Fund as of
11/30/97 was 9.2% for a New York state resident in the 39.6% federal income tax
bracket. This compares very favorably to the yield of corporate, government and
mortgage-backed securities for investors who are looking to maximize
risk-adjusted, after-tax cash flows in their fixed income portfolios.
We believe that the positive economic fundamentals currently in place will
continue to benefit the holders of fixed income securities. Credit quality of
state and local governments that issue municipal bonds is excellent. Robust tax
receipts, a result of strong economic growth, has allowed municipal issuers to
accumulate surplus funds while reducing their dependency on borrowing. In this
environment, we will continue to structure the portfolio to take advantage of
changing market conditions, while striving to provide our shareholders with a
relatively high level of current income exempt from federal and New York state
income taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
- ---------------------------------------
Average Annual
Total Return
Through 11/30/97
<TABLE>
<CAPTION>
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 3.4% 7.7%
- ---------------------------------------
Since
Inception* 6.0% 7.7%
=======================================
</TABLE>
*3/27/95
+Sales charge applicable to year of initial investment.
[LINE GRAPH APPEARS HERE]
Sentinel NY Tax-Free Income Fund Performance
Inception as of opening of business 3/27/95 through 11/30/97
<TABLE>
<CAPTION>
Sentinel Lipper Lehman
NY Tax-Free NY Municipal Municipal
Date Income Fund Debt Fund Average Bond Index*
---- ----------- ----------------- -----------
<S> <C> <C> <C>
03/27/95 9,600
3/31/95 9,617 10,000 10,000
4/30/95 9,608 10,010 10,012
5/31/95 9,993 10,330 10,331
6/30/95 9,789 10,191 10,241
7/31/95 9,843 10,252 10,338
8/31/95 9,966 10,369 10,469
9/30/95 10,011 10,424 10,535
10/30/95 10,206 10,595 10,688
11/30/95 10,376 10,801 10,866
12/31/95 10,460 10,915 10,970
1/31/96 10,519 10,967 11,054
2/29/96 10,397 10,871 10,978
3/31/96 10,231 10,692 10,838
4/30/96 10,197 10,649 10,807
5/30/96 10,190 10,650 10,803
6/30/96 10,303 10,760 10,921
7/31/96 10,399 10,864 11,020
8/31/96 10,376 10,838 11,017
9/30/96 10,555 11,007 11,171
10/31/96 10,662 11,117 11,298
11/30/96 10,859 11,314 11,505
12/31/96 10,773 11,257 11,456
1/31/97 10,776 11,254 11,478
2/28/97 10,875 11,355 11,583
3/31/97 10,718 11,208 11,429
4/30/97 10,815 11,305 11,524
5/31/97 11,019 11,473 11,698
6/30/97 11,157 11,589 11,822
7/31/97 11,534 11,943 12,150
8/31/97 11,384 11,805 12,036
9/30/97 11,533 11,939 12,179
10/31/97 11,624 12,009 12,257
11/30/97 11,697 12,075 12,329
</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.
Chart Ending Values & Legend
3/27/95 inception through 11/30/97
Sentinel NY Tax-Free Fund $11,697
Lehman Municipal Bond Index* $12,329
Lipper NY Municipal Debt Fund Average $12,075
*An unmanaged index of bonds reflecting average prices in the bond market.
70
<PAGE>
Sentinel New York Tax-Free Income Fund
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds 95.8%
New York 88.3%
City University NY Certificate Participation
5.75%, 08/15/05 300M $ 318,735
Insured University Revenue
5.625%, 07/01/13 (MBIA) 250M 258,112
Metro Transportation Authority
5.75%, 07/01/13 250M 263,448
Monroe County G/O
6.00%, 03/01/14 250M 277,855
Monroe Woodbury Central School Dist.
5.625%, 05/15/22 (MBIA) 250M 256,245
New York City Municipal Water Fin. Auth.
6.00%, 06/15/17 100M 103,542
5.75%, 06/15/20 (MBIA) 220M 226,871
New York NY G/O Series G
5.75%, 02/01/20 400M 406,112
New York NY Transitional Finance Revenue
5.00%, 08/15/27 250M 240,265
New York State Dorm. Authority Revenue
Cornell Univ. - Ser A
7.375%, 07/01/30 50M 54,646
State Univ. Educ. Fac. - Ser A
7.20%, 05/15/06 200M 226,306
5.00%, 05/15/10 250M 248,390
State Univ. Educ. Fac. - Ser A
6.375%, 05/15/14 250M 277,890
City University System
5.625%, 07/01/16 250M 259,215
Nursing Home-Hebrew Home
5.625%, 02/01/17 220M 230,866
Department of Health
5.50%, 07/01/20 125M 124,512
New York State Energy Resources
7.50%, 07/01/25 50M 52,967
New York State Environmental Facilities
5.75%, 01/15/13 250M 263,713
5.75%, 03/15/13 300M 305,502
New York State Environmental Water Revenue
7.25%, 06/15/10 5M 5,551
7.25%, 06/15/10 (Prerefunded) 55M 61,346
New York State Housing Finance Agency
5.625%, 05/01/02 250M 259,002
New York State Local Govt. Assistance Corp.
7.00%, 04/01/08 100M 112,087
5.375%, 04/01/16 (AMBAC) 300M 302,382
New York State Medical Care Facilities
7.875%, 08/15/20 15M 16,425
7.875%, 08/15/20 (Prerefunded) 5M 5,563
7.30%, 02/15/21 25M 27,774
Hospitals & Nursing Homes
6.45%, 02/15/09 225M 241,200
New York State Mortgage Agency Revenue
7.95%, 04/01/22 100M 106,684
New York State Thwy. Auth.
Service Contract
6.25%, 04/01/14 200M 214,584
New York State Urban Development Corp.
5.70%, 04/01/20 250M 258,320
Suffolk County NY Water Authority (AMBAC)
5.625%, 06/01/16 170M 172,350
Triborough Bridge & Tunnel Authority
6.00%, 01/01/12 250M 277,180
6.875%, 01/01/15 65M 69,723
United Nations Development
Corp.
6.00%, 07/01/12 250M 274,418
----------
6,799,781
----------
Puerto Rico 7.5%
Puerto Rico Commonwealth
5.40%, 07/01/25 300M 299,985
Puerto Rico Commonwealth
Aqueduct & Sewer
6.00%, 07/01/09 250M 276,397
----------
576,382
----------
Total Bonds
(Cost $6,903,043) 7,376,163
----------
Short-Term Investments 1.3%
New York City G/O
3.10%, 08/15/22
(Cost $100,000) 100M 100,000
----------
Total Investments
(Cost $7,003,043)* 7,476,163
Excess of Other Assets
Over Liabilities 2.9% 228,285
----------
Net Assets $7,704,448
==========
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997, net
unrealized appreciation for federal income tax purposes aggregated $473,120 of
which, $473,919 related to appreciated securities and $799 related to
depreciated securities.
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 Note to Financial Statements.
71
<PAGE>
Sentinel New York Tax-Free Income Fund
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments at value $7,476,163
Cash and cash equivalents 65,284
Receivable for fund shares purchased 5,717
Receivable for interest 129,458
Receivable from fund administrator 36,095
---------------
Total Assets 7,712,717
---------------
Liabilities
Accrued expenses 2,335
Management fee payable 3,324
Distribution fee payable 2,135
Fund service fee payable 475
---------------
Total Liabilities 8,269
---------------
Net Assets Applicable to Outstanding Shares $7,704,448
===============
Net Asset Value and Offering Price Per Share
$7,704,448/648,427 shares outstanding $ 11.88
Sales Charge--4.00% of Offering Price 0.50
---------------
Maximum Offering Price Per Share $ 12.38
===============
Net Assets Represent
Capital stock at par value $ 6,484
Paid-in capital 7,205,364
Accumulated undistributed net investment income 413
Accumulated undistributed net realized gain on investments 19,067
Unrealized appreciation of investments 473,120
---------------
Net Assets $7,704,448
===============
Investments at Cost $7,003,043
===============
</TABLE>
Sentinel New York Tax-Free Income Fund
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $360,448
---------------
Expenses:
Management advisory fee 34,458
Transfer agent and custodian 8,116
Distribution expense 12,965
Accounting services 2,275
Auditing fees 3,250
Legal fees 325
Reports and notices to shareholders 400
Directors' fees and expenses 702
Other 7,725
---------------
Total Expenses 70,216
Expense Reimbursement (47,242)
Expense Offset (3,716)
---------------
Net Expenses 19,258
---------------
Net Investment Income 341,190
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 19,066
Net change in unrealized appreciation 150,280
---------------
Net Realized and Unrealized Gain on Investments 169,346
---------------
Net Increase in Net Assets from Operations $510,536
===============
</TABLE>
See Notes to Financial Statements.
72
<PAGE>
Sentinel New York Tax-Free Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ----------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 341,190 $ 256,969
Net realized gain on sales of investments 19,066 96,585
Net change in unrealized appreciation 150,280 (84,924)
--------------- ----------------
Net increase in net assets from operations 510,536 268,630
--------------- ----------------
Distributions to Shareholders
From net investment income (341,158) (256,981)
From realized gain on investments (45,214) -
--------------- ----------------
Total distributions to shareholders (386,372) (256,981)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares 2,421,008 746,749
Net asset value of shares in reinvestment
of dividends and distributions 363,889 245,239
--------------- ----------------
2,784,897 991,988
Less: Payments for shares reacquired (953,210) (587,443)
--------------- ----------------
Increase in net assets from capital share transactions 1,831,687 404,545
--------------- ----------------
Total Increase in Net Assets for period 1,955,851 416,194
Net Assets: Beginning of period 5,748,597 5,332,403
--------------- ----------------
Net Assets: End of period $7,704,448 $5,748,597
=============== ================
Undistributed Net Investment Income
at End of Period $ 413 $ 381
=============== ================
</TABLE>
See Notes to Financial Statements.
73
<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 Year Ended Ended
11/30/97 11/30/96 11/30/95(A)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value at beginning of period $11.72 $11.72 $11.19
---------------- ---------------- ----------------
Income from Investment Operations
Net investment income 0.60 0.53 0.36
Net realized and unrealized gain on investments 0.25 - 0.53
---------------- ---------------- ----------------
Total from investment operations 0.85 0.53 0.89
---------------- ---------------- ----------------
Less Distributions
Dividends from net investment income 0.60 0.53 0.36
Distributions from realized gains on investments 0.09 - -
---------------- ---------------- ----------------
Total Distributions 0.69 0.53 0.36
---------------- ---------------- ----------------
Net asset value at end of period $11.88 $11.72 $11.72
================ ================ ================
Total Return (%) ** 7.7 4.8 8.1 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.30 1.04 1.22 +
Ratio of expenses to average net assets before
expense reductions (%) *** 1.09 1.10 1.29 +
Ratio of net investment income to average net assets (%) 5.31* 4.65 4.60 +
Portfolio turnover rate (%) 21 48 32
Net assets at end of period (000 omitted) $7,704 $5,749 $5,332
</TABLE>
(A) Commenced operations March 27, 1995.
+ Annualized
++ Not annualized
* Ratio of net investment income to
average net assets would have been
4.57% in 1997, 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 Note
(2) and (1) H
See Notes to Financial Statements.
74
<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 twelve separate series - Sentinel Small Company
Fund (formerly Sentinel Emerging Growth Fund), Sentinel Growth Fund, Sentinel
World Fund, Sentinel Common Stock Fund, Sentinel Balanced Fund, Sentinel High
Yield Bond Fund (commenced operations on June 23, 1997), 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
Maturity Government Fund (formerly Sentinel Short-Intermediate Government Fund)
and Sentinel U.S. Treasury Money Market Fund, each individually referred to as a
Fund. All Funds offer one class of shares now referred to as Class A Shares. In
addition, Sentinel Small Company, Sentinel World, Sentinel Common Stock,
Sentinel Balanced, Sentinel High Yield Bond, Sentinel Bond and Sentinel U.S.
Treasury Money Market Funds have a second class of shares called Class B Shares.
In regard to Sentinel Tax-Free Income Fund, all Class B Shares were converted to
Class A Shares as of October 31, 1997. On December 11, 1997 the board of
directors approved Class B shares on the Sentinel Growth to commence mid January
1998. The board also approved the issuance of a third class of shares, Class C.
These shares will be available for Sentinel Common Stock, Sentinel Balanced,
Sentinel World and Sentinel High Yield Bond Fund with the issuance of the next
prospectus in late March 1998. 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 Maturity 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, foreign currency transactions and the reclassification of ordinary
losses to net short-term capital gains for the Growth Fund. Re-classifications
were made to reflect these differences as of November 30, 1997 as follows:
Accumulated undistributed
Accumulated net realized gain (loss)
undistributed net on investments and foreign Paid-in
Fund investment income currency transactions capital
- -------------------- ----------------- ----------------------- --------
World............... ($339,899) $339,899 -
Balanced............ (87,672) 87,672 -
Bond................ (61,183) 89,741 (28,558)
Government Sec...... (196,870) 262,000 (65,130)
Short Maturity Gov't. (203,028) 203,697 (669)
Growth.............. 124,588 (124,588) -
D. Dollar Rolls: Sentinel Balanced, Sentinel Bond, Sentinel Government
Securities and Sentinel Short Maturity 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.
75
<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
(1) 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 Small
Company, 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 High Yield Bond Fund: 0.75% per annum on the first $100 million of
average daily net assets; 0.70% per annum on the next $100 million of such
assets; 0.65% per annum on the next $100 million of such assets; and 0.60% per
annum on such assets in excess of $300 million. (4) With respect to Sentinel
Bond, Sentinel Tax-Free Income, Sentinel New York Tax-Free Income, Sentinel
Government Securities and Sentinel Short Maturity 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. (5) 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 such assets in excess of $300
million.
76
<PAGE>
With respect to Sentinel World Fund, SAC has entered into a sub-advisory
agreement with INVESCO Capital Management, Inc. ("INVESCO"). Pursuant to such
agreement, INVESCO 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 INVESCO 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.
With respect to Sentinel High Yield Bond Fund, SAC has entered into a
sub-advisory agreement with Keystone Investment Management Company ("Keystone").
Pursuant to such agreement, Keystone provides SAC with a continuous investment
program consistent with Sentinel High Yield Bond Fund's investment objectives
and policies. The sub-advisory agreement provides for a fee from SAC to Keystone
equal to one half of the fee paid by Sentinel High Yield Bond Fund to SAC,
provided that the fee paid by SAC to Keystone will always be at least 0.35% per
annum of the average daily net assets.
All Funds (except Sentinel U.S. Treasury Money Market Fund) have 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
and Sentinel High Yield Bond Fund became subject to it on its inception on June
23, 1997. On March 24, 1995 the Sentinel Short Maturity 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." The Sentinel High Yield Bond Fund became subject to the B Plan on
June 23, 1997. 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) 0.30% of average daily net assets relating to
A Shares outstanding in the case of the Sentinel Small Company, Sentinel Growth,
Sentinel World, Sentinel Common Stock and Sentinel Balanced Funds, (b) 0.20% of
average daily net assets relating to A Shares outstanding in the case of the
Sentinel High Yield Bond, Sentinel Bond, Sentinel Tax-Free Income, Sentinel New
York Tax-Free Income and Sentinel Government Securities Funds or (c) 0.35% of
average daily net assets relating to A Shares outstanding in the case of the
Sentinel Short Maturity 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 $4,699,978 for the year ended
November 30, 1997. The Company is
77
<PAGE>
advised that the total distribution charges retained by SFSC on the sale of
shares amounted to $148,402 after allowances of $2,332,424 to Equity Services,
Inc., an affiliate of National Life, $209,774 to 1717 Capital Management
Company, an affiliate of Provident Mutual, $588,731 to Hornor, Townsend & Kent,
Inc. and $237,624 to Janney Montgomery Scott, Inc. ("JMS"), affiliates of Penn
Mutual, and $1,183,023 to other investment dealers. During this same period,
SFSC received $24,989 in contingent deferred sales charges from certain
redemptions of Class A Shares and $98,513 in contingent deferred sales charges
from redemptions of Class B Shares.
During the year the Company transacted purchases and sales of portfolio
securities through, among others, JMS for which it received $23,076 in brokerage
commissions. In addition JMS acted as dealer on certain purchases of shares of
the Company for which it received dealer's concessions noted above.
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, 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, 1997 were
$3,405,500.
SAC 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 aggregate expense
ratio of the Funds' Class B Shares (excluding the Sentinel World Fund) would
also be reduced proportionately. The Funds and Sentinel Pennsylvania Tax-Free
Trust make up the Sentinel Family of Funds. Although SAC has no present
intention to do so, this arrangement may be terminated at any time. Expenses for
the year ended November 30, 1997 did not exceed 1.30% of its average daily net
assets.
With respect to Class A Shares of Sentinel Short Maturity Government Fund, SASC
has agreed to reimburse the Fund for all operating expenses in excess of an
annual rate of 1.00% of the Funds' average daily net assets. With respect to
Class A Shares of Sentinel New York Tax-Free Income Fund, SASC has agreed to
reimburse the Fund for all its operating expenses effective March 31, 1997. For
the year ended November 30, 1997, the total amount reimbursable to Sentinel
Short Maturity Government Fund was $68,091 and the amount reimbursable to
Sentinel New York Tax-Free Income Fund was $47,242. 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, 1997 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>
Small Company....... $ 47,946,060 - $ 43,271,673 -
Growth.............. 120,381,633 - 125,046,424 -
World............... 32,048,126 - 17,209,061 -
Common Stock........ 354,202,631 - 328,393,358 -
Balanced............ 99,220,527 $111,000,125 99,032,336 $91,697,525
High Yield Bond..... 76,261,743 4,041,250 34,355,975 4,140,000
Bond................ 56,569,060 64,910,532 61,038,030 65,243,063
Tax-Free............ 43,189,190 - 55,115,397 -
N.Y. Tax-Free....... 2,714,220 - 1,292,046 -
Government.......... - 198,410,553 - 214,710,456
Short Maturity Gov't. - 31,665,321 - 24,775,026
</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, 1997 as follows:
$2,140,898, $1,165,629 and $1,051,666 (expiring in 2001, 2002 and 2004,
respectively) for a total of $4,358,193 for the Sentinel Bond Fund, $2,953,839
and $2,953,064 (expiring in 2002 and 2004, respectively) for a total of
$5,906,903 for the Sentinel Government Securities Fund and $328,517, $619,379,
$142,166, $83,225 and $166,838 (expiring in 2000, 2001, 2002, 2004 and 2005,
respectively) for a total of $1,340,125 for the Sentinel Short Maturity
Government Fund. During the year ended November 30, 1997, the Sentinel Bond Fund
and the Sentinel Government Securities Fund utilized $129,989 and $632,658 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.
78
<PAGE>
(4) Fund Shares:
At November 30, 1997, 2 billion shares of one cent par value were authorized.
There are 1.36 billion shares allocated to the various Funds as Class A Shares
and 260 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 (reacquired) increase
reinvestment of upon conversion (decrease)
dividends and Shares from/(into) in shares
Fund Shares sold distributions reacquired Class B/A outstanding
---- ----------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended 11/30/97
Small Company - A......... 2,422,659 155,607 3,455,802 - (877,536)
Small Company - B......... 919,683 3,285 63,324 - 859,644
Growth.................... 626,402 710,563 603,146 - 733,819
World - A................. 1,472,913 99,489 924,429 - 647,973
World - B................. 409,903 3,852 24,658 - 389,097
Common Stock - A.......... 2,705,403 2,975,446 3,615,554 - 2,065,295
Common Stock - B.......... 1,086,877 74,040 77,413 - 1,083,504
Balanced - A.............. 1,826,520 782,123 3,117,018 - (508,375)
Balanced - B.............. 754,261 33,293 68,172 - 719,382
High Yield Bond - A*...... 1,074,262 13,753 23,133 - 1,064,882
High Yield Bond - B*...... 3,282,060 12,285 43,795 - 3,250,550
Bond - A.................. 1,877,830 628,012 4,218,555 - (1,712,713)
Bond - B.................. 640,073 36,953 145,602 - 531,424
Tax-Free - A (a).......... 539,782 272,246 1,839,547 85,799 (941,720)
Tax-Free - B (a).......... 38,576 2,296 11,628 (85,799) (56,555)
N.Y. Tax-Free............. 207,637 31,400 81,284 - 157,753
Government................ 670,673 373,702 2,764,716 - (1,720,341)
Short Maturity Gov't...... 3,520,498 203,920 2,855,286 - 869,132
U.S. Treasury - A......... 198,798,449 3,338,706 197,029,796 - 5,107,359
U.S. Treasury - B......... 7,962,012 150,530 7,839,276 - 273,266
Year Ended 11/30/96
Small Company - A......... 3,047,507 3,479,603 4,509,726 - 2,017,384
Small Company - 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
</TABLE>
(a) On October 31, 1997 all outstanding Class B shares were converted to Class
A shares.
*For the period June 23, 1997 to November 30, 1997.
**For the period April 1, 1996 to November 30, 1996.
(5) Post Retirement Benefits:
The Company provides certain health care and life insurance benefits to its
retirees. At November 30, 1997 the projected obligation for such benefits had
been accrued.
79
<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 Small Company Fund,
Sentinel Growth Fund, Sentinel World Fund, Sentinel Common Stock Fund, Sentinel
Balanced Fund, Sentinel High Yield Bond Fund, Sentinel Bond Fund, Sentinel
Tax-Free Income Fund, Sentinel New York Tax-Free Income Fund, Sentinel
Government Securities Fund, Sentinel Short Maturity Government Fund and Sentinel
U.S. Treasury Money Market Fund (constituting Sentinel Group Funds, Inc.,
hereafter referred to as the "Fund") at November 30, 1997, the results of each
of their operations, the changes of 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, 1997 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 19, 1997
80
<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
The taxable equivalent yield of the Sentinel Pennsylvania Tax-Free Trust as of
11/30/97 was 8.2% for a Pennsylvania state resident in the 39.6% federal income
tax bracket.
For the fiscal year ended November 30, 1997, the Sentinel Pennsylvania Tax-Free
Trust produced a total return of 6.1%. This compares to an average return of
6.7% for the Lipper Analytical Services Inc. universe of Pennsylvania municipal
debt funds. The Lehman Municipal Bond Index returned 7.2% for the same period.
Investors in municipal securities were rewarded with solid investment returns in
1997 as the economy exhibited strong growth, low unemployment and a rate of
inflation of less than 2.5%. The performance of fixed income securities was
enhanced as interest rates declined reflecting the diminishing inflation
expectations of the market. Traditionally, strong economic growth and high
resource utilization has contributed to an increase in the rate of inflation
which would have a negative impact on the price of bonds. However, strong
capital spending by U.S. corporations concentrated in high-technology equipment
has expanded the production capacity of the economy thereby increasing the rate
of economic growth that can be sustained without a pickup in inflation.
The current level of interest rates, combined with low inflation, provides
investors a high real rate of interest, which in the case of Pennsylvania
municipals is sheltered from federal and Pennsylvania state income taxes. The
taxable equivalent yield of the Sentinel Pennsylvania Tax-Free Trust as of
11/30/97 was 8.2% for a Pennsylvania state resident in the 39.6% federal income
tax bracket. This compares very favorably to the yield of corporate, government
and mortgage-backed securities for investors who are looking to maximize
risk-adjusted, after-tax cash flows in their fixed income portfolios.
We believe that the positive economic fundamentals currently in place will
continue to benefit the holders of fixed income securities. Credit quality of
state and local governments that issue municipal bonds is excellent. Robust tax
receipts, a result of strong economic growth, has allowed municipal issuers to
accumulate surplus funds while reducing their dependency on borrowing. In this
environment, we will continue to structure the portfolio to take advantage of
changing market conditions, while striving to provide our shareholders with a
relatively high level of current income exempt from federal and Pennsylvania
state income taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
- ----------------------------------
Average Annual
Total Return
Through 11/30/97
<TABLE>
<CAPTION>
w/sales w/o sales
Period charge+ charge
<S> <C> <C>
1 Year 1.8% 6.1%
- ----------------------------------
5 Years 5.0% 5.8%
- ----------------------------------
10 Years 7.2% 7.7%
- ----------------------------------
</TABLE>
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Pennsylvania Tax-Free Trust Performance
Ten Years Ended 11/30/97
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper
Sentinel Pennsylvania Lehman
Pennsylvania Municipal Debt Municipal
Date Tax-Free Trust Fund Average Bond Index*
- ---- -------------- ------------ ----------
<S> <C> <C> <C>
Nov. 87 9,600 10,000 10,000
Nov. 88 10,831 11,337 11,063
Nov. 89 11,903 12,593 12,282
Nov. 90 12,614 13,351 13,227
Nov. 91 13,729 14,702 14,584
Nov. 92 15,133 16,232 16,047
Nov. 93 16,514 18,134 17,826
Nov. 94 15,705 16,865 16,889
Nov. 95 18,025 20,009 20,081
Nov. 96 18,920 21,018 21,261
Nov. 97 20,068 22,433 22,786
</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.
Chart Ending Values & Legend
Ten years ended 11/30/97
<TABLE>
<S> <C>
Sentinel Pennsylvania Tax-Free Trust $20,068
Lehman Municipal Bond Index* $22,786
Lipper Pennsylvania Municipal Debt Fund Average $22,433
</TABLE>
*An unmanaged index of bonds reflecting average prices in the bond market.
81
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Investment in Securities
at November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds 97.6%
Pennsylvania 81.2%
Allegheny County Higher
Educ. Bldg.
5.00%, 03/01/16 (AMBAC) 1000M $ 976,530
Allegheny County G/O
5.15%, 09/01/11 (FGIC) 1500M 1,522,200
Allegheny County Hospital
6.00%, 10/01/03 (FGIC) 1000M 1,079,790
Allegheny County
Institution G/O
7.30%, 04/01/09 (MBIA) 1000M 1,068,210
Armstrong County Hospital
Auth.
6.25%, 06/01/13 (AMBAC) 1200M 1,282,932
Beaver County Industrial
Dev. Auth.
7.75%, 09/01/24 500M 529,480
Berks County G/O
7.25%, 11/15/20 (FGIC) 1000M 1,101,450
Chester County Health
& Education
5.40%, 07/01/06 (MBIA) 1375M 1,444,217
Cranberry PA Municipal
Water & Sewer
5.125%, 12/01/26 (MBIA) 1225M 1,189,892
Jim Thorpe PA Area
School District
5.30%, 03/15/16 (MBIA) 1500M 1,542,480
Lehigh County Industrial
Dev. Auth.
6.15%, 08/01/29 (MBIA) 1000M 1,076,850
Montgomery County Higher
Educ. & Health
8.30%, 06/01/10 500M 556,450
Pennsylvania Higher Educ. Facs.
7.20%, 07/01/19 (MBIA) 500M 533,200
6.00%, 01/01/06 1500M 1,638,165
5.625%, 12/01/27 (MBIA) 1000M 1,020,790
5.60%, 11/15/09 (MBIA) 1500M 1,599,675
Pennsylvania State G/O
6.25%, 07/01/11 1500M 1,705,410
Pennsylvania State Industrial
Dev. Auth.
5.80%, 07/01/09 (AMBAC) 1000M 1,084,280
Pennsylvania State
Turnpike Commn.
7.20%, 12/01/17 (FGIC) 1000M 1,124,230
Pennsylvania Trafford
School Dist.
5.90%, 05/01/11 (MBIA) 1000M 1,051,590
Philadelphia Municipal Auth.
7.80%, 04/01/18 (FGIC) 45M 46,472
Philadelphia Regional Port. Auth.
7.15%, 08/01/20 (MBIA) 250M 268,365
7.125%, 08/01/10 (MBIA) 250M 268,210
Philadelphia Water & Waste
6.25%, 08/01/11 (MBIA) 1000M 1,126,820
6.25%, 08/01/12 (MBIA) 500M 564,355
Pittsburgh PA Water &
Sewer System Rev.
6.50%, 09/01/13 (FGIC) 1000M 1,163,230
Scranton Lackawanna Health & Welfare
7.875%, 07/01/10 (MBIA) 500M 521,115
Westmoreland Cnty Municipal Auth.
0.00%, 08/15/18 (FGIC) 500M 171,380
York County Solid Waste
5.50%, 12/01/14 (FGIC) 1000M 1,045,100
------------
28,302,868
------------
Puerto Rico 16.4%
Puerto Rico Commonwealth Aqueduct & Sewer
6.00%, 07/01/09
Cmwlth GTD 500M 552,795
5.00%, 07/01/19
Cmwlth GTD 1000M 957,940
Puerto Rico Commonwealth Hwy & Transport
5.50%, 07/01/13 (FSA) 1000M 1,068,180
5.50%, 07/01/36 1000M 1,017,470
Puerto Rico Electric Power Auth.
6.00%, 07/01/00 (MBIA) 1000M 1,049,980
Puerto Rico Public Buildings Auth.
5.70%, 07/01/09 1000M 1,070,910
------------
5,717,275
------------
Total Investments
(Cost $31,801,506)* 34,020,143
Excess of Other Assets
Over Liabilities 2.4% 823,507
------------
Net Assets $34,843,650
============
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1997, net
unrealized appreciation for federal income tax purposes aggregated $2,218,637
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.
82
<PAGE>
<TABLE>
<CAPTION>
Sentinel Pennsylvania Tax-Free Trust
Statement of Assets and Liabilities
at November 30, 1997
- --------------------------------------------------------------------------------
<S> <C>
Assets
Investments at value $34,020,143
Cash and cash equivalents 163,203
Receivable for fund shares sold 27,622
Receivable for interest 618,052
Receivable from fund administrator 62,076
---------------
Total Assets 34,891,096
---------------
Liabilities
Payable for fund shares repurchased 500
Accrued expenses 11,166
Management fee payable 15,663
Distribution fee payable 10,034
Fund service fee payable 10,083
---------------
Total Liabilities 47,446
---------------
Net Assets Applicable to Outstanding Shares $34,843,650
===============
Net Asset Value and Offering Price Per Share
$34,843,650 / 2,611,098 shares outstanding $ 13.34
Sales Charge -- 4.00% of Offering Price 0.56
---------------
Maximum Offering Price Per Share $ 13.90
===============
Net Assets Represent
No par value shares of beneficial interest;
authorized - unlimited shares
Paid-in-capital $32,300,471
Accumulated undistributed net investment income 344
Accumulated undistributed net realized gain on investments 324,198
Unrealized appreciation of investments 2,218,637
---------------
Net Assets $34,843,650
===============
Investments at Cost $31,801,506
===============
</TABLE>
Sentinel Pennsylvania Tax-Free Trust
Statement of Operations
For the Year Ended November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Interest $1,960,287
---------------
Expenses:
Management advisory fee 188,819
Transfer agent and custodian 58,294
Distribution expense 68,655
Accounting services 84,000
Auditing fees 5,750
Legal fees 6,000
Reports and notices to shareholders 4,800
Directors' fees and expenses 33,715
Other 9,761
---------------
Total Expenses 459,794
Expense Reimbursement (152,810)
Expense Offset (14,794)
---------------
Net Expenses 292,190
---------------
Net Investment Income 1,668,097
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 324,179
Net change in unrealized appreciation 40,300
---------------
Net Realized and Unrealized Gain on Investments 364,479
---------------
Net Increase in Net Assets from Operations $2,032,576
===============
</TABLE>
See Notes to Financial Statements.
83
<PAGE>
<TABLE>
<CAPTION>
Sentinel Pennsylvania Tax-Free Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/97 11/30/96
--------------- ----------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 1,668,097 $ 1,742,591
Net realized gain on sales of investments 324,179 218,984
Net change in unrealized appreciation 40,300 (282,933)
--------------- ----------------
Net increase in net assets from operations 2,032,576 1,678,642
--------------- ----------------
Distributions to Shareholders
From net investment income (1,667,753) (1,745,421)
From realized gain on sale of investments (218,975) (208,641)
From paid-in capital - (208)
--------------- ----------------
Total distributions to shareholders (1,886,728) (1,954,270)
--------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares 3,118,082 3,822,068
Net asset value of shares in reinvestment
of dividends and distributions 1,283,959 1,343,773
--------------- ----------------
4,402,041 5,165,841
Less: Payments for shares reacquired (5,249,491) (4,320,058)
--------------- ----------------
Decrease (increase) in net assets from
capital share transactions (847,450) 845,783
--------------- ----------------
Total Decrease (Increase) in Net Assets for period (701,602) 570,155
Net Assets: Beginning of period 35,545,252 34,975,097
--------------- ----------------
Net Assets: End of period $ 34,843,650 $ 35,545,252
=============== ================
Undistributed Net Investment Income
at End of Period $ 344 $ -
--------------- ----------------
</TABLE>
See Notes to Financial Statements.
84
<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 Ended Year Ended Year Ended Year Ended Months Ended
11/30/97 11/30/96 11/30/95 11/30/94 11/30/93(A)
---------------- ------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 13.29 $ 13.40 $ 12.29 $ 13.57 $ 13.15
---------------- ------------- --------------- --------------- --------------
Income from Investment Operations
Net investment income 0.64 0.66 0.66 0.64 0.69
Net realized and unrealized gain (loss)
on investments 0.13 (0.03) 1.11 (1.28) 0.42
---------------- ------------- --------------- --------------- --------------
Total from investment operations 0.77 0.63 1.77 (0.64) 1.11
---------------- ------------- --------------- --------------- --------------
Less Distributions
Dividends from net investment income 0.64 0.66 0.66 0.64 0.69
Distributions from realized gains on
investments 0.08 0.08 - - -
---------------- ------------- --------------- --------------- --------------
Total Distributions 0.72 0.74 0.66 0.64 0.69
---------------- ------------- --------------- --------------- --------------
Net asset value at end of period $ 13.34 $ 13.29 $ 13.40 $ 12.29 $ 13.57
================ ============= =============== =============== ==============
Total Return (%) ** 6.1 5.0 14.8 (4.9) 8.1++
Ratios/Supplemental Data
Ratio of net expenses to average net
assets (%) 0.85 0.75 0.97 1.30 1.24 +
Ratio of expenses to average net assets
before expense reductions (%) *** 1.34 1.37 1.36 1.30 1.24 +
Ratio of net investment income to average
net assets (%) 4.86 * 5.07 * 5.14 * 4.84 5.07 +
Portfolio turnover rate (%) 28 56 80 56 23
Net assets at end of period (000 omitted) $ 34,844 $ 35,545 $ 34,975 $ 31,172 $ 34,448
</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 4.41%
in 1997, 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.
85
<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, 1997 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.
(3) Trust Shares:
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/97 11/30/96
--------- ---------
<S> <C> <C>
Shares sold..................................... 236,999 291,419
Shares issued to stockholders in reinvestment
of dividends and distributions.................. 97,949 102,717
--------- ---------
334,948 394,136
Shares redeemed................................. (398,691) (330,002)
--------- ---------
Net decrease (increase)......................... (63,743) 64,134
========= =========
</TABLE>
(4) Investment Transactions:
Purchases and sales of securities other than short-term securities aggregated
$9,328,595 and $10,532,372 respectively, during the year ended November 30,
1997.
(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, 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.
86
<PAGE>
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 $90,073 for the year ended November 30, 1997. The Trust is advised
that the total distribution charges retained by SFSC on the sale of shares
amounted to $481 after allowances of $19,834 to Equity Services, Inc., an
affiliate of National Life, $9,574 to 1717 Capital Management Company, an
affiliate of Provident Mutual, $11,169 to Hornor, Townsend & Kent, Inc. and
$2,402 to Janney Montgomery Scott, Inc., affiliates of Penn Mutual, and $46,613
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, 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, 1997 were $121,000.
SAC 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 twelve portfolios and together with the Trust make up the
Sentinel Family of Funds. Although SAC has no present intention to do so, this
arrangement may be terminated at any time. Expenses for the year ended November
30, 1997 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% of the Trust's average daily
net assets. Effective May 15, 1995 thru March 30, 1997, SASC agreed to reimburse
the Trust for expenses in excess of an annual rate of 0.75% of the Trust's
average daily net assets. Effective March 31, 1997, SASC has agreed to reimburse
the Trust for expenses in excess of an annual rate of 0.90% of the Trust's
average daily net assets. For the year ended November 30, 1997 the total amount
reimbursable was $152,810. 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 0.20% 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 years expenses.
87
<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, 1997, 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 four 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, 1997 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 19, 1997
88
<PAGE>
Federal Tax Status of Dividends and Distributions
(Unaudited)
During the fiscal year ended November 30, 1997, 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>
Small Company - A........... $.007 $.03945 -
Small Company - B........... - .03945 -
Growth....................... .015 .20055 $2.60178
World - A.................... .112 .03368 .21017
World - B.................... .044 .03368 .21017
Common Stock - A............. .567 - 3.54115
Common Stock - B............. .264 - 3.54115
Balanced - A................. .547 - .44965
Balanced - B................. .410 - .44965
High Yield Bond - A.......... .315 - -
High Yield Bond - B.......... .312 - -
Bond - A..................... .396 - -
Bond - B..................... .342 - -
Tax-Free Income - A.......... .654 - .12508
Tax-Free Income - B.......... .445 - .12508
NY Tax-Free Income........... .604 - .09100
Government Securities........ .594 - -
Short Maturity Gov't......... .564 - -
U.S. Treasury MM - A........ .045 - -
U.S. Treasury MM - B......... .045 - -
PA Tax-Free.................. .640 .02020 .06465
</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
1996, long-term capital gain was included on Form 1099-DIV for the 1996 calendar
year.
For corporate shareholders, the percentage of the total dividends from net
investment income from the fiscal year 1997 qualifying for the 70% dividend
received deduction available to corporations are as follows:
<TABLE>
<CAPTION>
<S> <C>
Sentinel Small Company Fund 78%
Sentinel Growth Fund 99%
Sentinel Common Stock Fund 100%
Sentinel Balanced Fund 41%
</TABLE>
In January 1998 you will be sent 1997 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 1997. The Internal Revenue Service
requires us to file this information, and it must be reported by you on your
Federal Income Tax Return for 1997. 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.
High Yield Bond, Bond, Tax-Free Income, New York Tax-Free Income, Government
Securities, Short Maturity Government, U.S. Treasury Money Market and
Pennsylvania Tax-Free Fund Check Writing Service - This special feature of the
Class A Shares of Sentinel High Yield Bond Fund, Sentinel Bond Fund, Sentinel
Tax-Free Income Fund, Sentinel New York Tax-Free Income Fund, Sentinel
Government Securities Fund, Sentinel Short Maturity
89
<PAGE>
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 Maturity 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 Maturity 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 Maturity
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 Plans"), Individual Retirement Accounts
("IRAs"), SIMPLE IRAs, Simplified Employee Pension Plans ("SEP-IRAs"), 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.
90
<PAGE>
Directors/Trustees and Officers
Sentinel Group Funds, Inc. and
Sentinel Pennsylvania Tax-Free Trust
January 1, 1998
Patrick E. Welch
Chairman and Chief Executive Officer
Chairman and Chief Executive Officer,
National Life Insurance Company
Joseph M. Rob
Director/Trustee and President
Chief Executive Officer,
Sentinel Management Company
Richard J. Borda
Director/Trustee
Former Vice Chairman,
National Life Insurance Company
Dr. Kalman J. Cohen
Director/Trustee
Distinguished Bank Research
Professor Emeritus,
The Fuqua School of Business,
Duke University
Richard D. Farman
Director/Trustee
President and Chief Operating Officer,
Pacific Enterprises
John D. Feerick
Director/Trustee
Dean, Fordham University
School of Law
Richard I. Johannesen, Jr.
Director/Trustee
Former Vice President and Manager -
Bond Market Research Department,
Salomon Brothers Inc.
Robert B. Mathias
Director/Trustee
Sports Consultant;
Former U.S. Congressman
Keniston P. Merrill
Director/Trustee
Former Chairman and
Chief Executive Officer,
Sentinel Advisors Company
Deborah G. Miller
Director/Trustee
Vice President
Digital Equipment Corporation
John Raisian
Director/Trustee
Director and Senior Fellow,
Hoover Institution,
Stanford University
Susan M. Sterne
Director/Trustee
President, Economic Analysis
Associates, Inc.
Angela E. Vallot
Director/Trustee
Counsel, Texaco Inc.
John M. Grab, Jr.
Vice President
Thomas P. Malone
Vice President and Treasurer
D. Russell Morgan
Secretary
Investment Adviser
Sentinel Advisors Company
Principal Underwriter
Sentinel Financial Services Company
Counsel
Brown & Wood
Independent Accountants
Price Waterhouse LLP
Custodian and Dividend Paying Agent
Investors Fiduciary Trust Company
Transfer Agent, Shareholder Servicing
Agent and Administrator
Sentinel Administrative Service
Company
91
<PAGE>
The Sentinel Funds Board of Directors
[PHOTO APPEARS HERE]
Standing, left to right: Stanley R. Reber, Joseph M. Rob, Richard I. Johannesen,
Jr., Robert B. Mathias, John D. Feerick, John Raisian, Richard J. Borda, Dr.
Kalman J. Cohen.
Seated, left to right: Susan M. Sterne, Deborah G. Miller, Keniston P. Merrill,
Angela E. Vallot, Patrick E. Welch.
Not pictured: Richard D. Farman.
92
<PAGE>
A Brief History
[ART APPEARS HERE]
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. Three more additions, Sentinel Government Securities
Fund, Sentinel Tax-Free Income Fund and Sentinel High Yield Bond Fund (Class A
and Class B Shares) were introduced on September 2, 1986, October 1, 1990 and
June 23, 1997, 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 Small Company 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
Maturity Government Fund.
Effective
April 1, 1996, five Sentinel Funds offered two classes of shares: Sentinel Small
Company, Sentinel World, Sentinel Common Stock, Sentinel Balanced and Sentinel
Bond 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 primarily available through exchanges from the other Class B
Shares.
The thirteen funds in the Sentinel Family of Funds, which includes the twelve
funds in Sentinel Group Funds, Inc., and the Sentinel Pennsylvania Tax-Free
Trust, now represent net assets of $2.7 billion which are managed on behalf of
approximately 106,500 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.
93
<PAGE>
[LOGO OF SENTINEL Sentinel Funds
FUNDS APPEARS HERE] Integrity Since 1934
Sentinel Common Stock Fund
Sentinel Balanced Fund
Sentinel Growth Fund
Sentinel Small Company Fund
Sentinel World Fund
Sentinel High Yield Bond Fund
Sentinel Bond Fund
Sentinel Government Securities Fund
Sentinel Short Maturity Government Fund
Sentinel U.S. Treasury Money Market Fund
Sentinel Tax-Free Income Fund
Sentinel New York Tax-Free Income Fund
Sentinel Pennsylvania Tax-Free Trust
Member of
FORUM for INVESTOR ADVICE
Investment Professionals Helping Investors
---------------
This report is authorized for distribution Bulk Rate
to prospective investors only when preceded U.S. Postage
or accompanied by an effective prospectus. PAID
Hudson, MA
Distributed by Permit No. 19
Sentinel Financial Services Company ---------------
National Life Drive
Montpelier, Vermont 05604
(800) 233-4332
