SENTINEL GROUP FUNDS INC, 485APOS, 1999-12-16

SENTINEL GROUP FUNDS INC
485APOS, 1999-12-16

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As filed with the Securities and Exchange Commission on December 16, 1999

Securities Act File No. 2-10685
Investment Company Act File No. 811-214
===============================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 88 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. |X|
(Check Appropriate Box or Boxes)

--------------------

SENTINEL GROUP FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

National Life Drive
Montpelier, Vermont 05604
(Address of Principal Executive Offices) (Zip Code)

(802) 229-3900
(Registrant's Telephone Number, including Area Code)

--------------------

D. Russell Morgan, Esq. Copy to:
c/o Sentinel Group Funds, Inc. John A. MacKinnon, Esq.
National Life Drive Brown & Wood LLP
Montpelier, Vermont 05604 One World Trade Center
(Name and Address of Agent for Service) New York, New York 10048-0557

----------------

It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|X| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

---------------

Title of Securities Being Registered: Common Stock, par value $.01 per share.

===============================================================================

<PAGE>

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED DECEMBER 16, 1999

The information contained in this prospectus is not complete and may be
changed. We may not use this prospectus to sell securities until the
registration statement containing this prospectus, which has been filed with
the Securities and Exchange Commission, is effective. This prospectus is not
an offer to sell these securities and is

not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.

THE SENTINEL FUNDS

SENTINEL FLEX CAP OPPORTUNITY FUND

PROSPECTUS SUPPLEMENT DATED FEBRUARY , 2000 TO

PROSPECTUS DATED MARCH 31, 1999, AS AMENDED ON SEPTEMBER 13, 1999

On February , 2000, Sentinel Group Funds, Inc. (the "Company") began
offering shares of a new Fund named Sentinel Flex Cap Opportunity Fund (the
"Flex Cap Opportunity Fund"). This Supplement, which is to be used in
conjunction with the Prospectus for the Sentinel Funds dated March 31, 1999,
as amended on September 13, 1999 (the "Prospectus"), describes the investment
objective and policies and other features of the Flex Cap Opportunity Fund.

What is the Main Goal and Investment Strategy of the Flex Cap Opportunity
Fund?

The Flex Cap Opportunity Fund seeks long-term capital appreciation. The
Fund will invest primarily in equity securities, such as common or preferred
stocks, which are listed on U.S. exchanges or in the over-the-counter market.
The Fund invests primarily in "growth" stocks. The Fund invests in companies
of all sizes. Income is not an important factor in selecting investments.

What are the Main Risks of Investing in the Flex Cap Opportunity Fund?

The main risks of investing in the Fund include:

- fluctuation in Fund price per share due to changes in the market prices
of the investments.

- the tendency of stocks, especially "growth" stocks, to be more volatile
than some other investments you could make, such as bonds.

- the risk that the cost of borrowing money to leverage the Fund's assets
will exceed the returns for the securities purchased or that the securities
purchased may actually go down in value; thus, the Fund's net asset value
could decrease more quickly than if it had not borrowed.

As with any equity fund, your investment will go up or down in value, and
the loss of your investment is a risk of investing. An investment in the Flex
Cap Opportunity Fund is best suited for investors who seek long-term capital
growth and can tolerate substantial fluctuations in their investment's value.
Compared with the other Sentinel Funds, the Flex Cap Opportunity Fund is
likely to have the greatest price volatility, and may subject you to the
highest risk of loss of your investment.

There can be no assurance that the Flex Cap Opportunity Fund will achieve
its investment objective.

Fees and Expenses

Shareholder Fees (fees paid directly from your investment) Class A Shares:
<TABLE>
<CAPTION>

<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of the offering price)................................................... 5.00% maximum
Maximum Deferred Sales Charge (Load)................................................ None1
Maximum Sales Charge (Load) Imposed on Reinvested Dividends......................... None
Redemption Fees..................................................................... None1,2
Exchange Fees....................................................................... None
</TABLE>

- ------------
1 If you do not pay a sales charge because your purchase amount is
$1,000,000 or more, then you may pay a deferred sales charge of up to 1% if
you redeem your shares within two years of your purchase.

2 If you redeem by wire transfer, we assess a wire charge of $25.

Class B Shares:
<TABLE>
<CAPTION>

<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases.................................... None
Maximum Deferred Sales Charge (Load) (as a percentage of the lower of the purchase
price or the net asset value of the shares being redeemed).......................... 4.00%3
Maximum Sales Charge (Load) Imposed on Reinvested Dividends......................... None
Exchange Fees....................................................................... None
</TABLE>

- ------------
3 The maximum deferred sales charge is imposed on shares redeemed in the
first two years after purchase. For shares held longer than two years,
the deferred sales charge declines.

Class C Shares:

<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases.................................... None
Maximum Deferred Sales Charge (Load) (as a percentage
of the lower of the purchase price or the net asset value 1.00% for one year
of the shares being redeemed)...................................................... after purchase
Maximum Sales Charge (Load) Imposed on Reinvested Dividends......................... None
Exchange Fees....................................................................... None
</TABLE>

Annual Fund Operating Expenses

We estimate that the Flex Cap Opportunity Fund will incur the expenses
shown below in its first year of operations, expressed as a percentage of the
Fund's average net assets.

<S> <C> <C> <C>
Class A shares Class B shares Class C Shares

Management Fees 0.90% 0.90% 0.90%
Rule 12b-1 Fees (includes
service fee
and distribution fee) 0.30% 1.00% 1.00%
Other Expenses:
Accounting and
Administrative Costs 0.03% 0.03% 0.03%
Other 0.22% 0.22% 0.22%
----- ----- -----
Total Other Expenses 0.25% 0.25% 0.25%
----- ----- -----
Total Fund Operating Expenses 1.45% 2.15% 2.15%
===== ===== =====
</TABLE>

Examples:

These examples are intended to help you compare the cost of investing
in the Flex Cap Opportunity Fund with the cost of investing in other mutual
funds. They assume that you invest $10,000 in the Flex Cap Opportunity Fund
for the time periods indicated, that you pay the initial sales charge in the
case of the Class A shares, that the Fund's operating expenses are as
estimated above for the entire period, and that your investment has a 5%
return each year. This assumption is not meant to indicate that you will
receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in these examples. Although your actual costs may be higher
or lower, based on these assumptions your costs would be as shown below.

1 year 3 years
------ -------

Class A shares $ $
Class B shares (assuming redemption $ $
at the end of the period)

Class B shares (assuming no redemption $ $
at the end of the period)
Class C shares (assuming redemption $ $
at the end of the period)
Class C shares (assuming no redemption $ $
at the end of the period)

Details About the Flex Cap Opportunity Fund's Investment Objective,
Principal Investment Strategies, and Associated Risks

The Flex Cap Opportunity Fund seeks long-term capital appreciation. The
Fund will invest primarily in equity securities, such as common or preferred
stocks, which are listed on U.S. exchanges or in the over-the-counter market.
The Fund invests primarily in "growth" stocks. The Fund's subadvisor, Fred
Alger Management, Inc. ("Alger"), believes that these companies tend to fall
into one of two categories:

- - High Unit Volume Growth

Vital, creative companies which offer goods or services to a rapidly
expanding marketplace. They include both established and emerging
firms, offering new or improved products, or firms simply fulfilling
an increased demand for an existing product line.

- - Positive Life Cycle Change

Companies experiencing a major change which is expected to produce
advantageous results. These changes may be as varied as new
management, products or technologies; restructuring or
reorganization; or merger or acquisition.

The Fund invests in companies of all sizes.

The Fund can leverage its assets, that is, borrow money, to buy
additional securities for its portfolio. By borrowing money, the Fund has the
potential to increase its returns if the increase in the value of the
securities purchased exceeds the cost of borrowing, including interest paid on
the money borrowed. However, this subjects the Fund to the risk that the cost
of borrowing money to leverage its assets may exceed the returns for the
securities purchased or that the securities purchased may actually go down in
value; thus, the Fund's net asset value could decrease more quickly than if it
had not borrowed. However, the Fund is not required to use leverage and there
is no assurance that the Fund will use leverage.

Prices of growth stocks tend to be higher in relation to their companies'
earnings, and may be more sensitive to market, political and economic
developments than other stocks, making their prices more volatile.

Although the Fund does not intend to concentrate in any one industry, the
companies which satisfy Alger's investment criteria may be concentrated in
certain broad sectors, such as technology. This also may increase the
volatility of the Fund's share price.

The Fund's trading in some stocks may be relatively short-term,
meaning that the Fund may buy a security and sell it a short time later to
take advantage of current gains if it is believed that an alternative
investment may provide greater future growth. This activity may create higher
transaction costs due to commissions and other expenses. In addition, a high
level of short-term trading may increase the Fund's realized gains, thereby
increasing the amount of taxable distributions to shareholders at the end of
the year.

As with any equity fund, your investment will go up or down in value, and
the loss of your investment is a risk of investing. An investment in the Fund
is best suited for investors who seek long-term capital growth and can
tolerate substantial fluctuations in their investment's value. Compared with
the other Sentinel Funds, the Flex Cap Opportunity Fund is likely to have the
greatest price volatility, and may subject you to the highest risk of loss of
your investment.

The Fund may invest up to 100% of its assets in cash, commercial paper,
high-grade bonds, or cash equivalents for temporary defensive reasons if Alger
believes that adverse market or other conditions warrant such investment. Such
action is an attempt to protect the Fund's assets from a temporary
unacceptable risk of loss, rather than directly to promote the Fund's
investment objective.

The Flex Cap Opportunity Fund may invest up to 15% of its net assets in
illiquid securities and invest in portfolio depositary receipts up to 5% of its
total assets. These securities and investment techniques are discussed in
detail in the Sentinel Funds' Statement of Additional Information, which is
incorporated by reference into (is legally made a part of) this Supplement and
the Prospectus. You can get a free copy of the Statement of Additional
Information by calling 1-800-282-FUND (3863), or by writing to Sentinel
Administrative Service Company at P.O. Box 1499, Montpelier, VT 05601-1499.

Purchase Options

The Flex Cap Opportunity Fund offers Class A shares, Class B shares and
Class C shares. You can compare the differences among the Class A shares,
Class B shares and Class C shares using the table below.
<TABLE>
<CAPTION>

Total 12b-1 Fee,
Class Sales Charge Service Fee Including Service Fee Conversion Feature
- ------------ ------------------------- ----------------- --------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Maximum 5.00% initial
A sales charge Maximum of 0.20% Maximum of 0.30% No
Class B Shares convert to Class A
CDSC of up to 4.00% for a Shares automatically after the
B maximum of six years 0.25% 1.00% applicable CDSC peroid

CDSC of 1.00% for the
C first year only 0.25% 1.00% No
</TABLE>

Please see page of the Prospectus for a discussion of things to think
about when choosing which share class to buy.

Class A Shares

For purchases of Class A shares of the Flex Cap Opportunity Fund, you pay
the public offering price, which includes the front-end sales charge, next
computed after we receive your order. The sales charge ranges from 5.0% of the
offering price (5.3% of the net amount invested) to zero. Your sales charge
depends on the size of your purchase.

The sales charges for the various purchase size categories for the Flex
Cap Opportunity Fund are shown below:

<TABLE>
<CAPTION>
Sales charge as a Sales charge as a
percentage of percentage of net amount
Sale Size offering price invested Dealer Reallowance
- ------------------------------- -------------------- ----------------------- ---------------------

In cases in which there is no sales charge because your purchase was
$1,000,000 or more, the Funds' distributor, Sentinel Financial Services
Company, will pay dealers compensation of 1.00% for sales of up to $4,999,999.
In these cases, if you redeem the shares in the first one year after the
purchase, a 1.0% contingent deferred sales charge ("CDSC") will be imposed,
and if you redeem in the second year, a 0.5% CDSC will be imposed. For sales
of $5,000,000 or more, Sentinel Financial will individually negotiate dealer
compensation and CDSCs. After the second year, there will be no CDSC. You can
find additional information on this CDSC on page of the Prospectus.

You can receive a reduced sales charge for a number of reasons, as
discussed on pages of the Prospectus.

The Class A shares of the Flex Cap Opportunity Fund participate in the
Company's Class A Distribution Plan, under which the Funds may pay
distribution fees for the sale and distribution of their shares, and for
services provided to shareholders. This Plan provides for a fee to the
Distributor of the Sentinel Funds at a maximum annual rate of 0.30% of average
daily net assets of the Class A shares of the Flex Cap Opportunity Fund. We
will pay trail commissions to dealers on Class A shares of the Flex Cap
Opportunity Fund at an annual rate of 0.20% of average daily net assets.
Additional information on this Distribution Plan is set forth on page of the
Prospectus.

Class B Shares

For purchases of Class B shares of the Flex Cap Opportunity Fund, you pay
the current net asset value. There is no initial sales charge. A CDSC will be
imposed on Class B shares of the Flex Cap Opportunity Fund if you redeem
shares during the CDSC period, unless you can use one of the CDSC waivers
listed on page of the Prospectus. Whether you pay a CDSC upon a redemption and
how much it is depends on the amount of your purchases and the number of years
since you made the purchase. The CDSC schedules for Class B shares of the Flex
Cap Opportunity Fund are shown below:
<TABLE>
<CAPTION>

CDSC Percentage
Year Since Purchase Payment Was Made

Purchase Amount 1st 2nd 3rd 4th 5th 6th
- --------------- ----- ----- ----- ---- ---- ----

The maximum purchase amount for Class B shares is $1,000,000. For
additional information on CDSCs for Class B shares, see page of the
Prospectus.

The Class B shares of the Flex Cap Opportunity Fund participate in the
Company's Class B Distribution Plan. This Plan provides for a fee to Sentinel
Financial at a maximum annual rate of 1.00% of average daily net assets of the
Class B shares of the Flex Cap Opportunity Fund. We will pay trail commissions
to dealers on Class B shares at varying rates depending on the overall average
daily net assets in all Class B shares of the Sentinel Funds for which a
particular registered representative is the registered representative of
record, as described on page of the Prospectus. Additional information on this
Distribution Plan is set forth on page of the Prospectus.

Class B shares of the Flex Cap Opportunity Fund automatically convert to
Class A shares of the Flex Cap Opportunity Fund at the end of the applicable
CDSC period, in the same way as the Class B shares of the other Sentinel Funds
which offer Class B shares convert to Class A shares of the same Fund. See
page of the Prospectus.

Sentinel Financial pays selling dealers, at the time you purchase Class B
shares of the Flex Cap Opportunity Fund, the percentages of the aggregate
purchase amount shown below (including purchases of Class A or Class C shares
of the Fund, or shares of any other Sentinel Fund of any class (except the
Sentinel U.S. Treasury Money Market Fund)):

Amount of Purchase Payment Broker Dealer Payment
------------------------------ ---------------------------
Up to $249,999 4.0%
$250,000 to $499,999 2.5%
$500,000 to $999,999 2.0%

Class C Shares

For purchases of Class C shares of the Flex Cap Opportunity Fund, you pay
the current net asset value. There is no initial sales charge. A CDSC in the
amount of 1% of the purchase price will be imposed on Class C shares of the
Flex Cap Opportunity Fund if you redeem shares during the first year after
their purchase, unless you can use one of the CDSC waivers listed on page of
the Prospectus. Similar to the Class B shares, Class C shares are subject to
higher distribution fees than Class A shares. However, since Class C shares
never convert to Class A shares, investments in Class C shares remain subject
to these higher distribution fees for the entire holding period of your
investment.

The Class C shares of the Flex Cap Opportunity Fund participate in the
Company's Class C Distribution Plan. Under this Plan, the Flex Cap Opportunity
Fund pays a fee to Sentinel Financial at a maximum annual rate of 1.00% of
average daily net assets of its Class C shares of the Flex Cap Opportunity
Fund. In the first year after purchase Sentinel Financial keeps this fee to
recover the initial sales commission. In subsequent years, the entire 1.00%
will be paid to the selling dealer. Additional information on this
Distribution Plan is set forth on page of the Prospectus.

Sentinel Financial pays selling dealers, at the time you purchase Class C
shares of the Flex Cap Opportunity Fund, amounts equal to 1% of the aggregate
purchase amount.

Exchanges

Shares of the Flex Cap Opportunity Fund may be exchanged into shares of
the same class of any other Fund, as described on pages of the Prospectus.
Flex of the Sentinel Funds offer Class A shares. Class B shares are offered
for the Common Stock, Balanced, Mid Cap Growth, Growth Index, Small Company,
World, High Yield Bond, Bond and U.S. Treasury Money Market Funds. Class C
shares are offered for the Common Stock, Balanced, World and High Yield Bond
Funds.

Other Information

For other information on how to buy, sell, exchange or transfer shares of
the Sentinel Funds, please see "How to Buy, Sell, Exchange and Transfer
Shares", beginning on page of the Prospectus.

Dividends, Capital Gains and Taxes

The Flex Cap Opportunity Fund pays dividends substantially equivalent to
its net investment income, if any, once per year in December. Distributions of
net realized capital gains, if any, are paid annually in December. Unless you
elect otherwise, your dividends and capital gains distributions will be
reinvested automatically in shares of the same class of the Flex Cap
Opportunity Fund. See "Dividends, Capital Gains and Taxes" on page of the
Prospectus.

Management of the Flex Cap Opportunity Fund

The investment advisor to the Flex Cap Opportunity Fund is Sentinel
Advisors Company, which also is the investment advisor to the other Sentinel
Funds. Information on Sentinel Advisors can be found on page of the
Prospectus. For its services as investment advisor, Sentinel Advisors receives
from the Flex Cap Opportunity Fund a fee equal to 0.90% per annum of the
average daily value of the net assets of the Flex Cap Opportunity Fund.

Sentinel Advisors Company has retained the services of Fred Alger
Management, Inc. to serve as subadvisor to the Flex Cap Opportunity Fund. In
its role as subadvisor, Alger has the responsibility for making all the
investment decisions for the Fund. It continuously reviews and administers the
Fund's investment program. Alger is located at 1 World Trade Center, Suite
9333, New York, New York 10048.

Portfolio Managers. David Alger and David Hyun are the individuals
responsible for the day-to-day management of the Fund's portfolio and have
served in that capacity since the inception of the Fund. Mr. Alger has been
employed by Alger as Executive Vice President and Director of Research since
1971, and as President since 1995.

Mr. Hyun has been employed by Alger as an Analyst since 1991 and as a
Senior Vice President and co-manager since 1998.

<PAGE>

THE SENTINEL FUNDS

SENTINEL GROWTH INDEX FUND

PROSPECTUS SUPPLEMENT DATED SEPTEMBER 13, 1999 TO
PROSPECTUS DATED MARCH 31, 1999
AND, STARTING ON PAGE 7,
PROSPECTUS SUPPLEMENT DATED SEPTEMBER 13, 1999

On September 13, 1999, Sentinel Group Funds, Inc. (the "Company")
began offering shares of a new Fund named Sentinel Growth Index Fund (the
"Growth Index Fund"). This Supplement, which is to be used in conjunction with
the Prospectus for the Sentinel Funds dated March 31, 1999 (the "Prospectus"),
describes the investment objective and policies and other features of the
Growth Index Fund.

WHAT IS THE MAIN GOAL AND INVESTMENT STRATEGY OF THE GROWTH INDEX FUND?

The Growth Index Fund seeks to match, as closely as possible, before
expenses, the performance of the S&P 500/BARRA Growth Index, which includes
those stocks of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index") with higher than average price to book value ratios. The Fund
will invest primarily in the common stocks of the companies that comprise the
S&P 500/BARRA Growth Index, in approximately the same proportions as they are
represented in the S&P 500/BARRA Growth Index.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE GROWTH INDEX FUND?

The value of the Growth Index Fund, like all equity mutual funds,
will go up and down as the prices of the stocks held by the Fund go up and
down. Stock markets tend to move in cycles, with periods of rising prices and
periods of falling prices. Stocks could decline generally or underperform
other types of investment assets. An investor in the Fund could lose money
over short or even long periods of time.

The Growth Index Fund is also subject to investment style risk, which
is the chance that returns from large capitalization growth stocks will trail
returns from other asset classes or the overall stock market. Growth stocks
tend to go through cycles of doing better, or worse, than the stock market in
general. These periods have, in the past, lasted for as long as several years.

There is also a risk that Growth Index Fund will not track closely
the performance of the S&P 500/BARRA Growth Index for a number of reasons,
including the Fund's costs of buying and selling securities and the flow of
money into and out of the Fund.

There can be no assurance that the Growth Index Fund will achieve its
objective.

FEES AND EXPENSES

SHAREHOLDER FEES (fees paid directly from your investment)

CLASS A SHARES:

Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of the offering price).........................................2.50%1
Maximum Deferred Sales Charge (Load)........................................None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.................None
Redemption Fees .........................................................None1,2
Exchange Fees ..............................................................None
_______________
1 The sales charge is reduced to 2.0% for purchase amounts of $500,000 to
$999,999, and to zero for purchase amounts of $1,000,000 or more. If you do not
pay a sales charge because your purchase amount is $1,000,000 or more, then you
may pay a deferred sales charge of up to 1% if you redeem your shares within two
years of your purchase.

2 If you redeem by wire transfer, we assess a wire charge of $25.00.

CLASS B SHARES:

Maximum Sales Charge (Load) Imposed on Purchases............................None
Maximum Deferred Sales Charge (Load) (as a percentage of the lower of the
purchase price or the net asset value of the shares being redeemed).......2.50%3
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ................None
Exchange Fees ..............................................................None
_______________
3 The maximum deferred sales charge is imposed on shares redeemed in the first
two years after purchase. For shares held longer than two years, the deferred
sales charge declines.

ANNUAL FUND OPERATING EXPENSES

We estimate that the Growth Index Fund will incur the expenses shown
below in its first year of operations, expressed as a percentage of the Fund's
average net assets.

CLASS A SHARES CLASS B SHARES

Management Fees 0.30% 0.30%
Rule 12b-1 Fees (includes service fee
and distribution fee) 0.20% 0.75%
Other Expenses:
Accounting and Administrative Costs 0.03% 0.03%
Other 0.17% 0.17%
Total Other Expenses 0.20% 0.20%
-------- -----
Total Fund Operating Expenses 0.70%(a) 1.25%(a)
===== =====
_________________________
(a) The above expense ratios do not reflect waivers of fees by Sentinel Advisors
Company. Currently Sentinel Advisors voluntarily waives fees to the extent
necessary to cap the expense ratio of the Class A shares of the Growth Index
Fund at 0.65%. This fee waiver will also proportionately benefit the Class B
shares of the Growth Index Fund. Sentinel Advisors currently intends to continue
this fee waiver indefinitely; however, it may change or terminate the fee waiver
at any time after November 30, 2000.

EXAMPLES:

These examples are intended to help you compare the cost of investing
in the Growth Index Fund with the cost of investing in other mutual funds. They
assume that you invest $10,000 in the Growth Index Fund for the time periods
indicated, that you pay the initial sales charge in the case of the Class A
shares, that the Fund's operating expenses are as estimated above for the entire
period, and that your investment has a 5% return each year. This assumption is
not meant to indicate that you will receive a 5% annual rate of return. Your
annual return may be more or less than the 5% used in these examples. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be as shown below. NOTE THAT THE AMOUNTS SHOWN DO NOT REFLECT THE WAIVER
OF FEES THAT LIMITS EXPENSE RATIOS AS DISCUSSED IN FOOTNOTE (A) ABOVE.

1 YEAR 3 YEARS
------ -------

Class A shares $320 $468
Class B shares (assuming redemption
at the end of the period) $377 $597
Class B shares (assuming no redemption
at the end of the period) $127 $397

DETAILS ABOUT THE GROWTH INDEX FUND'S INVESTMENT OBJECTIVE, PRINCIPAL
INVESTMENT STRATEGIES, AND ASSOCIATED RISKS

The Growth Index Fund seeks to match, as closely as possible, before
expenses, the performance of the S&P 500/BARRA Growth Index. The S&P 500/BARRA
Growth Index includes those stocks of the S&P 500 Index with higher than average
price to book value ratios. The S&P 500 is an unmanaged index and typically
includes companies that are the largest and most dominant in their industries.
There can be no assurance that the Fund will achieve its objective.

The Fund will invest at all times at least 80% of its total assets in
the common stocks of the companies that comprise the S&P 500/BARRA Growth Index.
It intends normally to invest substantially all its total assets in these common
stocks, in approximately the same weightings as the S&P 500/BARRA Growth Index.
The Fund also may hold up to 20% of its assets in money market instruments and
stock index options and futures. Futures and options are considered
"derivatives" because they "derive" their value from a traditional security
(like a stock or bond) or index. The Fund intends to buy index options or
futures, if at all, only in anticipation of buying stocks.

The Growth Index Fund is not "actively managed", which would involve
the investment advisor buying and selling securities based on research and
analysis. Rather, the Growth Index Fund tries to match, as closely as possible,
before expenses, the performance of its target index, the S&P 500/BARRA Growth
Index. It does this by holding, under normal circumstances, all of the common
stocks included in the target index, in approximately the same weightings as in
the index.

The Growth Index Fund by itself is not a balanced investment program.
The Growth Index Fund will generally hold exclusively the stocks of companies
among the 500 largest U.S. publicly owned corporations. Of these stocks, the
stocks included in the S&P 500/BARRA Growth Index have been valued in the stock
market at levels which indicate that the market expects their issuers to have
better than average prospects for growth of revenue and earnings. These stocks
are sometimes referred to as "large capitalization growth stocks". The Growth
Index Fund will not invest in other types of stocks, including the stocks of
small companies, or so-called "value stocks", from which the market does not
expect as much growth in revenue and earnings, but which can be purchased at
lower valuations. Diversifying your investments beyond "large capitalization
growth stocks" may lower the volatility of your overall investment portfolio,
and could improve your long-run investment return.

It is anticipated that the Growth Index Fund will have relatively small
portfolio turnover. However, it may have to sell securities from time to time to
meet redemption requests, and adjustments will be made in the portfolio from
time to time because of changes in the composition of the S&P/BARRA Growth
Index.

RISK FACTORS

Stock Market Risk. The Growth Index Fund is subject to stock market
risk, which is the risk that the value of common stocks in general will decline.

Investment Style Risk. The S&P 500/BARRA Growth Index is comprised of
larger companies which in general are perceived by the stock market to have
higher growth potential. The Growth Index Fund thus focuses on so-called "large
capitalization growth stocks". Changes in investment style may cause these large
capitalization growth stocks to underperform the stock market in general, or
other asset classes.

Tracking Error Risk. There are several reasons why the Fund's
performance may not match the S&P 500/BARRA Growth Index. First, the Fund incurs
administrative expenses and transaction costs in trading stocks. Second, the
composition of the S&P 500/BARRA Growth Index and the stocks held in the Fund
may diverge, due to cash flows into or out of the Fund and changes in the
composition of the index. Third, the timing and magnitude of cash flows into and
out of the Fund may result in temporarily uninvested cash, or may lead to
weightings of stocks held by the Fund which are not precisely the same as in the
S&P 500/BARRA Growth Index.

Futures and Options. If the Fund invests in stock index futures or
options contracts, the Fund will be subject to the risks that:

- the future or option will not fully offset the underlying
positions,
- the Fund cannot sell the future or option because of an illiquid
secondary market, and
- the intended risk management purpose of the future or option may
not be achieved, and may produce losses or missed opportunities.

INFORMATION REGARDING THE INDEX

The Growth Index Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, express or implied, to the owners of the
Growth Index Fund or any member of the public regarding the advisability of
investing in securities generally or in the Growth Index Fund particularly or
the ability of the S&P 500/BARRA Growth Index to track general stock market
performance. S&P's only relationship to the Sentinel Funds is the licensing of
certain trademarks and trade names of S&P and the S&P 500/BARRA Growth Index,
which is determined, composed, and calculated without regard to the Growth
Index Fund. S&P has no obligation to take the needs of the Sentinel Funds or
the owners of the Growth Index Fund into consideration in determining,
composing or calculating the S&P 500/BARRA Growth Index. S&P is not
responsible for and has not participated in the determination of the prices at
which the Growth Index Fund shares are sold, the timing of the offering of
Growth Index Fund shares, or the determination of the prices at which Growth
Index Fund shares may be redeemed. S&P has no obligation or liability in
connection with the administration or marketing of the Growth Index Fund.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500/BARRA GROWTH INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE GROWTH
INDEX FUND, OWNERS OF THE GROWTH INDEX FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 500/BARRA GROWTH INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES AND HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500/BARRA GROWTH INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

PURCHASE OPTIONS

The Growth Index Fund offers both Class A and Class B shares. You can
compare the differences among the Class A shares and the Class B shares using
the table below.

________________________________________________________________________________
TOTAL 12B-1 FEE,
CLASS SALES CHARGE SERVICE FEE INCLUDING SERVICE FEE CONVERSION FEATURE
________________________________________________________________________________
A Maximum 2.50% Maximum of Maximum of 0.20% No
initial sales 0.20%
charge
________________________________________________________________________________
B CDSC of up to 0.25% 0.75% Class B Shares
2.50% for a convert to Class
maximum of A Shares
six years automatically
after the
applicable CDSC
period
________________________________________________________________________________

Please see page 27 of the Prospectus for a discussion of things to
think about when choosing which share class to buy.

CLASS A SHARES

For purchases of Class A shares of the Growth Index Fund, you pay the
public offering price, which includes the front-end sales charge, next
computed after we receive your order. The sales charge ranges from 2.50% of
the offering price (2.56% of the net amount invested) to zero, depending on
the size of your purchase, as shown below.

SALES CHARGE AS SALES CHARGE AS A
A PERCENTAGE OF PERCENTAGE OF NET DEALER
SALE SIZE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
- ---- ---------------------------------- ----------------- -----------
$0 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 2.00% 2.04% 1.75%
$1,000,000 or more -0- -0- -0-

In cases in which there is no sales charge because your purchase was
$1,000,000 or more, the Funds' distributor, Sentinel Financial Services
Company, will pay dealers compensation of 1.00% for sales of up to $4,999,999.
In these cases, if you redeem the shares in the first one year after the
purchase, a 1.0% CDSC will be imposed, and if you redeem in the second year, a
0.5% CDSC will be imposed. For sales of $5,000,000 or more, Sentinel Financial
will individually negotiate dealer compensation and CDSCs. After the second
year, there will be no CDSC. You can find additional information on this CDSC
on page 28 of the Prospectus.

You can receive a reduced sales charge for a number of reasons, as
discussed on pages 28-30 of the Prospectus.

The Class A shares of the Growth Index Fund participate in the
Company's Class A Distribution Plan. This Plan provides for a fee to the
Distributor of the Sentinel Funds at a maximum annual rate of 0.20% of average
daily net assets of the Class A shares of the Growth Index Fund. We will pay
trail commissions to dealers on Class A shares of the Growth Index Fund at an
annual rate of 0.20% of average daily net assets. Additional information on
this Distribution Plan is set forth on page 30 of the Prospectus.

CLASS B SHARES

For purchases of Class B shares of the Growth Index Fund, you pay the
current net asset value. There is no initial sales charge. A CDSC will be
imposed on Class B shares of the Growth Index Fund if you redeem shares during
the CDSC period, unless you can use one of the CDSC waivers listed on page 34
of the Prospectus. Whether you pay a CDSC upon a redemption and how much it is
depends on the amount of your purchases and the number of years since you made
the purchase. The CDSC schedules for Class B shares of the Growth Index Fund
are shown below:

CDSC PERCENTAGE
---------------

Year Since Purchase Payment Was Made
------------------------------------

PURCHASE AMOUNT 1st 2nd 3rd 4th 5th 6th
- --------------- --- --- --- --- --- ---
Up to $500,000 2.50% 2.50% 2% 1.50% 1.25% 0.50%

$500,000 to $1,000,000 2% 2% 1% 1% - -

The maximum purchase amount for Class B shares is $1,000,000. For additional
information on CDSCs on Class B shares, see page 30 of the Prospectus.

The Class B shares of the Growth Index Fund participate in the
Company's Class B Distribution Plan. This Plan provides for a fee to Sentinel
Financial at a maximum annual rate of 0.75% of average daily net assets of the
Class B shares of the Growth Index Fund. We will pay trail commissions to
dealers on Class B shares at varying rates depending on the overall average
daily net assets in all Class B shares of the Sentinel Funds for which a
particular registered representative is the registered representative of
record, as described on page 31 of the Prospectus. Additional information on
this Distribution Plan is set forth on page 31 of the Prospectus.

Class B shares of the Growth Index Fund automatically convert to
Class A shares of the Growth Index Fund at the end of the applicable CDSC
period, in the same way as the Class B shares of the other Sentinel Funds
which offer Class B shares convert to Class A shares of the same Fund. See
page 31 of the Prospectus.

Sentinel Financial pays selling dealers, at the time you purchase
Class B shares of the Growth Index Fund, an amount equal to 2.50% of your
purchase payment (2.0% in the case of purchases between $500,000 and
$1,000,000).

EXCHANGES

Shares of the Growth Index Fund may be exchanged into shares of the
same class of any other Fund, as described on pages 37-38 of the Prospectus,
but only after at least 90 days have elapsed from their purchase, in the case
of purchases initially made in the Growth Index Fund. Shares of other Sentinel
Funds may be exchanged into shares of the same class of the Growth Index Fund,
but not within the first 90 days after the initial purchase of such other
Sentinel Fund shares.

OTHER INFORMATION

The minimum initial investment in the Growth Index Fund is $5,000,
except for IRA and other qualified retirement plan accounts (in which case the
minimum investment is $1,000), and except that you may invest in the Fund with
as little as $100 per month using the Automatic Investment Plan. The minimum
subsequent investment for the Growth Index Fund is $100.

For other information on how to buy, sell exchange or transfer shares
of the Sentinel Funds, please see "How to Buy, Sell, Exchange and Transfer
Shares", beginning on page 35 of the Prospectus.

INITIAL MARKETING INCENTIVE

Sentinel Financial will pay to dealers, in addition to the normal
dealer reallowance described above, an amount of 0.25% of investments during
the first 90 days of the Growth Index Fund's operation for which a single
registered representative is the registered representative of record, if the
amount of such investments during the first 90 days of the Growth Index Fund's
operation for which such registered representative is the registered
representative of record is $500,000 or more.

DIVIDENDS, CAPITAL GAINS AND TAXES

The Growth Index Fund pays dividends substantially equivalent to its
net investment income, if any, once per year in December. Distributions of net
realized capital gains, if any, are paid annually in December. Unless you
elect otherwise, your dividends and capital gains distributions will be
reinvested automatically in shares of the same class of the Growth Index Fund.

See "Dividends, Capital Gains and Taxes" on page 40 of the Prospectus.

MANAGEMENT OF THE GROWTH INDEX FUND

The investment advisor to the Growth Index Fund is Sentinel Advisors
Company, which also is the investment advisor to the other Sentinel Funds.
Information on Sentinel Advisors can be found on page 42 of the Prospectus.
For its services as investment advisor, Sentinel Advisors receives from the
Growth Index Fund a fee equal to 0.30% per annum of the average daily value of
the net assets of the Growth Index Fund.

PORTFOLIO MANAGEMENT. Sentinel Advisors uses a team approach in
managing the Sentinel Funds. The Growth Index Fund is managed by Sentinel
Advisors' Equity Growth Team. Information on Sentinel Advisors' team approach
to portfolio management and on the Equity Growth Team can be found on pages 42
and 43 of the Prospectus.

PROSPECTUS SUPPLEMENT DATED SEPTEMBER 13, 1999

MATTERS NOT RELATING SPECIFICALLY TO THE GROWTH INDEX FUND

PORTFOLIO MANAGER CHANGES

Effective June 22, 1999, Van Harissis jointed Sentinel Advisors as
Senior Vice President, and became the leader of Sentinel Advisors' Equity
Value Team, replacing Richard A. Pender. Mr. Harissis was a managing director
and portfolio manager at Phoenix Investment Partners from 1995 to 1999, and
previously was a portfolio manager at Howe & Rusling. Effective July 12, 1999,
William C. Kane, previously co-manager of the Bond Fund, became the sole
portfolio manager of the Bond Fund. Richard D. Temple is retiring from Sentinel
Advisors.

World Fund SubAdvisor

Effective July 1, 1999, the sub-advisor to the World Fund changed
from INVESCO Capital Management, Inc. to INVESCO Global Asset Manaement
(N.A.), Inc. These entities are under common control. The terms of the
contract have not changed and the personnel serving the World Fund has not
changed.

WAIVER OR REDUCTION OF A CDSC

Effective September 13, 1999, we have changed the situations in which
a CDSC will be waived, by replacing situation 5 on page 34 of the Prospectus
under "Waiver or Reduction of a CDSC" with the following:

5. The CDSC will be waived on redemption of shares acqired prior to
September 13, 1999 in amounts up to 10% annually of the account's
then current net asset value. Note that in the case of Class D
shares this amount is up to 8% annually instead of up to 10%
annually. The CDSC will be waived on redemptions made under
Systematic Withdrawal Plans for shares acquired on or after
September 13, 1999 in amounts up to 10% annually of the account's
then net asset value. Again in the case of Class D shares this
amount is up to 8% annually instead of up to 10% annually. We have
also enhanced our systematic withdrawal plan administration to
permit Systematic Withdrwawl Plans to be either a fixed dollar
amount or a percentage of the account's value, rather than only a
percentage of the amount's value; and

EXAMPLES

The numbers below replace the corresponding numbers in the examples shown on
page 13 of the Prospectus.

<TABLE>
<CAPTION>
CLASS B (if you redeem at the end of the period): 1 year 3 years 5 years

<S> <C> <C> <C>
Common Stock $584 $ 869 $1180
Balanced 593 897 1226
Mid Cap Growth 632 1015 1425
Small Company 628 1003 1405
World 628 1003 1405
High Yield 555 780 1029
Bond 587 879 1195
Money Market 480 549 633

CLASS C (if you redeem at the end of the period): 1 year

Common Stock $295
Balanced 321
World 324
High Yield 309

CLASS D (if you redeem at the end of the period): 1 year 3 years 5 years

Balanced $769 $1023 $1302
</TABLE>

PERFORMANCE DATA

The Funds may from time to time include average annual total return
figures in advertisements or other material the Funds send to existing or
prospective shareholders. The Funds calculate these figures by determining the
average annual compounded rates of return that would produce the redeemable
value of the Fund being shown at the end of each period for a given initial
investment. All recurring and nonrecurring expenses are included in the
calculation. It is assumed that all dividends and distributions are
reinvested. In addition, to better illustrate the performance of money already
invested in the Funds, the Funds may also periodically advertise total return
without subtracting sales charges.

The fixed income Funds also may quote yields in advertisements.
Yields are computed by dividing net investment income for a recent 30-day (or
one month) period by the product of the average daily number of shares
outstanding during that period and the maximum offering price per share on the
last day of the period. The result is then annualized. These Funds may also
show comparable yields to those shareholders already invested in the Funds by
using the net asset value per share instead of maximum offering price in the
above calculations. This has the effect of raising the quoted yields. The
Tax-Free Income, New York and Pennsylvania Funds may also include
tax-equivalent yields in advertisements. Tax-equivalent yields increase the
yield as calculated above to make it comparable on an after-tax basis to an
investment which produces taxable income.

The Funds also may compare their performance to relevant indices in
advertisements. The equity Funds may compare their performance to stock
indices, including the Dow Jones Industrial Average, the S&P 500 Index, the
S&P 500/BARRA Growth Index, and the Russell 2000 Index. The World Fund may
compare its performance to the "EAFE" (Europe, Australia, Far East) Index. The
High Yield Fund may compare its performance to the Chase Manhattan Bank Index.
The fixed income Funds may compare their performance to bond or money market
indices, including the Lehman Aggregate Bond Index, Municipal Bond Index, or
Government Bond Index, and Donoghue's Money Fund Report.

The Funds also may refer to rankings and ratings published by
independent tracking services and publications of general interest including
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's;
magazines such as Money, Forbes, Kiplinger's Personal Finance Magazine,
Financial World, Consumer Reports, Business Week, Time, Newsweek, U.S. News
and World Report; and other publications such as the Wall Steet Journal,
Barron's, Investor's Daily, and Standard & Poor's Outlook. These ranking
services and publications may rank the performance of the Funds against all
other mutual funds or against funds in specified categories. The rankings may
or may not include the effects of sales or other charges.

HIGH YIELD FUND CLASS B SHARES - PROMOTION

As a special promotion during the period May 1, 1999 to December 31,
1999, Sentinel Financial Services Company will pay to dealers who agree to
participate in the promotion, on sales of Class B shares of Sentinel High
Yield Bond Fund, the following amounts (stated as percentages of the aggregate
purchase amount):

AMOUNT OF PURCHASE AMOUNT BROKER-DEALER PAYMENT
Up to $249,999...................................5.00%
$250,000 to $499,999.............................3.5%
$500,000 to $999,999.............................3.0%

These amounts are 1.0% greather than the payments normally made on
such sales.

<PAGE>

THE SENTINEL FUNDS

Sentinel Common Stock Fund
Sentinel Balanced Fund

Sentinel Mid Cap 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

This prospectus contains information you should know before
investing, including information about risks. Please read it before you invest
and keep it for future reference.

The Securities and Exchange Commission has not approved or
disapproved these securities or determined if this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.

Prospectus dated March 31, 1999

<PAGE>

Table of Contents

Key Facts About The Sentinel Funds

Details About the Funds' Investment Objectives, Principal Investment Strategies
and Related Risks
Purchase Options
How to Buy, Sell, Exchange and Transfer Shares
How the Funds are Priced
Dividends, Capital Gains and Taxes
Management of the Funds
Financial Highlights

<PAGE>

Key Facts About the Sentinel Funds

What are the main goals and investment strategies of each of the Sentinel
Funds?

This prospectus contains information about the thirteen mutual funds that
comprise the Sentinel Family of Funds. In this prospectus, each Sentinel Fund is
referred to individually as a "Fund". Sentinel Advisors Company is the
investment advisor for each Fund. We cannot guarantee that any Fund will achieve
its goals. A brief description of each Fund follows.

. SENTINEL COMMON STOCK FUND seeks a combination of growth of capital, current
income, growth of income and relatively low risk as compared with the stock
market as a whole, by investing in a diverse group of common stocks of well-
established companies. [PIE CHART APPEARS HERE]

. SENTINEL BALANCED FUND seeks a combination of growth of capital and current
income, with relatively low risk and relatively low fluctuations in value, by
investing in both common stocks and bonds.

. SENTINEL MID CAP GROWTH FUND seeks growth of capital, by focusing its
investments on common stocks of mid sized growing companies. Income is not a
factor in selecting stocks. [PIE CHART APPEARS HERE]

. SENTINEL SMALL COMPANY FUND seeks growth of capital, by investing mainly in
common stocks of small and medium-sized companies that Sentinel Advisors
believes have attractive growth potential and are attractively valued. Income
is not a factor in selecting stocks. [PIE CHART APPEARS HERE]

. SENTINEL WORLD FUND seeks growth of capital, by investing in common stocks of
established non-U.S. companies or in U.S. companies that conduct their business
mainly outside the United States. [PIE CHART APPEARS HERE]

. SENTINEL HIGH YIELD BOND FUND seeks high current income and total return by
investing mainly in lower rated corporate bonds, sometimes called "junk bonds",
that have higher effective interest rates than investment grade bonds. These
lower rated bonds are more speculative and more likely to default than
investment grade bonds. [PIE CHART APPEARS HERE]

. SENTINEL BOND FUND seeks high current income while seeking to control risk by
through investingments mainly in investment grade bonds.
[PIE CHART APPEARS HERE]

. SENTINEL GOVERNMENT SECURITIES FUND seeks high current income while seeking to
control risk by investing mainly in U.S. government bonds.
[PIE CHART APPEARS HERE]

. SENTINEL SHORT MATURITY GOVERNMENT FUND seeks high current income and limited
fluctuations in principal value by investing mainly in a portfolio of U.S.
government bonds with a weighted average maturity of three years or less.
[PIE CHART APPEARS HERE]

. SENTINEL U.S. TREASURY MONEY MARKET FUND seeks as high a level of current
income as is consistent with stable principal values, by investing solely in
short-term direct obligations of the U.S. Treasury. [PIE CHART APPEARS HERE]

. SENTINEL TAX-FREE INCOME FUND seeks high current income exempt from federal
income taxes while seeking to control risk by investing mainly in investment
grade municipal bonds. [PIE CHART APPEARS HERE]

<PAGE>

. SENTINEL NEW YORK TAX-FREE INCOME FUND seeks high current income exempt from
federal income tax and New York State and City personal income taxes, while
seeking to control risk, by investing in investment grade municipal bonds of New
York issuers. [PIE CHART APPEARS HERE]

. SENTINEL PENNSYLVANIA TAX-FREE TRUST seeks high current income exempt from
federal and Pennsylvania income taxes, while seeking to control risk, by
investing in investment grade municipal bonds of Pennsylvania issuers.
[PIE CHART APPEARS HERE]

What are the main risks of investing in the Funds?

Investment in each Fund is subject to certain risks. Some of the risk factors
described below affect more than one Fund; others are specific to certain Funds.
More information on each Fund's risk factors is described under "Details About
the Funds' Investment Objectives, Principal Investment Strategies, and Related
Risks".

EQUITY FUND RISKS

The value of all equity funds, including the Common Stock Fund, the Balanced
Fund, the Mid Cap Growth Fund, the Small Company Fund and the World Fund, may go
up or down as the prices of the stocks held by the Funds go up or down. Changes
in value may occur because the U.S. or other stock markets are rising or
falling, or due to business developments or other factors that affect the value
of particular companies. If the value of the stocks held in these Funds goes
down, you may lose money. The stocks of smaller companies may be subject to
greater changes in value than stocks of larger, more established companies,
because they generally have more limited financial resources, narrower product
lines, and may have less seasoned managers. In addition, small company stocks
may trade less frequently and in lower share volumes, which could contribute to
wider price fluctuations.

Because the World Fund invests mainly in foreign countries, it is subject to
additional risks. The World Fund's foreign stock investments may go up or down
in value depending on foreign stock markets which may be rising or falling,
fluctuations in foreign exchange rates, foreign political and economic
developments and U.S. and foreign laws relating to foreign investment. Non-U.S.
securities also may be less liquid, more volatile and harder to value than U.S.
securities. If the value of the stocks held by the World Fund go down, you may
lose money.

FIXED INCOME FUND RISKS

The High Yield, Bond, Government Securities, Short Maturity Government, Tax-Free
Income, New York and Pennsylvania Funds, and the bond portion of the Balanced
Fund, primarily in bonds. Bonds are subject to several types of risk. A
bond's issuer may default on payments of interest or repayments of principal.
The market also may judge that the odds that an issuer of bonds could
default in the future have increased. Interest rates available in the market may
increase, which would reduce the present value of the fixed payments to be
received from outstanding bonds. Any of these factors could cause the value of
bonds held by these Funds to fall. If the value of the portfolio investments
falls you could lose money.

<PAGE>

U.S. government bonds are very unlikely to default or to decline in credit
quality. However, the value of U.S. government bonds generally will rise if
interest rates fall, and fall if interest rates rise. The longer the remaining
term of a bond, the more its value will tend to fluctuate as interest rates
change. As a result, the Short Maturity Government Fund is subject to the least
risk of the fixed-income Funds, since it invests mainly in U.S. government
securities with relatively shorter maturities. However, the value of the shares
of the Short Maturity Government Fund will fluctuate, and you can lose money in
this Fund. The Government Securities Fund also faces very little credit quality
risk, but since it invests in longer term securities, it faces more interest
rate risk than the Short Maturity Government Fund. Both of these Funds, as well
as the Bond Fund and the bond portion of the Balanced Fund, also invest in
mortgage-backed securities, which have varying rates of principal repayments.
When interest rates fall, mortgage prepayments generally increase, which may
cause mortgage-backed securities to lose value. To the extent these Funds invest
in mortgage-backed securities, they also are subject to extension risk.
Extension risk is the possibility that when interest rates rise, prepayments
occur at a slower than expected rate. In that event, a security that was
considered short or intermediate-term at the time of purchase may effectively
become a long-term security. Long-term securities generally tend to fluctuate
more widely in response to changes in interest rates than shorter-term
securities.

Corporate and municipal bonds, in which the High Yield, Bond, Tax-Free Income,
New York and Pennsylvania Funds, and the bond portion of the Balanced Fund
invest, are subject to default risk, or credit quality risk, as well as interest
rate risk. Generally, the degree of default risk is reflected in the ratings of
the securities. Investment grade rated securities generally are less subject to
default risk than, for example, the lower rated securities in which the High
Yield Fund invests. While any corporate or municipal security is subject to the
risk of default, the lower the rating of a bond the more speculative it is and
the more likely it is that the issuer may default or the security may be
downgraded.

The High Yield Fund involves significantly more risk than the other fixed-income
Funds, since it primarily invests in lower rated bonds while the other Funds
primarily invest in higher quality bonds. In addition to greater default risk,
lower rated bond values experience greater fluctuations in value for several
other reasons. An economic downturn is more likely to affect the ability of
issuers who are less financially strong to make their bond payments. There may
be less active trading in lower rated bond issues, and lower rated bond prices
are more responsive to negative publicity or changes in investor perceptions.
The risk of loss if a lower rated bond defaults also may also be greater than
for investment grade bonds because lower rated bonds are more likely to be
unsecured and may be subordinated to other creditors.

Because the New York and Pennsylvania Funds invest only in bonds of issuers in a
single state, these Funds are more susceptible to the risk factors affecting
municipal issuers in those states than funds which are more diversified
geographically. These Funds are more sensitive to changes in the economic
condition and governmental policies of their single states. For example, the
economic condition of a single significant industry within one of these states
may impact municipal issuers in that state or that state's revenues.

MONEY MARKET FUND

The Money Market Fund invests only in short-term securities issued directly by
the U.S. Treasury. The Fund is designed to maintain a stable net asset value,
and declare daily dividends. An investment in the Money Market Fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Money Market Fund.

Risk/Return Bar Charts

The bar charts and tables shown below for each of the Funds provide indications
of the risks of investing in each Fund. The bar charts shows changes in each
Fund's performance for Class A shares for each calendar year over a ten year
period, or for a shorter period for those Funds that have been in existence for
less than ten years.

Sales charges are not reflected in the bar charts. If sales charges were
reflected, returns would be less than those shown. The tables on page __
compares the average annual total returns for each class of each Fund's shares
for one, five and ten years with those of an appropriate broad-based securities
market index. How each Fund performed in the past is not necessarily an
indication of how that Fund will perform in the future.

Sentinel Common Stock, Fund

<TABLE>
<CAPTION>
Sentinel Common Stock
- ---------------------
Inception: 1934
Total Return (%)
- ----------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27.6 (2.7) 30.4 5.8 9.3 (1.2) 34.4 20.8 27.9 14.0
- ----------------------------------------------------------------------------------
</TABLE>

During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Common Stock Fund was 16.5% (quarter ended December, 1998) and
the lowest return for a quarter was (11.7%) (quarter ended September,
1998).

<PAGE>

Sentinel Balanced Fund

[GRAPH APPEARS HERE]

Sentinel Balanced
- ----------------------
Inception: 1938
Total return (%)
- -------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------
19.4 1.9 23.3 6.2 9.6 (3.6) 25.2 12.1 20.6 11.9
- -------------------------------------------------------------------------

During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Balanced Fund was 9.9% (quarter ended December, 1998) and the
lowest return for a quarter was (6.5)% (quarter ended September, 1990).

Sentinel Mid Cap Growth Fund

[GRAPH APPEARS HERE]

Sentinal Mid Cap Growth*
- -----------------------
Inception: 1969
Total return (%)
- ----------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------
26.9 0.51 26.2 6.0 3.3 (7.5) 26.0 18.2 32.1 15.7
- ----------------------------------------------------------------------------

During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Growth Fund was 25.1% (quarter ended December, 1998) and the
lowest return for a quarter was (14.7)% (quarter ended September, 1990).

* Known as Sentinel Growth Fund prior to March 31, 1999.

Sentinel Small Company Fund

[GRAPH APPEARS HERE]

Sentinel Small Company
- ----------------------
Inception: 1993
Total return (%)

- ----------------------------------------------
1994 1995 1996 1997 1998
- ----------------------------------------------
0.1 12.5 21.3 21.2 7.2
- ----------------------------------------------

<PAGE>

During the 5 year period shown in the above bar chart, the highest return for a
quarter for the Small Company Fund was 18.3% (quarter ended December, 1998) and
the lowest return for a quarter was (15.3%) (quarter ended September, 1998).

Sentinel World Fund

[GRAPH APPEARS HERE]

Sentinel World
- ---------------
Inception: 1993
Total return (%)

- ------------------------------------
1994 1995 1996 1997 1998
- ------------------------------------
1.1 14.0 11.9 14.2 10.3
- ------------------------------------

During the 5 year period shown in the above bar chart, the highest return for a
quarter for the World Fund was 14.1% (quarter ended March, 1998) and the lowest
return for a quarter was (14.9)% (quarter ended September, 1998).

Sentinel High Yield Fund

[GRAPH APPEARS HERE]

Sentinel High Yield
- -------------------
Inception: 1997
Total Return (%)
- ----------------
1998
- -----
1.1
- -----

During the 1 year period shown in the above bar chart, the highest return for a
quarter for the High Yield Fund was 5.1% (quarter ended March, 1998) and the
lowest return for a quarter was (6.6)% (quarter ended September, 1998).

<PAGE>

Sentinel Bond Fund

[GRAPH APPEARS HERE]

Sentinel Bond
- ---------------
Inception: 1969
Total return (%)

- ----------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------
12.5 7.2 18.0 7.7 12.4 (4.9) 19.9 1.9 8.6 7.6
- ----------------------------------------------------------------------------
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Bond Fund was 7.3% (quarter ended June, 1989) and the lowest
return for a quarter was (3.8)% (quarter ended March, 1994).

Sentinel Government Securities Fund

[GRAPH APPEARS HERE]

Sentinel Gov. Sec.
- ------------------
Inception: 1986
Total return (%)

- ----------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------
12.6 9.2 15.2 7.4 9.3 (4.4) 19.0 0.08 9.3 9.1
- ----------------------------------------------------------------------------
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Government Securities Fund was 5.7% (quarter ended June, 1995)
and the lowest return for a quarter was (3.6)% (quarter ended March, 1994).

Sentinel Short Maturity Government Fund

[GRAPH APPEARS HERE]

Sentinel Short Maturity Gov.
- ----------------------------
Inception: 1986
Total return (%)
- -------------------------------------
1996 1997 1998
- -------------------------------------
4.6 6.8 6.3
- -------------------------------------

<PAGE>

During the 3 year period shown in the above bar chart, the highest return for a
quarter for the Short Maturity Government Fund was 2.5% (quarter ended June,
1997) and the lowest return for a quarter was (0.01)% (quarter ended March,
1996)

Sentinel US Treasury Money Market Fund

Sentinel US Treasury Money Market
- ---------------------------------
Inception: 1993
Total Return (%)
- --------------------------------------
1994 1995 1996 1997 1998
- --------------------------------------
3.3 5.0 4.5 4.6 4.5
- --------------------------------------

During the 5 year period shown in the above bar chart, the highest return for a
quarter for the U.S Treasury Money Market Fund was 1.3% (quarter ended December,
1995) and the lowest return for a quarter was 0.6% (quarter ended March, 1994).

Sentinel Tax-Free Income Fund

Sentinel Tax-Free Income
- ------------------------
Inception: 1990
Total Return (%)
- --------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------
12.1 9.0 12.7 (5.3) 15.3 2.6 9.3 5.8
- --------------------------------------------------------------------

[GRAPH APPEARS HERE]

During the 8 year period shown in the above bar chart, the highest return for a
quarter for the Tax-Free Income Fund was 6.2% (quarter ended September, 1995)
and the lowest return for a quarter was (4.9)% (quarter ended March, 1994).

<PAGE>

Sentinel NY Tax-Free Income Fund

Sentinel NY Tax-Free Income
- ---------------------------

Total return (%)
Inception: 1995
- -----------------------------------
1996 1997 1998
- -----------------------------------
3.0 10.4 6.8
- -----------------------------------

[GRAPH APPEAR HERE]

During the 3 year period shown in the above bar chart, the highest return for a
quarter for the New York Tax-Free Income Fund was 4.1% (quarter ended June,
1997) and the lowest return for a quarter was (2.2)% (quarter ended March,
1996).

Sentinel PA Tax-Free Trust

Sentinel PA Trust
- -----------------

Total return (%)
Inception:
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
8.5 5.9 10.3 9.4 9.7 (4.9) 14.2 3.4 8.6 5.0
- --------------------------------------------------------------------------------

[GRAPH APPEAR HERE]

During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Pennsylvania Tax-Free Trust was 5.7% (quarter ended June, 1989)
and the lowest return for a quarter was (4.3)% (quarter ended March, 1994).

Average Annual Total Returns

The tables below show the average annual total returns that were achieved by
each class of shares of each Fund for the year ended December 31, 1998, the 5
years ended December 31, 1998, and the 10 years ended December 31, 1998, unless
the Fund or class of shares did not exist for a full time period (in that case,
average annual total returns since inception are shown). All returns include
the effect of the maximum sales charges, including any contingent deferred sales
charge that would apply to a redemption at the end of the period, in the case
of the Class B and Class C shares. An appropriate broad-based securities market
index is also included for each Fund.

<PAGE>

Past Past Past 10 Years/
One Year 5 Years Since Inception
--------- ------- ---------------

Common Stock Fund Class A 8.30 17.31 15.35
S&P 500 Index 28.72 24.09 19.22

Common Stock Fund Class B 9.11 17.82(1)
S&P 500 Index 28.72 28.72

Common Stock Fund Class C

Balanced Fund Class A 6.29 11.65 11.72
Lehman Aggregate Bond Index 8.69 7.27 9.27
S&P 500 Index 28.72 24.09 19.22

Balanced Fund Class B 7.04 12.60(1)
Lehman Aggregate Bond Index 8.69 8.69
S&P 500 Index 28.72 28.72

Balanced Fund Class C*
Balanced Fund Class D**

Mid Cap Growth Fund Class A 9.93 14.87 13.43
S&P 500 Index 28.72 24.09 19.22

Mid Cap Growth Fund Class B*

Small Company Fund Class A 1.81 11.00 11.45(2)
Russell 2000 Index (2.24) 11.90 13.24

Small Company Fund Class B 2.22 11.69(1)
Russell 2000 Index (2.24) 10.79

World Fund Class A 4.80 9.08 13.13(2)
Morgan Stanley 20.33 9.50 12.90
International "EAFE" (Europe,
Australia, Far East) Index

World Fund Class B 5.23 9.83(1)
Morgan Stanley 20.33 9.04
International "EAFE" (Europe,
Australia, Far East) Index

World Fund Class C*

High Yield Bond Fund Class A (2.99) 3.76(3)
Lehman High Yield Index 1.87 5.54

High Yield Bond Fund Class B (3.24) 2.11(3)
Lehman High Yield Index 1.87 5.54

*No information is provided for the Class C shares of the Common Stock,
Balanced, World and High Yield Funds and the Class B shares of the Mid Cap
Growth Fund because those classes began operations less than one year prior to
December 31, 1998.

**No information is provided for the Class D shares of the Balanced Fund because
that class began operations on January 4, 1999.

<PAGE>

Past Past Past 10 Years/
One Year 5 Years Since Inception
-------- ------- ---------------

Bond Fund Class A 3.30 5.41 8.41
Lehman Aggregate Bond Index 8.69 7.27 9.29

Bond Fund Class B 2.45 11.69(1)
Lehman Aggregate Bond Index 8.69 8.69

Government Securities Fund Class A 4.75 5.59 8.11
Lehman Government Bond Index 9.85 7.18 9.17

Short Maturity Government Fund Class A 5.20 6.34(4)
Lehman 1-3 Yr. Gov't Bond Index 6.96 6.91

U.S. Treasury Money Market Fund Class A 4.5 4.4 4.0 (2)
U.S. Treasury Money Market Fund Class B 4.6 (1)
Lipper US Treasury Money Market Funds 4.77 5.13 5.40

Tax-Free Income Fund Class A 1.60 4.46 7.18(5)
Lehman Municipal Bond Index 6.48 6.22 8.32

New York Fund Class A 2.52 6.57(6)
Lehman Municipal Bond Index 6.48 7.91

Pennsylvania Fund Class A 0.79 4.20 6.45
Lehman Municipal Bond Index 6.48 6.22 8.22

(1) From inception on April 1, 1996.
(2) From inception on March 1, 1993.
(3) From inception on June 23, 1997.
(4) From inception on March 24, 1995.
(5) From inception on October 1 1990.
(6) From inception on March 27, 1995.

<PAGE>

Fees and Expenses

These tables describe the fees and expenses that you pay if you buy and hold
shares of the Funds:

Shareholder Fees (fees paid directly from your investment):

Class A Shares (available for all Funds):

Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) --
Common Stock, Balanced, Mid Cap Growth, Small Company and World
Funds................................................... 5.00% maximum
High Yield, Bond, Government Securities, Tax-Free Income,
New York and Pennsylvania Funds......................... 4.00% maximum
Short Maturity Government Fund...........................1.00%
Money Market Fund........................................None
Maximum Deferred Sales Charge (Load) None/1/
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......None
Redemption Fees...................................................None/1/
Exchange Fees.....................................................None/2/
- ------------
/1/If you redeem by wire transfer, we assess a wire charge of $25.00. In
addition, you pay a deferred sales charge of up to 1% on certain
redemptions of Class A shares made within two years of purchase if you
bought them without an initial sales charge as part of an investment of
$1,000,000 or more.

/2/If you exchange Class A shares of the Money Market Fund for Class A shares
of another Fund, and you did not acquire the Money Market Fund shares in an
exchange from another Fund's Class A shares, then you pay a sales charge
equal to the sales charge imposed on new purchases of the new Fund.

Class B Shares (available for the Common Stock, Balanced, Mid Cap Growth, Small
Company, World, High Yield, Bond and Money Market Funds)

Maximum Sales Charge (Load) Imposed on Purchases......................... None

Maximum Deferred Sales Charge (Load) (as a percentage of the lower
of the purchase price or net asset value of shares being redeemed)..... 4.00%
maximum/3/
Maximum Sales Charge (Load) Imposed on Reinvested Dividends............. None
Exchange Fees.......................................................... None
- ------------
/3/ The maximum deferred sales charge imposed on shares redeemed in the first
year after purchase. For shares held longer than one year, the deferred
sales charge declines.

Class C Shares (available for the Common Stock, Balanced, World and High Yield
Funds):

Maximum Sales Charge (Load) Imposed on Purchases........................ None

Maximum Deferred Sales Charge (Load) (as a percentage of the lower
of the purchase price or net asset value of shares being redeemed) .... 1.00%
for one year after purchase
Maximum Sales Charge (Load) Imposed on Reinvested Dividends..............None
Exchange Fees........................................................... None

Class D Shares (available for the Balanced Fund only)

Maximum Sales Charge (Load) Imposed on
Purchases......................................................... ..... None

Maximum Deferred Sales Charge (Load) (as a percentage of the lower of the
purchase price or net asset value of shares being redeemed) .....6.00% maximum
/4/
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.... None
Exchange Fees.................................................. None
- ------------

/4/The maximum deferred sales charge is imposed on shares redeemed in the first
two years after purchase. For shares held longer than two years, the deferred
sales charge declines.

<PAGE>

ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)

<TABLE>
<CAPTION>
CLASS A:
COMMON MID CAP SMALL
STOCK BALANCED GROWTH COMPANY WORLD
------- ------------- ---------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Management Fees........................ 0.55% 0.61% 0.61% 0.61% 0.61%
Rule 12b-1 Fees (includes service fee
and distribution fee)................. 0.30 0.30 0.30 0.30 0.30
Other Expenses:
Accounting and Administrative
Costs............................... 0.03 0.03 0.03 0.03 0.03
Other................................ 0.14 0.19 0.35 0.39 0.32
Total Other Expenses................... 0.17 0.22 0.38 0.42 0.35
------ ------ ------- ------- -------
Total Fund Operating Expenses.......... 1.02% 1.13% 1.29% 1.33% 1.26%
====== ====== ======= ======= =======

<CAPTION>
HIGH GOVERNMENT SHORT MATURITY
YIELD BOND SECURITIES GOVERNMENT
------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Management Fees........................ 0.75% 0.53% 0.53% 0.53%
Rule 12b-1 Fees (includes service fee
and distribution fee)................. 0.20 0.20 0.20 0.35
Other Expenses:
Accounting and Administrative
Costs............................... 0.03 0.03 0.03 0.03
Other................................ 0.30 0.19 0.23 0.21
Total Other Expenses................... 0.33 0.22 0.26 0.24
------ ----------- ---------- ------------
Total Fund Operating Expenses.......... 1.28% 0.95%(a) 0.99%(a) 1.12%(a)
====== =========== ========== ============
<CAPTION>
MONEY TAX FREE NEW YORK PENNSYLVANIA
MARKET INCOME TAX FREE TAX FREE
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Management Fees........................ 0.40% 0.53% 0.53% 0.55%
Rule 12b-1 Fees (includes service fee
and distribution fee)................. None 0.20 0.20 0.20
Other Expenses:
Accounting and Administrative
Costs............................... 0.03 0.03 0.03 0.24
Other................................ 0.30 0.16 0.25 0.32
Total Other Expenses................... 0.33 0.19 0.28 0.56
--------
Total Fund Operating Expenses.......... 0.73% 0.92%(a) 1.01%(a) 1.31%(a)
======== ========== =============== ==============
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
CLASS B: COMMON SMALL MID CAP
STOCK BALANCED COMPANY GROWTH
<S> <C> <C> <C> <C>
Management Fees........................ 0.55% 0.61% 0.61% 0.61%
Rule 12b-1 Fees (includes service fee
and distribution fee)................. 1.00 1.00 1.00 1.00
Other Expenses:
Accounting and Administrative
Costs............................... 0.03 0.03 0.03 0.03
Other................................ 0.23 0.26 .61 0.65
Total Other Expenses................... 0.26 0.29 .64 0.68
------ ------- ------- -------
Total Fund Operating Expenses.......... 1.81% 1.90% 2.25% 2.29%
====== ======= ======= =======

<CAPTION>
HIGH
WORLD YIELD BOND BOND MONEY MARKET
------ --------- --------- ------------
<S> <C> <C> <C> <C>
Management Fees........................ 0.61% 0.75% 0.53% 0.40%
Rule 12b-1 Fees (includes service fee
and distribution fee)................. 1.00 0.56 1.00 None
Other Expenses:
Accounting and Administrative
Costs............................... 0.03 0.03 0.03 0.03
Other................................ 0.61 0.18 0.28 0.35
Total Other Expenses................... 0.64 0.21 0.31 0.38
------ --------- ------- -------
Total Fund Operating Expenses.......... 2.25% 1.52% 1.84(a) 0.78%
====== ========= ========= =======

CLASS C:

<CAPTION>
COMMON HIGH
STOCK BALANCED WORLD YIELD BOND
--------- -------- ------ ------
<S> <C> <C> <C> <C>
Management Fees........................ 0.55% .61% 0.61% 0.75%
Rule 12b-1 Fees (includes service fee
and distribution fee)................. 1.00 1.00 1.00 1.00
Other Expenses:
Accounting and Administrative
Costs............................... 0.03 0.03 0.03 0.03
Other................................ 0.34 0.54 0.57 0.28
Total Other Expenses................... 0.37 0.57 0.60 0.31
------ -------- ------ ------
Total Fund Operating Expenses.......... 1.92% 2.18% 2.21% 2.06%
====== ======== ====== ======
</TABLE>

<PAGE>

CLASS D:
BALANCED
--------
Management Fees 0.61 %
Rule 12b-1 Fees (includes service fee & distribution fee) 0.75 %
Other Expenses:
Accounting and Administrative Costs 0.03 %
Other 0.27 %
Total Other Expenses 0.30 %
-------
Total Fund Operating Expenses 1.66 %
=======

_____________________________

(a) Current Expense Ratios
The above expense ratios do not reflect waivers or reimbursements of expenses by
Sentinel Advisors.

Currently Sentinel Advisors voluntarily waives or reimburses the expenses of the
Funds shown below to the extent necessary to cap expense ratios at the amounts
shown. These waivers or reimbursements will continue at least until November 30,
1999.

Bond Fund Class A shares......................................... 0.76%
Government Securities Fund Class A shares........................ 0.83%
Short Maturity Government Fund Class A shares.................... 0.77%
Tax-Free Income Fund Class A shares.............................. 0.73%
Pennsylvania Fund Class A shares................................. 0.69%
New York Fund Class A shares..................................... 0.00%

Because the Bond Fund also has Class B shares, the waiver of advisory fees of
the Bond Fund also benefits the Class B shares of the Bond Fund. The Class B
shares of the Bond Fund will experience the same reduced effective advisory
fee rate as the Class A shares of the Bond Fund. Sentinel Advisors intends to
reset these expense caps annually to amounts approximately equal to 90% of the
average expense ratios of the Class A shares of the Funds' peer groups (except
that in the case of the Short Maturity Government Fund, the expense cap is to be
increased by approximately 0.15% to take that Fund's higher Rule 12b-1 fee into
account). However, these arrangements may be changed or terminated at any time
after November 30, 1999.

<PAGE>

Examples:

These examples are intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.

These examples assume that you invest $10,000 in each Fund for the time periods
indicated, that you pay the maximum sales charge that applies to a particular
class, that the Fund's operating expenses remain the same, and that your
investment has a 5% return each year. This assumption is not meant to indicate
that you will receive a 5% annual rate of return. Your annual return may be more
or less than the 5% used in these examples. Although your actual costs may be
higher or lower, based on these assumptions your costs would be as shown below.

NOTE THAT THE AMOUNTS SHOWN DO NOT REFLECT ANY OF THE WAIVERS OR REIMBURSEMENTS
THAT LIMIT EXPENSE RATIOS TO THE LEVELS SHOWN IN FOOTNOTE (A) ON PAGE 12.

<TABLE>
<CAPTION>
Class A: 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock .................................. $ 599 $ 808 $ 1035 $ 1685
Balanced ...................................... 609 841 1091 1806
Growth ........................................ 625 889 1172 1979
Small Company ................................. 629 900 1192 2021
World ......................................... 622 880 1157 1946
High Yield .................................... 525 790 1074 1883
Bond .......................................... 493 691 904 1520
Government Securities ......................... 497 703 925 1564
Short Maturity Government ..................... 213 452 711 1450
Money Market .................................. 75 233 406 906
Tax-Free Income ............................... 490 682 889 1486
New York ...................................... 499 709 936 1587
Pennsylvania .................................. 528 799 1089 1916
<CAPTION>

Class B (if you redeem at the end of the period):
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock .................................. $ 224 $ 599 $ 1000 $ 1728
Balanced ...................................... 233 627 1046 1838
Growth ........................................ 272 745 1245 2143
Small Company ................................. 268 733 1225 2140
World ......................................... 268 733 1225 2105
High Yield .................................... 195 510 849 1689
Bond .......................................... 227 609 1015 1710
Money Market .................................. 120 279 453 939
<CAPTION>

Class B (if you do not redeem):
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock .................................. $ 184 $ 569 $ 980 $ 1728
Balanced ...................................... 193 597 1026 1838
Growth ........................................ 232 715 1225 2143
Small Company ................................. 228 703 1205 2140
World ......................................... 228 703 1205 2105
High Yield .................................... 155 480 829 1689
Bond .......................................... 187 579 995 1710
Money Market .................................. 80 249 433 939
</TABLE>

<PAGE>

Class C: (if you redeem at the end of the period)
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock .................................... $ 205 $ 603 $ 1037 $ 2243
Balanced ........................................ 231 682 1169 2513
World ........................................... 234 691 1185 2544
High Yield ...................................... 219 646 1108 2390

<CAPTION>
Class C (if you do not redeem):
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Common Stock .................................... $ 195 $ 603 $ 1037 $ 2243
Balanced ........................................ 221 682 1169 2513
World ........................................... 224 691 1185 2544
High Yield ...................................... 209 646 1108 2390

<CAPTION>
Class D: (if you redeem at the end of the period)
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced $ 229 $ 573 $ 942 $ 1696

<CAPTION>
Class D: (if you do not redeem) 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced $ 169 $ 523 $ 902 $ 1696
</TABLE>

<PAGE>

Details About the Funds' Investment Objectives, Principal Investment Strategies,
and Related Risks

Each Fund has distinct investment objectives and policies. Investment objectives
are fundamental policies of each Fund that may only be changed by a majority
vote of the outstanding shares of that Fund. We cannot guarantee that these
objectives will be achieved.

Each Fund's investment objectives and policies are described in this section. A
general discussion of the Funds' investment policies and associated risks
follows.

THE COMMON STOCK FUND INVESTS IN COMMON STOCKS OF WELL-ESTABLISHED COMPANIES

. THE COMMON STOCK FUND seeks a combination of growth of capital, current
income, growth of income, and relatively low risk as compared with the stock
market as a whole. It seeks this goal by investing mainly in a diverse group of
common stocks of well-established companies, most of which pay regular
dividends. Sentinel Advisors tries to select stocks of leading companies that
are financially strong and are selling at attractive prices in relation to their
values. When appropriate, the Fund also may invest in preferred stocks or
debentures convertible into common stocks.

THE BALANCED FUND INVESTS IN A COMBINATION OF STOCKS AND BONDS

. THE BALANCED FUND seeks a combination of growth of capital and current income,
with relatively low risk and relatively low fluctuations in value. It seeks this
goal by investing in common stocks similar to those in the Common Stock Fund and
in investment grade bonds similar to those in the Bond Fund, with at least 25%
of its assets in bonds. When determining this percentage, convertible bonds
and/or preferred stocks are considered common stocks, unless these securities
are held primarily for income. Sentinel Advisors will divide the Fund's assets
among stocks and bonds based on whether it believes stocks or bonds offer a
better value at the time. More bonds normally enhance price stability, and more
stocks usually enhance growth potential.

THE MID CAP GROWTH FUND INVESTS IN STOCKS OF MID-SIZED GROWING COMPANIES

. THE MID CAP GROWTH FUND seeks growth of capital by focusing its investments on
common stocks of mid-sized growing companies. Sentinel Advisors tries to invest
in companies with favorable growth potential with attractive pricing in relation
to this growth potential, and experienced and capable managements. The Fund will
invest at least 65% of its assets in stocks whose market capitalizations are
within the range of the stocks comprising the Standard & Poors 400 Midcap Index.
Income is not a factor in selecting investments.

Sentinel Advisors emphasizes stocks it believes to have superior potential for
growth, rather than wide diversification. The Fund may invest up to 25% of its
assets in stocks of companies within a single industry. The Fund is actively
managed. It is possible that the Fund's turnover rate may exceed 100% annually.
High turnover would cause the Fund to incur higher trading costs, including more
brokerage commissions. It may also cause the Fund to recognize capital gains and
capital losses for tax purposes earlier than it would if its turnover rate was
lower.

<PAGE>

THE SMALL COMPANY FUND INVESTS IN STOCKS OF SMALL AND MEDIUM-SIZED COMPANIES.

. THE SMALL COMPANY FUND seeks growth of capital, by investing mainly in common
stocks of small and medium-sized companies that Sentinel Advisors believes have
attractive growth potential and are attractively valued. Income is not a factor
in selecting stocks. The Fund invests at least 65% of its assets in stocks of
companies with market capitalizations of less than $2 billion, and the median
market capitalization of the Fund's holdings is less than $1 billion. Market
capitalization is the total value of all the outstanding shares of common stock
of a company. Up to 25% of the Fund's assets may be invested in securities
within a single industry.

The Small Company Fund's policy is to avoid short-term trading. However, the
Fund may sell a security without regard to its holding period if Sentinel
Advisors believes it is in the Fund's best interest to do so. The Fund's
turnover rate is not expected to exceed 100% annually. The Fund is intended for
long-term investors willing to accept more risk in order to seek above-average
gains.

THE WORLD FUND INVESTS IN STOCKS OF NON-U. S. COMPANIES.

. THE WORLD FUND seeks growth of capital, by investing mainly in common stocks
of established non-U.S. companies, or in U.S. companies that conduct their
business mainly outside the United States. INVESCO Capital Management, Inc.
manages the World Fund under a sub-advisory arrangement. The World Fund will
normally spread its assets over many different countries, and will normally not
concentrate its investments in any one country. The Fund generally will not
invest more than 25% of its assets in any one country, but the Fund may invest
up to 40% of its assets in any one country if INVESCO feels that economic and
business conditions make it appropriate to do so.

The Fund focuses its investments on developed foreign countries, but may invest
up to 5% of its assets in emerging markets. It normally will have substantial
investments in European countries. See page ___ for a discussion of the
European Economic and Monetary Union.

Normally, at least 75% of the Fund's total assets are invested in securities of
non-U.S. issuers selected by INVESCO mainly for their long-term capital growth
prospects. The remaining 25% may be invested in companies organized in the
United States that have at least 50% of their assets and/or revenues outside the
United States. The Fund also may also invest in convertible or debt securities
rated Baa or higher by Moody's Investors Service, Inc. or BBB or higher by
Standard & Poor's.

The majority of the Fund's trading of stocks will occur on established stock
exchanges or in the over-the-counter markets in the countries in which
investments are being made. The Fund also expects to purchase American
Depositary Receipts, and European Depositary Receipts in bearer form, which are
designed for use in European securities markets. ADRs are traded on U.S.
exchanges or in the U.S. over-the-counter markets, and represent foreign stocks.
To expedite settlement of portfolio transactions and minimize currency value
fluctuations, the Fund may purchase foreign currencies and/or engage in forward
foreign currency transactions. Normally, however, the Fund does not hedge its
foreign currency exposure.

You should note that investing in foreign stocks involves some risks which
normally are not associated with investing in U.S. securities, including those
described on page below.

THE HIGH YIELD BOND FUND INVESTS IN LOWER RATED CORPORATE BONDS

. THE HIGH YIELD BOND FUND seeks high current income and total return by
investing mainly in lower rated corporate bonds, sometimes called "junk bonds".
The High Yield Fund is managed by a sub-advisor, Evergreen Investment Management
Company. The High Yield Fund will normally invests at least 80% of its total
assets in lower rated bonds. These bonds, because of the greater possibility
that the issuers will default, are not investment grade - that is, they are
rated below BBB by Standard & Poor's or below Baa by Moody's, or are unrated but
considered by Evergreen to be of comparable credit quality). The High Yield Fund
may invest in debt securities of any maturity. No more than 25% of the High
Yield Fund's assets are will be invested in a single industry and no more than
5% of its assets in a single issuer. Lower rated debt securities and their
associated risks are described in more detail and the risks inherent in
investing in them are discussed on page .

The High Yield Fund also may also invest up to 20% of its total assets in common
stocks, usually as a result of warrants associated with its bond holdings, but
also, under certain circumstances, to seek capital appreciation. The Fund also
may also invest in bonds convertible into common stock. If the Fund receives
common stock in exchange for defaulted bonds in a corporate reorganization, the
Fund will treat this common stock as a new investment. If this new investment
would not be permitted under this restriction, then common stock in an amount at
least equal to the amount of the new investment will be promptly sold.

The High Yield Fund, when aggregated with the holdings of other mutual funds
advised by Evergreen, will not own more than 20% of the outstanding debt
securities of any issuer.

The High Yield Fund may invest up to 15% of its net assets in illiquid
securities. The Fund will not be able to readily resell illiquid securities and
resale of some of these securities may be restricted by law or contractual
provisions. The inability to sell these securities at the most opportune time
may cause the net asset value of the Fund to go down.

The High Yield Fund may invest in corporate loans made by banks or other
financial institutions. The Fund may not be readily able to resell some of
these corporate loans and they may be subject to restrictions on resale. If so,
they would be subject to the Fund's limitation on illiquid securities. The
value of a corporate loan will depend mainly on the borrower's ability to repay
its debts. The High Yield Fund will invest in a corporate loan only if, in
Evergreen's judgment, the borrower is capable of repaying the loan. However,
Evergreen does not have any set minimum credit rating criteria regarding these
borrowers. Evergreen will monitor the creditworthiness of the borrowers of
corporate loans in which the High Yield Fund invests, but there can be no
assurance that Evergreen will recognize factors that might ultimately impair the
value of a corporate loan in time to protect the High Yield Fund from loss.

The High Yield Fund may invest up to 25% of net assets in the securities of
foreign issuers, if they are denominated in U.S. dollars and are purchased and
held by the High Yield Fund in the United States. You should note that investing
in foreign securities involves certain special risk considerations which
normally are not associated with investing in U.S. securities, including those
described on page .

<PAGE>

The High Yield Fund does not expect to invest in futures and options, or other
derivatives contracts during the coming year. However, if derivative securities
are developed which permit effective hedging of a lower quality bond portfolio,
the High Yield Fund may, for hedging purposes only, buy or sell derivative
securities contracts. The total market value of any of these derivatives
contracts at the time a position is taken will not exceed 5% of the High Yield
Fund's net assets.

THE BOND FUND INVESTS IN INVESTMENT GRADE BONDS

. THE BOND FUND seeks high current income while seeking to control risk by
investing mainly in investment grade bonds. The Fund will invest exclusively in
fixed-income securities. At least 80% of the Fund's assets, will normally be
invested in the following types of bonds:

1. Corporate bonds which at the time of purchase are rated within the four
highest rating categories of Moody's, Standard & Poor's or any other
nationally recognized statistical rating organization;

2. Debt securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, including the mortgage-backed securities described in
the section on the Government Securities Fund on page ;

3. Debt securities (payable in U.S. dollars) issued or guaranteed by Canadian
governmental entities; and

4. Debt obligations of domestic banks or bank holding companies, even though
not rated by Moody's or Standard & Poor's, that Sentinel Advisors
believes have investment qualities comparable to investment grade
corporate securities.

The remainder of the Fund's assets may be invested in other fixed income
securities, such as straight or convertible debt securities and straight or
convertible preferred stocks.

The Fund will invest no more than 20% of its total assets in lower quality
bonds. These bonds are described in more detail in the discussion of the High
Yield Fund. The risks inherent in these lower rated bonds are discussed on
pages .

The Bond Fund may not invest more than 25% of its total assets in any one
industry, except for U.S. Government Securities. In applying this limitation,
Sentinel Advisors classifies utility companies according to their services, and
financial services companies according to the end users of their services. For
example, natural gas, electric, and telephone will each be considered a separate
industry, as will auto finance, bank finance, and diversified finance.

<PAGE>

THE GOVERNMENT SECURITIES FUND INVESTS IN U.S. GOVERNMENT BONDS

. THE GOVERNMENT SECURITIES FUND seeks high current income while seeking to
control risk by investing mainly in U.S. government bonds. These bonds include
direct obligations of the U.S. Treasury, obligations guaranteed by the U.S.
government, and obligations of U.S. government agencies and instrumentalities.

The Fund is not required to invest set amounts in any of the various types of
U.S. government securities. Sentinel Advisors will choose the types of U.S.
government securities that it believes will provide the best return with the
least risk in light of its analysis of current market conditions and its outlook
for interest rates and the economy.

The Fund may make unlimited investments in mortgaged-backed U.S. government
securities, including pass-through certificates guaranteed by the Government
National Mortgage Association. Each GNMA certificate is backed by a pool of
mortgage loans insured by the Federal Housing Administration and/or the Veterans
Administration, and provides for the payment of fixed monthly installments of
principal and interest. Timely repayment of principal and payment of interest
is guaranteed by the full faith and credit of the U.S. government. The Fund may
invest in mortgage-backed securities guaranteed by the Federal National Mortgage
Association and by the Federal Home Loan Mortgage Corporation. In all of these
mortgage-backed securities, the actual maturity of and realized yield will vary
based on the prepayment experience of the underlying pool of mortgages.
Securities guaranteed by FNMA and FHLMC are not backed by the full faith and
credit of the United States.

While the maximum life of a mortgage-backed security is typically 30 years, its
average life is likely to be substantially less than the original maturity of
the underlying mortgages, because the mortgages in these pools may be prepaid,
refinanced, or foreclosed. Prepayments are passed through to the mortgage-
backed securityholder along with regularly scheduled repayments of principal
and payments of interest.

If prevailing interest rates are below the rates on the mortgages, the mortgage
borrowers are more likely to refinance their mortgages than if interest rates
are at or above the interest rates on the mortgages. Faster prepayments will
reduce the potential of the mortgage-backed securities to rise in value during
periods of falling interest rates, while the risk of falling value during
periods of rising interest rates may be comparable to other bonds of similar
maturities.

The Fund may engage in the "dollar roll" transactions described on page .

The Fund also may use repurchase agreements as a means of making short-term
investments. It will invest only in repurchase agreements with durations of
seven days or less, only where the collateral securities are U.S. government
securities, and only in aggregate amounts of not more than 25% of the Fund's net
assets. The Fund might incur time delays or losses if the other party to the
agreement defaults on the repurchase of the securities.

In addition, the Fund may invest up to 20% of its net assets in high quality
money market instruments which are not issued or guaranteed by the U.S.
government or its agencies or instrumentalities. These include bank money market
instruments, commercial paper or other short-term corporate obligations listed
in the highest rating categories by nationally recognized statistical rating
organizations. These money market instruments may be used as a means of making
short-term investments.

THE SHORT MATURITY GOVERNMENT FUND INVESTS IN U. S. GOVERNMENT BONDS WITH
LIMITED MATURITIES

. THE SHORT MATURITY GOVERNMENT FUND seeks high current income and limited
fluctuations in principal value by investing mainly in U.S. government bonds
that have average maturities from two to five years. Under normal circumstances,
the dollar weighted average maturity of the portfolio will be three years or
less. This Fund invests at least 65% of its assets in U.S. Government Securities
with average maturities of from two to five years. The remainder of the Fund's
assets may be invested in U.S. government securities with other maturities. The
U.S. government securities in which the Fund will invests include the same types
of securities in which the Government Securities Fund will invest.

The Fund is not required to invest set amounts in any types of U.S. government
securities. Sentinel Advisors chooses the types of U.S. government securities
that it believes will provide the best return with the least risk in light of
its analysis of current conditions and its outlook for interest rates and the
economy. Like the Government Securities Fund, the Short maturity Government
Fund may make unlimited investments in mortgage-backed U.S. government
securities.

The Fund may engage in the "dollar roll" transactions described on page .

In addition, like the Government Securities Fund, the Short Maturity
Government Fund may invest up to 20% of its net assets in high quality money
market instruments which are not issued or guaranteed by the U.S. government
or its agencies or instrumentalities. The Fund may also use repurchase
agreements as a means of making short-term investments, in the same way as
described for the Government Securities Fund above.

The Fund is not guaranteed or insured by the U.S. Government, and the value of
the Fund's shares will fluctuate.

THE MONEY MARKET FUND INVESTS SOLELY IN SHORT-TERM U. S. TREASURY SECURITIES

THE U.S. TREASURY MONEY MARKET FUND seeks as high a level of current income as
is consistent with stable principal values, by investing solely in short-term
direct obligations of the U.S. Treasury. These obligations include U. S.
Treasury bills, notes and bonds with remaining maturities of 397 days or less.
The Fund may earn less income than funds owning longer term securities or
lower quality securities that have less liquidity, greater market risk and
greater market value fluctuations.

<PAGE>

The Fund seeks to maintain a net asset value of $1.00 per share, by using the
amortized cost method of valuing its securities. The Fund is required to
maintain a dollar-weighted average portfolio maturity of 90 days or less.

In many states, the Fund's income dividends may be exempt from state and local
income taxes, but subject to federal income taxes. For more information on
state and local tax exemption, see "Taxes" herein.

THE TAX-FREE INCOME FUND INVESTS IN INVESTMENT GRADE MUNICIPAL BONDS

. THE TAX-FREE INCOME FUND seeks high current income exempt from federal income
taxes while seeking to control risk, by investing mainly in investment grade
municipal bonds. The interest earned from these municipal bonds, in the opinion
of the issuer's bond counsel, are exempt from federal income tax. These
investments may include municipal bonds issued by states, territories and
possessions of the United States and their political subdivisions, agencies,
authorities and instrumentalities. The Fund seeks to spread its holdings out
broadly among municipal bonds of different states and regions, and among
different types of issuing authorities.

Normally at least 80% of the total assets of the Tax-Free Income Fund will be
invested in municipal bonds rated within the four highest rating categories of
either Moody's or Standard & Poor's. The Fund also may invest in unrated
municipal bonds if Sentinel Advisors believes the credit characteristics are at
least equivalent to those of municipal bonds ranked in the fourth highest rating
category of either Moody's or Standard & Poor's. Although this is not a
fundamental policy, no more than 5% of the Fund's total assets may be invested
in lower rated municipal bonds.

THE NEW YORK FUND INVESTS IN INVESTMENT GRADE MUNICIPAL BONDS OF NEW YORK
ISSUERS

. THE NEW YORK TAX-FREE FUND seeks high current interest income exempt from
federal and New York State and City personal income taxes, while seeking to
control risk, by investing in investment grade municipal bonds of New York
issuers. The interest on these municipal bonds will be, in the opinion of the
issuer's bond counsel, exempt from federal income tax and New York State and
City personal income tax. Normally these bonds will have remaining maturities of
more than one year at the time of investment.

The Fund may, however, invest up to 20% of its net assets in short-term New York
municipal bonds. Normally, at least 80% of the total assets of the New York
Fund will be invested in municipal bonds rated within the four highest rating
categories of either Moody's or Standard & Poor's. The New York Fund also may
invest in unrated municipal bonds if Sentinel Advisors believes the credit
characteristics are at least equivalent to those of municipal bonds ranked in
the fourth highest rating category of either Moody's or Standard & Poor's.
Although this is not a fundamental policy, no more than 5% of the New York
Fund's total assets may be invested in lower rated New York municipal bonds.

<PAGE>

THE PENNSYLVANIA FUND INVESTS IN INVESTMENT GRADE MUNICIPAL BONDS OF
PENNSYLVANIA ISSUERS

. THE PENNSYLVANIA FUND seeks high current interest income exempt from federal
and Pennsylvania personal income taxes, while seeking to control risk, by
investing in investment grade municipal bonds of Pennsylvania issuers. The
interest on these municipal bonds is, in the opinion of the issuer's bond
counsel, exempt from federal income tax and Pennsylvania personal income tax.

The Pennsylvania Fund normally will invest substantially all of its net assets
in Pennsylvania municipal bonds with maturities of more than one year. The Fund
may, however, invest up to 20% of its net assets in short-term Pennsylvania
municipal bonds. All of the Pennsylvania municipal bonds in which the
Pennsylvania Fund invests will be rated in the top four rating categories by
Moody's or Standard & Poor's or, if unrated, will have equivalent investment
characteristics, as determined by Sentinel Advisors.

At least 75% of the Pennsylvania Fund's assets will always be invested in
municipal obligations rated "A" or higher by Moody's or by Standard & Poor's or
if not rated, bonds that, in the opinion of Sentinel Advisors, have equivalent
investment characteristics, or highly rated municipal notes or tax-exempt
commercial paper. The Pennsylvania Fund cannot invest in "junk" municipal
obligations.

GENERAL INFORMATION RELEVANT TO THE INVESTMENT PRACTICES OF THE FUNDS, AND
ASSOCIATED RISKS

We cannot guarantee that any Fund's investment objective will be achieved.

Information Relevant to the Equity Funds

RISKS YOU FACE BY INVESTING IN THE EQUITY FUNDS

Stock Market and Selection Risk. The Common Stock, Balanced, Mid Cap Growth,
Small Company and World Funds are subject to stock market and selection risk.
Stock market risk is the risk that the stock market will go down in value,
including the possibility that the market will go down sharply and
unpredictably. Selection risk is the risk that the investments that Sentinel
Advisors or INVESCO select will under perform that stock market or other funds
with similar investment objectives and investment strategies.

Risks of Stocks of Smaller Companies. The stocks of small and medium-sized
companies typically involve more risk than the stocks of larger companies.
These smaller companies may have more limited financial resources, narrower
product lines, and may have less seasoned managers. In addition, these stocks
may trade less frequently and in lower share volumes, making them subject to
wider price fluctuations.

<PAGE>

Risks of Investing in Foreign Securities.

The Common Stock, Balanced, Mid Cap Growth, Small Company, High Yield and Bond
Funds may invest in securities of foreign issuers, although only where they are
trading in the United States (or in the case of the High Yield and Bond Funds,
on the Eurodollar market), and only where trading is denominated in U.S.
dollars. The World Fund invests in securities traded in foreign markets and
denominated in foreign currencies.

RISKS APPLICABLE MOST DIRECTLY TO THE WORLD FUND

Investing in foreign securities involves certain special risks in addition to
those associated with U.S. securities. For example, the Funds may be affected
favorably or unfavorably by changes in currency rates or exchange control
regulations. Foreign markets may have less active trading volume than those in
the United States, and values may fluctuate more as a result. If the Funds,
most particularly the World Fund, had to sell securities to meet unanticipated
cash requirements, it may be forced to accept lower prices. There may be less
supervision and regulation of foreign exchanges. Foreign companies generally
release less financial information than comparable U.S. companies. Furthermore,
foreign companies generally are not subject to uniform accounting, auditing and
financial reporting requirements. Other possible risks include seizing of
assets by foreign governments, high and changing taxes, difficulty enforcing
judgments against foreign issuers, withholding taxes imposed by foreign
governments on dividend or interest payments, political or social instability,
or diplomatic developments that could affect U.S. investments in those
countries.

European Economic and Monetary Union ("EMU"). Certain European countries have
agreed to enter the EMU in an effort to, among other things, reduce barriers
between countries, increase competition among companies, reduce government
subsidies in certain industries, and reduce or eliminate currency fluctuations
among these countries. Among other things, EMU establishes a single common
European currency (the "euro") that was introduced on January 1, 1999 and is
expected to replace the existing national currencies of all EMU participants by
July 1, 2002. Upon introduction of the euro, certain securities (beginning with
government and corporate bonds) will be redenominated in the euro and,
thereafter, will be listed, trade, and make dividend and other payments only in
euros. Although EMU is generally expected to have a beneficial effect, it could
negatively affect the World Fund in a number of situations, including as
follows:

. If the euro, or EMU as a whole, does not take effect as planned, the World
Fund's investments could be adversely affected. For example, sharp
currency fluctuations, exchange rate volatility and other disruptions of
the markets could occur.

. Withdrawal from EMU by a participating country could also have a negative
effect on the World Fund's investments, for example, if securities
redenominated in euros are transferred back into that country's national
currency.

<PAGE>

. Computer, accounting and trading systems must be capable of recognizing the
euro as a distinct currency. Like other investment companies and business
organizations, the World Fund could be adversely affected if the systems
used by Sentinel Advisors, INVESCO, the Fund's other service providers, or
entities with which the Fund or its service providers do business have not
properly addressed this issue. These issues may negatively affect the
operations of the companies the Funds invest in as well.

Risks of Holding Fund Assets Outside the United States. The World Fund
generally holds its foreign securities outside the United States in foreign
banks and securities depositories. Some foreign banks and securities
depositories may be recently organized or new to the foreign custody business.
In addition, there may be limited or no regulatory oversight over their
operations. Also, the laws of certain countries may put limits on the World
Fund's ability to recover its assets if a foreign bank, depository or issuer of
a security, or any of their agents, goes bankrupt. Also, brokerage commissions,
and other costs of buying, selling or holding securities in foreign markets are
often higher than in the United States. This can reduce amounts the World Fund
can earn on its investments. Foreign settlement and clearance procedures and
trade regulations also may involve certain risks (such as delays in payment for
or delivery of securities) not typically involved with the settlement of U.S.
investments. Communications between the United States and emerging market
countries may be unreliable, increasing the risk of delayed settlements or
losses of security certificates. Settlements in certain foreign countries at
times have not kept pace with the number of securities transactions. These
problems may make it difficult for the World Fund to carry out transactions.

Emerging Markets Risk. The World Fund may invest up to 5% of its assets in
emerging markets. The risks of foreign investments are usually much greater for
emerging markets. Investments in emerging markets may be considered
speculative. Emerging markets include those in countries defined as emerging or
developing by the World Bank, the International Finance Corporation or the
United Nations. Emerging markets are riskier because they develop unevenly and
may never fully develop. They are more likely to experience hyperinflation and
currency devaluations, which adversely affects returns to U.S. investors. In
addition, the securities markets in many of these countries have far lower
trading volumes and less liquidity than developed markets. Since these markets
are so small, investments in them may be more likely to suffer sharp and
frequent price changes or long term price depression because of adverse
publicity, investor perceptions or the actions of a few large investors. In
addition, traditional measures of investment values used in the United States,
such as price to earnings ratios, may not apply to certain small markets.

Many emerging markets have histories of political instability and abrupt
changes in policies. As a result, their governments are more likely to take
actions that are hostile or detrimental to private enterprise or foreign
investment than those of more developed countries. Certain emerging markets may
also face other significant internal or external risks, including the risk of
war, and ethnic, religious and racial conflicts. In addition, governments in
many emerging market countries participate to a significant degree in their
economies and securities markets, which may impair investment and economic
growth.

Information Relevant to the Fixed-Income Funds

The market prices of bonds, including those issued by the U.S. government, go up
as interest rates fall, and go down as interest rates rise. As a result, the net
asset value of the shares of Funds holding bonds will fluctuate with conditions
in the bond markets. Bonds with longer maturities and longer durations (a
measure of a bond's sensitivity to changes in interest rates) generally have
higher yields and are subject to greater price fluctuation due to interest rate
changes than bonds with shorter maturities or shorter effective durations.

The Bond, New York and Tax-Free Income Funds, and the bond portion of the
Balanced Fund, may invest without limitation in bonds in the fourth highest
rating category of Moody's and Standard & Poor's. The Pennsylvania Fund may
invest up to 25% of its assets in these bonds. While considered "investment-
grade", these bonds may have more speculative characteristics and may be more
likely to be downgraded than bonds rated in the three highest rating categories.
If a bond is downgraded below investment-grade, Sentinel Advisors will determine
whether selling it is in the shareholders' best interest. To arrive at this
decision, Sentinel Advisors will consider, among other things, the market price,
credit risk, and general market conditions.

LOWER QUALITY BONDS ARE MORE RISKY THAN HIGHLY RATED BONDS

Risks of Lower Quality Bonds. The High Yield Fund may invest without limitation,
and the Bond Fund and the bond portion of the Balanced Fund may invest up to 20%
of total assets in lower rated bonds. The Tax-Free Income and New York Funds
may invest up to 5% of total assets in lower quality bonds. Because of the
increased risk of default, these bonds generally have higher nominal or
effective interest rates than higher quality bonds. The Funds may purchase bonds
in the lowest rating categories (D for S&P and C for Moody's) and comparable
unrated securities. However, the Funds will only purchase securities rated lower
than B- by S&P or B3 or lower by Moody's if Sentinel Advisors or Evergreen
believes the quality of the bonds is higher than indicated by the rating.

Lower quality bonds may pay interest at fixed, floating or adjustable rates. The
value of floating or adjustable rate bonds is less likely to be adversely
affected by interest rate changes than fixed rate bonds. However, if interest
rates fall, the Funds may earn less income if they hold floating or adjustable
rate bonds.

<PAGE>

Lower rated bonds are more speculative and likely to default than higher quality
bonds. Lower rated bond values also tend to fluctuate more widely in value for
several reasons. An economic downturn may have a greater impact on the ability
of issuers with less financial strength to make their bond payments. These bonds
may not be traded as actively. Their prices may respond more adversely to
negative publicity and investor perceptions. If trading in lower rated bonds
becomes less active, the Funds may have more difficulty in valuing these bonds.
Success in investing in junk bonds depends heavily on Sentinel Advisors' or
Evergreen's credit analysis. Lower rated bonds are also more sensitive than
other debt securities to adverse business developments affecting specific
issuers. The risk of loss due to default by the issuer of a lower quality bond
may be significantly greater than the risk for higher rated bonds because lower
quality bonds are more likely to be unsecured and may be subordinated to other
creditors. If a bond defaults, the Funds may incur additional expenses in
seeking a recovery or participating in a restructuring. Lower quality bonds also
may have call features that permit the issuer to repurchase the securities from
the Funds before their maturity. If a call is exercised during a period of
declining interest rates, the affected Fund would probably have to replace the
called bonds with lower yielding bonds, and the Fund's investment income would
go down.

Zero Coupon and Similar Bonds. The High Yield and Bond Funds, and the bond
portion of the Balanced Fund, also may invest in bonds that do not pay interest,
but instead are issued at a significant discount to their maturity values
(referred to as zero coupon securities), that pay interest in additional
securities instead of cash (referred to as pay-in-kind securities) or that pay
interest at predetermined rates that increase over time (referred to as step
coupon bonds). Even though the Funds may not get cash interest payments on these
bonds, under existing tax law the Funds nevertheless must accrue and distribute
the income deemed to be earned on a current basis. This may cause a Fund to have
to sell other investments to raise the cash needed to make income distributions.

Restricted Bonds. The High Yield and Bond Funds and the bond portion of the
Balanced Fund may purchase certain restricted bonds, often called Rule 144A
bonds, for which trading is limited to qualified institutional buyers. Sentinel
Advisors or Evergreen may determine that Rule 144A bonds are liquid securities
under guidelines approved by the Funds' Board of Directors, and these Rule 144A
bonds will not be subject to the High Yield Fund's limitation on illiquid
securities, or the prohibition on illiquid securities for the Bond Fund and bond
portion of the Balanced Fund. These liquid Rule 144A Securities may become
illiquid if qualified institutional buyers are unavailable.

Portfolio Turnover. In the fiscal year ended November 30, 1998, the fixed
income Funds shown below had the following rates of portfolio turnover:

Government Securities Fund ......................... 355%
Bond Fund ........................................... 147%
High Yield Fund...................................... 139%
Short Maturity Government Fund ...................... 229%

In addition, the Balanced Fund had portfolio turnover of 31% for the equity
portion, and 153% for the bond portion.

<PAGE>

Funds are actively managed, and their portfolios are constantly monitored and
adjusted to try to increase income, protect the income stream or improve the
quality of the holdings. This investment policy results in higher portfolio
turnover, but this need not adversely affect performance, because these Funds
generally do not pay commissions. They deal directly with dealers acting as
principals when buying or selling. The trading price may include a profit to the
dealer, but the Funds will only make these trades when Sentinel Advisors or
Evergreen believes it will help the Funds to achieve their investment
objectives. This higher portfolio turnover may cause the Funds to recognize
capital gains or capital losses for tax purposes earlier than they otherwise
would.

Dollar Rolls. The Bond, Government Securities, Short Maturity Government and
Balanced Funds may also enter into "dollar rolls". In a dollar roll, a Fund
sells mortgage-backed or U.S. Treasury securities for delivery in the current
month, and simultaneously contracts to buy back securities of the same type,
coupon and maturity on a predetermined future date. During the roll period, a
Fund foregoes principal and interest paid on the mortgage-backed or U.S.
Treasury securities. In return, a Fund receives the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop"), and interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll in which the
proceeds of a dollar roll are held in a separate account and invested only in
high grade money market instruments. The Funds may only invest in covered rolls.
The use of dollar rolls tends to increase the portfolio turnover of the Funds,
and increases portfolio income without increasing the risk levels of the Funds.

Information Relevant to the Tax-Exempt Funds

Alternative Minimum Tax. Interest income on certain "private activity" bonds is
a preference item for shareholders subject to the alternative minimum tax.
Municipal bonds whose interest is a preference item for alternative minimum tax
purposes will comprise less than 20% of each of the Tax-Free Income and New York
Funds' total assets.

Possible Taxability of Temporary Defensive Investments. If Sentinel Advisors
anticipates a rise in interest rates, the Tax-Free Income, New York and
Pennsylvania Funds may invest temporarily in short-term debt obligations,
including taxable investments, to help protect shareholder capital. These
investments may include notes of municipal issuers, U.S. government securities,
and money market instruments. Under these conditions, the Pennsylvania Fund
will limit its investments in securities other than Pennsylvania municipal bonds
to 20% of its assets, and will invest in non-governmental issuers only where the
bonds are rated in one of the two highest categories of either Standard & Poor's
or Moody's.

The interest on municipal bonds issued by states other than your state of
residence is exempt only from federal income tax. Interest on certain types of
U.S. government securities is exempt only from state personal income tax.
Interest on money market instruments is generally fully subject to both federal
and any applicable state income taxes.

Use of Financial Futures Contracts and Related Options. The New York,
Pennsylvania and Tax-Free Income Funds may purchase and sell certain exchange-
traded financial futures contracts and related options, only to hedge against
adverse changes in interest rates, to protect against declines in the value of
municipal bonds held by the Funds, or to hedge against increases in the cost of
municipal bonds to be purchased for the Funds in the future.

None of the New York, Pennsylvania or Tax-Free Income Funds will purchase and
sell financial futures contracts or related options if, immediately after
purchase, the sum of the initial margin on existing futures positions plus the
premiums paid for outstanding options exceeds 5% of the Fund's total assets.

Risks Associated with Options and Futures Transactions. Options and futures
transactions involve certain risks. However, Sentinel Advisors believes that
since the New York, Pennsylvania and Tax-Free Income Funds would use these
investments for hedging purposes only, their use would not subject these Funds
to the risks frequently associated with the speculative use of options and
futures. However, there are certain risks related to futures transactions used
for hedging purposes that you should understand. One is that the hedge would be
ineffective if Sentinel Advisors' forecasts of interest rates prove to be
incorrect. Another is that the secondary market for a financial futures contract
may become illiquid. This may happen, for example, if the particular market
exceeds its daily price fluctuation limit. If this happens, the Funds may not be
able to close out futures positions. The change in the market value of a Fund's
municipal bonds also may not be perfectly correlated with the prices paid for
futures contracts, which may cause the hedge to be ineffective. From their
inceptions through March 31, 1999, none of the New York, Pennsylvania or Tax-
Free Income Funds engaged in any hedging transactions involving financial
futures and related options.

Information Relevant to the New York and Pennsylvania Funds

Since each of the New York and Pennsylvania Funds concentrates in state
municipal bonds, these Funds are more susceptible to factors adversely affecting
New York or Pennsylvania governmental entities than a municipal bond fund that
is diversified nationally. Each of these Funds' net asset value is particularly
sensitive to changes in the economic condition and governmental policies of the
state in which it invests. For example, if the economic condition of a single
significant industry within New York or Pennsylvania deteriorates, specific
governmental issuers within the state or the anticipated revenues to the state
may be weakened, and the net asset value of the Fund's shares may fall as a
result. Adverse changes in employment rates, federal revenue sharing or laws on
tax-exempt financing may also cause the value of the Funds' shares to fall.

<PAGE>

Sentinel Advisors does not believe that the current economic conditions in New
York State, New York City or Pennsylvania will have a significant adverse effect
on the Funds' ability to invest in high quality New York or Pennsylvania
municipal bonds. Since these Funds focus on investment grade bonds, the Funds
expect to be less subject to market and credit risks than a fund that invests
mainly in lower quality New York or Pennsylvania municipal bonds.

Information Relevant to All Funds

PERIODICALLY THE FUNDS MAY BE LESS THAN FULLY INVESTED

Temporary Defensive Positions. Each of the Funds, other than the U.S. Treasury
Money Market Fund, the Government Securities Fund and the Short Maturity
Government Fund, may be less than fully invested in securities called for by
its principal investment strategies at any time. If the investment advisor feels
that it is necessary under adverse market conditions to take a temporary
defensive position, these funds may depart significantly or completely from
their principal investment strategies. If the investment advisor's judgment in
taking a temporary defensive position proves to be incorrect, the Funds may not
achieve their investment objective.

Repurchase Agreements. All of the Funds, except the Money Market Fund, may
invest in repurchase agreements, provided the counterparty maintains the value
of the underlying securities at a value not less than the repurchase price
stated in the agreement. Under a repurchase agreement, a Fund purchases bonds
and simultaneously agrees to resell these bonds to a counterparty at a
prearranged time and specific price. If the counterparty defaults on its
repurchase obligation, the Fund would have the bonds and be able to sell them to
another party, but it could suffer a loss if the proceeds from a sale of the
bonds turns out to be less than the repurchase price stated in the agreement.
If the counterparty becomes insolvent or goes bankrupt, a Fund may be delayed in
being able to sell bonds that were subject to the repurchase agreement. For more
information about repurchase agreements, please refer to the Statement of
Additional Information.

<PAGE>

Purchase Options

The Balanced Fund offers Class A, Class B, Class C and Class D shares.

The Common Stock, World and High Yield Funds offer Class A, Class B and Class C
shares.

The Mid Cap Growth, Small Company and Bond Funds offer Class A shares
and Class B shares.

The Government Securities, Short Maturity, Tax-Free Income, New York and
Pennsylvania Funds offer only Class A shares.

This prospectus frequently uses the term CDSC, which stands for Contingent
Deferred Sales Charge. This type of charge is assessed when you redeem shares
subject to a CDSC, if none of the waivers listed on page apply. If you do
not redeem shares during the time periods in which an investment is subject to a
CDSC, you will not pay this charge.

You can compare the differences among the four classes of shares using the table
below.

- --------------------------------------------------------------------------------
TOTAL 12B-1 FEE,
CLASS SALES CHARGE SERVICE FEE INCLUDING SERVICE FEE CONVERSION FEATURE
- ----- ------------ ----------- --------------------- ------------------
- --------------------------------------------------------------------------------
A Maximum 5.00% Maximum of Maximum of 0.30% No
initial sales 0.20% (Maxi- (Maximum of 0.20%
charge (Maxi- mum of 0.10% for fixed income
mum 4% for for fixed funds)
fixed income income funds)
funds)

- --------------------------------------------------------------------------------
B CDSC of up to 0.25% 1.00% Class B Shares
4.00% for a convert to Class
maximum of A Shares
six years automatically
after the
applicable CDSC
period

- --------------------------------------------------------------------------------
C CDSC of 1.00% 0.25% 1.00% No
for the first
year only

- --------------------------------------------------------------------------------
D CDSC of up to None 0.75% Class D Shares
6% for seven convert to
years Class A Shares
automatically
at the end of the
tenth year
- --------------------------------------------------------------------------------

The Short Maturity Government Fund currently only offers Class A Shares as
described below.

<PAGE>

- --------------------------------------------------------------------------------
TOTAL 12B-1 FEE,
CLASS SALES CHARGE SERVICE FEE INCLUDING SERVICE FEE CONVERSION FEATURE
- ----- ------------ ----------- --------------------- ------------------
A Maximum 1.00% Maximum of Maximum of 0.35% None
initial sales 0.25%
charge
- --------------------------------------------------------------------------------

The U.S. Treasury Money Market Fund offers Class A and Class B Shares. Initial
purchases of Class A Shares of the Money Market Fund are not subject to any
initial sales charge, CDSC or Rule 12b-1 fees. Class B shares of the Money
Market Fund are not offered for direct purchase, except where the investment is
to be exchanged into Class B shares of other Funds within 90 days, or in dollar-
cost averaging programs into Class B shares of other Funds where you invest a
minimum of $10,000, each dollar-cost averaging transaction is at least $1,000,
and the program is completed within 24 months. They may also be acquired in
exchange for the Class B shares of another Fund.

More detailed information about each class of shares is included in the
descriptions of each class below.

If you who hold your shares for an extended period of time, you may pay more in
Rule 12b-1 distribution fees than the economic equivalent of the maximum front-
end sales charges permitted under the Conduct Rules of the National Association
of Securities Dealers, Inc.

THINGS TO THINK ABOUT WHEN CHOOSING WHICH SHARE CLASS TO BUY

The Funds' purchase options are designed to enable you to choose the method of
purchasing Fund shares that is most beneficial to you. Factors you should
consider include:

- - the amount of the investment,
- - the intended length of the investment,
- - the type of Fund you want,
- - whether you are eligible for a waiver or reduction of an initial sales
charge or CDSC, and
- - whether you intend to utilize the exchange privilege.

Class A shares have the advantage of lower ongoing distribution expenses. The
disadvantage of the Class A shares is that you pay an initial sales charge. If
in your circumstances the lower ongoing expenses outweigh the impact of the
initial sales charge, Class A shares may be appropriate for you.

Class B shares have the advantage that you pay no initial sales charge. The
disadvantages are that you pay higher ongoing distribution fees for a fixed
period of time, and during this time you may pay a CDSC if you redeem. Class B
shares ultimately convert to Class A shares, so long term investors eventually
also obtain the benefit of the Class A shares' lower ongoing expenses. Class B
shares are appropriate for those for whom the benefit of avoiding an initial
sales charge outweighs the higher ongoing expenses and possible CDSCs incurred
prior to the conversion to Class A shares.

Class C shares have the advantages of no initial sales charge and a relatively
small CDSC that applies only in the first year. You pay higher ongoing
distribution fees for the entire period of your investment, however. This class
may be appropriate for you if the benefits of avoiding both an initial sales
charge and a significant CSDC outweigh the continuing higher distribution fees.
Over long periods, however, the other share classes may outperform Class C
shares.

The Class D shares, available for the Balanced Fund only, are similar to the
Class B shares, except that you are subject to a higher CDSC, that applies for
seven years instead of six, and conversion to Class A shares does not occur
until the tenth year. The benefit to you is that the ongoing distribution fees
are lower than for Class B shares. Class D shares may appeal to Balanced Fund
investors who want to avoid paying an initial sales charge, are willing to pay
ongoing distribution fees higher than those on Class A shares until they
convert, but want to benefit from lower ongoing distribution fees than those on
Class B or C shares.

There is no size limit on purchases of Class A shares. The maximum purchase of
Class B shares or Class C shares accepted is $1,000,000. The maximum purchase
of Class D shares of the Balanced Fund is $250,000.

You should also consider that exchange privileges into other Funds are more
limited for classes other than Class A shares. Class B shares may only be
exchanged among the other funds offering Class B shares - the Common Stock,
Balanced, Mid Cap Growth, Small Company, World, Bond, High Yield and Money
Market Funds. For Class C shareholders, only the Class C shares of the Common
Stock, Balanced, World and High Yield Funds, and the Class A shares of the Money
Market Fund, are available for exchanges. In the case of the Class D shares of
the Balanced Fund, the only possible exchange is into the Class A shares of the
Money Market Fund, and back into the Class D shares of the Balanced Fund.

CLASS A SHARES

Sales Charges

CLASS A SHARES ARE GENERALLY SUBJECT TO A FRONT-END SALES CHARGE

For all purchases of Class A shares, you pay the public offering price, which
includes the front-end sales charge, next computed after we receive your order.
The sales charge ranges from 5.0% of the offering price (5.3% of the net amount
invested) to zero. Your sales charge will depend on the size of your purchase.

Sales charges for the Common Stock, Balanced, Mid Cap Growth, Small Company
and World Funds:

<PAGE>

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
NET A PERCENTAGE OF PERCENTAGE OF DEALER
- --- ------------ -- ---------- -- ------
SALE SIZE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
- ---- ---- -------- ----- ------ -------- -----------

<S> <C> <C> <C>
$0 to $99,999 5.00% 5.26% 4.50%

$100,000 to $249,999 4.00% 4.17% 3.75%

$250,000 to $499,999 2.50% 2.56% 2.25%

$500,000 to $999,999 2.00% 2.04% 1.75%

$1,000,000 or more -0- -0- -0-
</TABLE>

Sales charges for the High Yield, Bond, Government Securities, Tax-Free Income,
New York and Pennsylvania Funds:

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS A
----- ------ -- ----- ------ -- -
NET A PERCENTAGE OF PERCENTAGE OF DEALER
- --- - ---------- -- ---------- -- ------
SALE SIZE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
- ---- ---- -------- ----- ------ -------- -----------
<S> <C> <C> <C>
$0 to $99,999 4.00% 4.17% 4.00%

$100,000 to $249,999 3.50% 3.63% 3.25%

$250,000 to $499,999 2.50% 2.56% 2.25%

$500,000 to $999,999 2.00% 2.04% 1.75%

$1,000,000 or more -0- -0- -0-
</TABLE>

For the Short Maturity Government Fund, the sales charge for sales of up to
$999,999 is 1.00% of the offering price (1.01% of the net amount invested), with
a dealer reallowance of 0.75% of the offering price. For sales of $1,000,000 and
over, there is no initial sales charge. There is no sales charge on purchases of
shares of the Money Market Fund.

In cases in which there is no sales charge because your purchase was $1,000,000
or more, the Funds' distributor, Sentinel Financial Services Company, will pay
dealers compensation of 1.00% for sales of up to $14,999,999 (for the Common
Stock, Balanced, Mid Cap Growth and Small Company Funds) and for sales of up to
$4,999,999 for sales of the other Funds. In these cases, if you redeem the
shares in the first one year after the purchase, a 1.0% CDSC will be imposed,
and if you redeem in the second year, a 0.5% CDSC will be imposed. For sales in
excess of these amounts, Sentinel Financial will individually negotiate dealer
compensation and CDSCs. After the second year, there will be no CDSC. Any CDSC
is imposed on the lower of the cost or the current net asset value of the shares
redeemed. If you redeem part of your shares, your redemption request will be
increased by the amount of any CDSC due. If you redeem your entire account, we
will deduct any CDSC due from the redemption proceeds. Sentinel Financial
receives the entire amount of any CDSC paid. The CDSC is waived in the
circumstances described on page . In determining whether a CDSC is
payable, we will first redeem shares not subject to any charge.

Reduced Sales Charges

YOU CAN RECEIVE A REDUCED SALES CHARGE FOR A NUMBER OF REASONS

Sales charges on Class A shares may be reduced or eliminated in certain
situations. Please note that, to take advantage of any reduced or eliminated
sales charge, you must advise Sentinel Financial or your representative of your
eligibility at the time of purchase, and provide any necessary information about
the accounts involved.

Right of Accumulation. Quantity discounts begin with investments in Class A
shares of $100,000. You may qualify for quantity discounts based on the total of
all classes of shares purchased, on purchases made at different times, and on
purchases made by you, your spouse and minor children, or a fiduciary for these
persons. Contact Sentinel Service for help in combining accounts for purposes of
obtaining quantity discounts by combining accounts or purchases.

Letter of Intent. You may use a letter of intent to obtain a reduced sales
charge, if you plan to make investments of $100,000 or more in Class A shares
or of $250,000 or more in Class B shares over a 13 month period (30 months in
the case of corporate qualified plans). The letter of intent is not a binding
commitment by you to complete the intended purchases. All your purchases made
under the letter of intent during the period covered will be made at the reduced
sales charge for your intended total purchase. Dividends and distributions will
be reinvested without a sales charge and will not count as purchases under the
letter of intent. We will hold in escrow 2% of the shares you purchase under the
letter of intent, and release these shares when you have completed the intended
purchases. If by the end of the period covered by the letter of intent you have
not made the intended purchases, an additional sales charge may be due. The
additional amount will be equal to what the initial sales charge would have been
on the amount actually invested, minus the sales charges already paid. We will
notify you if an additional sales charges is due. You may pay this additional
sales charge within 20 days after our notification is sent, or we may redeem
shares held in escrow to the extent necessary to pay this charge. Then we will
release any remaining escrow shares. The redemption of shares for this purpose
will be a taxable event to you.

Group Investments. Any group of investors which notifies Sentinel Financial that
it will act as a group in purchasing Fund shares, in order to reduce selling
expenses, will be treated as a single entity for purposes of the reduced sales
charges for quantity purchases, including the right of accumulation and letter
of intent.

AG&T Advantage Program. Employers establishing either SIMPLE IRA plans under
the Small Business Protection Act of 1996 or Section 403(b) plans, for which
American Guaranty & Trust Company is the custodian, may group participating
employee accounts together in such a way as to result in reduced sales charges
for quantity purchases. Quantity discounts under this program are based upon
amounts previously invested in the Funds.

Net Asset Value Purchases. You may purchase Class A shares of the Funds at net
asset value if you are included in the following list.
- current and former Directors of the Funds and predecessors to the Funds;
- current and retired employees of the general partners of Sentinel
Advisors and their affiliates;
- directors, employees and clients of the Funds' sub-advisors;
- directors and employees of Beneficial Life Insurance Company, and other
strategic partners of Sentinel Advisors and/or Sentinel Financial;
- registered representatives of securities dealers that have entered into
a sales agreement with Sentinel Financial;
- members of the immediate families of, or survivors of, all of these
individuals;
- non-profit organizations with which any of these persons are actively
involved;
- investment advisors, financial planners, bank trust departments or
broker-dealers who place trades for their own accounts or the accounts
of their clients, and who charge a management, consulting or other fee
for their services, and clients of these investment advisors, financial
planners, bank trust departments or broker dealers who place trades for
their own accounts, if the accounts are linked to the master account of
the investment advisor, financial planner or broker-dealer;
- purchasers who are investing section 403(b) loan principal repayments;
- purchasers who are buying with the redemption proceeds from other mutual
fund shares for which a sales charge or CDSC has been paid;
- investments being transferred from individually managed trust accounts
at American Guaranty & Trust Company; and
- qualified pension, profit-sharing or other employee benefit plans, if
the total amount invested in the plan is at least $1,000,000, the
sponsor signs a $1,000,000 letter of intent, or the shares are purchased
by an employer-sponsored plan with at least 100 eligible employees, and
all of the plan's transactions are executed through a single financial
institution or service organization who has entered into an agreement
with Sentinel Financial to use the Funds in connection with the
accounts.

Sentinel Financial may pay dealers for share purchases of the Funds (other than
the Money Market Fund) sold at net asset value to an employee benefit plan in
accordance with the last item on the list above, as follows: 1% of the first $2
million of these purchases, plus 0.80% of the next $1 million of these
purchases, plus 0.50% of the next $17 million of these purchases, plus 0.25% of
amounts in excess of $20 million of these purchases.

American Guaranty and Trust Company may also invest short-term balances of trust
accounts in the Short Maturity Government Fund at net asset value. If more than
one person owns an account, all owners must qualify for the lower sales charge.
Please also note you may be charged a transaction fee by a broker or agent if
you effect transactions in Fund shares through a broker or agent.

Reinstatement. If you sell shares or receive dividends or capital gains
distributions in cash and subsequently want to reinvest your proceeds, you may
do so within 365 days at net asset value, without paying any additional sales
charge.

Distribution Plans

The Class A shares of each Fund, other than the Money Market Fund, have adopted
plans under Rule 12b-1 that allows the Funds to pay distribution fees for the
sale and distribution of their shares, and for services provided to
shareholders. The Class A shares of the Funds will pay to Sentinel Financial a
monthly fee at the maximum annual rate of (a) .30% of average daily net assets
in the case of the Small Company, Mid Cap Growth, World, Common Stock and
Balanced Funds, (b) .20% of average daily net assets in the case of the High
Yield, Bond, New York, Pennsylvania, Tax-Free Income and Government Securities
Funds, or (c) .35% of average daily net assets in the case of the Short Maturity
Government Fund.

Sentinel Financial uses a portion of these fees to pay service fees to dealers.
For the Class A shares of the Small Company, Mid Cap Growth, World, Common Stock
and Balanced Funds, annual service fees are 0.20% of the average net assets
owned by the dealer's clients. For the Class A shares of the Bond, New York,
Pennsylvania, Tax-Free Income and Government Securities Funds, annual service
fees are 0.10% per annum of the average net assets owned by the dealer's
clients. For the Short Maturity Government Fund, annual service fees are 0.25%
of the average net assets owned by the dealer's clients. No service fee is paid
with respect to Fund accounts opened prior to March 1, 1993.

CLASS B SHARES

THERE IS NO INITIAL SALES CHARGE ON CLASS B SHARES, BUT THEY ARE SUBJECT TO A
CDSC

For all purchases of Class B shares, you pay the current net asset value. There
is no initial sales charge. A CDSC will be imposed on Class B shares (including
Class B shares of the Money Market Fund), if you redeem shares during the CDSC
period, unless you can use one of the CDSC waivers listed on page .

CDSC. Whether you pay a CDSC upon a redemption of Class B shares and how much
it is depends on the amount of your purchases, and the number of years since you
made the purchase. The CDSC schedules for Class B shares are shown below:

FOR PURCHASE AMOUNTS OF UP TO $249,999:
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- ------- --- ---- ---- ----------
First....................................... 4%
Second...................................... 4%
Third....................................... 3%
Fourth....................................... 2%
Fifth........................................ 2%
Sixth........................................ 1%

FOR PURCHASE AMOUNTS FROM $250,000 TO $499,999:
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- ------- --- ---- ---- ----------
First....................................... 3.5%
Second...................................... 3%
Third....................................... 2%
Fourth...................................... 1%
Fifth....................................... 1%

FOR PURCHASE AMOUNTS FROM $500,000 TO $999,999:
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- ------- --- ---- ---- ----------
First....................................... 3%
Second...................................... 2%
Third....................................... 1%
Fourth...................................... 1%

In determining whether a CDSC is payable, we will take redemptions first from
shares acquired through reinvestment of distributions, or any other shares as to
which a CDSC is waived. We will next take redemptions from the earliest purchase
payment from which a redemption or exchange has not already been taken. The
amount of the CDSC will be equal to the CDSC percentage from the schedules
above, multiplied by the lower of the purchase price or the net asset value of
the shares being redeemed. If you redeem part of your shares, you may choose
whether any CDSC due is deducted from the redemption proceeds of your redemption
request is increased by the amount of any CDSC due. Sentinel Financial receives
any CDSC imposed on a redemption of Class B shares.

Because the CDSC may be lower and the conversion to Class A shares may be
faster, for purchases of over $250,000, you should consider whether you would
benefit from the right of accumulation or a letter of intent in connection with
the purchase of Class B shares. These privileges operate in the same way as the
similar privileges which permit reduced sales charges on Class A shares.

Distribution Plan. The Class B shares of the Common Stock, Balanced, Mid Cap
Growth, Small Company, World, High Yield and Bond Funds, have adopted a plan
under Rule 12b-1 that allows these Funds to pay distribution fees for the sale
and distribution of their shares, and services provided to shareholders. The
Class B shares of each Fund will pay to Sentinel Financial a fee of up to a
total of 1.00% annually of average daily net assets, of which up to 0.25% shall
be for service fees to broker-dealers. The High Yield Fund Class B shares are
not assessed a distribution fee on the seed money shares owned by National Life
Insurance Company, which will result in an overall distribution fee to the Class
B shares of the High Yield Fund of less than 1.00% for so long as National Life
maintains its investment.

<PAGE>

Sentinel Financial pays to dealers a service fee which varies based on the
average daily assets in Class B shares of the Funds (other than the Money Market
Fund) for which each registered representative of the dealer is the registered
representative of record at the time service fees are paid, as follows:

Average Daily Assets in Class B Shares of the Annual
Funds for which a Particular Individual is the Broker-Dealer
Registered Representative of Record Service Fee
- ----------------------------------- -----------

$0 - $99,999.................................................. -0-
$100,000 - $199,999........................................... 0.10%
$200,000 - $999,999........................................... 0.25%
$1,000,000 and over........................................... 0.50%

A selling dealer may elect a service fee of 0.25% per annum, instead of the
above arrangement. Class B shares will not pay service fees which total more
than 0.25% per year. If the above schedule requires a payment from Sentinel
Financial which exceeds 0.25% of average daily assets of the Class B shares of
any Fund, then Sentinel Financial will not be able to recover the excess from
the Funds. Sentinel Financial may change the amounts of assets needed to
qualify for the 0.10%, 0.25% and 0.50% service fee rates from time to time.
Sentinel Financial intends to manage these asset levels with the goal of
producing an average service fee on Class B shares of 0.25%. The Class B share
service fee for the first year after a purchase will be used to recover a
portion of the cost of the dealer concession paid by SFSC to the selling dealer,
which portion of the dealer concession is considered the service fee for the
first year. No service fee is paid on Class B shares in house accounts, accounts
in nominee name, or accounts in dealer street name.

Conversion to Class A Shares. The Class B shares automatically convert to Class
A shares after a fixed period of time, which depends upon the size of your
purchase. For purchases up to $250,000, the automatic conversion occurs at the
end of the sixth year; for purchases from $250,001 to $500,000, the automatic
conversion occurs at the end of the fifth year; and for purchases from $500,001
to $999,999, the automatic conversion occurs at the end of the fourth year. The
holding period for Class B shares will include the holding period of Class B
shares of another Fund from which they were exchanged.

Payments to Dealers. Sentinel Financial pays selling broker-dealers, at the
time you purchase Class B shares, the percentages of the aggregate purchase
amount shown below (including purchases of Class A, Class C and Class D shares
under a right of accumulation or letter of intent):

BROKER-
DEALER
AMOUNT OF PURCHASE PAYMENT PAYMENT
- ------ -- -------- ------- -------

Up to $249,999 4.0%
$250,000 to $499,999 2.5%
$500,000 to $999,999 2.0%

Class B Shares of the Money Market Fund. The Class B shares of the Money Market
Fund do not bear the higher ongoing distribution expenses normally associated
with the Class B shares. However, time during which assets are in the Class B
shares of the Money Market Fund will not count either toward the time that must
elapse before Class B shares are automatically converted to Class A shares of
the same Fund, or toward the time that results in a declining CDSC. Therefore,
if the Class B shares of the Money Market Fund are ultimately redeemed, you will
pay a CDSC in the same amount as would have been due on the date the assets were
exchanged into the Class B shares of the Money Market Fund, regardless of how
long you hold the Class B shares of the Money Market Fund. Also, if you
exchange the Money Market Fund Class B shares back into Class B shares of
another Fund, and then later redeem those shares, your CDSC, if any, will not
reflect the time you held the Money Market Fund Class B shares. The automatic
conversion into Class A shares will occur only after you hold Class B shares of
Funds other than the Money Market Fund for the six, five or four year period.

CLASS C SHARES

THERE IS NO INITIAL SALES CHARGE ON CLASS C SHARES, BUT THEY REMAIN SUBJECT TO
HIGHER ONGOING FEES FOR THE ENTIRE INVESTMENT PERIOD

For all purchases of Class C shares, you pay the current net asset value. There
is no initial sales charge. A CDSC in the amount of 1.00% of the purchase price
will be imposed on Class C shares if you redeem shares during the first year
after their purchase, unless you can use one of the CDSC waivers listed on page
.

Similar to the Class B shares, Class C shares are subject to higher distribution
fees than Class A shares. However, since Class C shares never convert to Class
A shares, investments in Class C shares remain subject to these higher
distribution fees for the entire holding period of the investment.

CDSC. you will pay a CDSC if you redeem Class C shares in the first year after
purchase, in the amount of 1.00% of the lower of the purchase price or the net
asset value of the shares redeemed unless a waiver applies. We apply the same
rules in determining a CDSC as we do for Class B shares. Sentinel Financial
receives the entire amount of any CDSC paid.

Distribution Plan. The Class C shares of the Common Stock, Balanced, World, and
High Yield Funds have adopted a plan under Rule 12b-1 that allows these Funds to
pay distribution fees for the sale and distribution of their shares, and
services provided to shareholders. These Funds pay to Sentinel Financial a
monthly fee at an annual rate of up to a total of 1.00% of average daily net
assets. In the first year after the purchase Sentinel Financial keeps this fee
to recover the initial sales commission of 1.00% that it pays to the selling
dealer. In subsequent years, the entire 1.00% will be paid to the selling
dealer.

<PAGE>

Exchanges. If you purchase Class C shares, you will have the ability to
exchange at net asset value only for the Class C shares of other Funds, except
that you may also exchange into Class A shares of the Money Market Fund.
However, if you exchange Class C shares into Money Market Fund Class A shares
within one year of your purchase of the Class C shares, and then subsequently
redeem the Money Market Fund shares, you may pay a CDSC. If you exchange Class
C shares into Money Market Fund Class A shares, you may exchange back into Class
C shares at any time, but may not exchange at net asset value into Class A
shares or Class B shares of any fund.

Payments to Dealers. For all sales of Class C shares, Sentinel Financial
intends to make payments to selling broker-dealers, at the time you purchase
Class C shares, of amounts equal to 1% of the aggregate purchase amount.

CLASS D SHARES (BALANCED FUND ONLY)

THERE IS NO INITIAL SALES CHARGE ON CLASS D SHARES, BUT THEY ARE SUBJECT TO A
CDSC

For all purchases of Class D shares of the Balanced Fund, you pay the current
net asset value. There is no initial sales charge. A CDSC will be imposed on
Class D shares (including Class A shares of the Money Market Fund, if you
exchange Class D shares into the Money Market Fund), if you redeem shares during
the seven years after their purchase, unless you can use one of the CDSC waivers
listed on page .

CDSC. Whether you pay a CDSC upon a redemption of Class D shares and how much it
is depends on the number of years since you made the purchase. The CDSC schedule
for Class D shares is shown below:

YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- ------- --- ---- ---- ----------
First....................................... 6%
Second...................................... 6%
Third....................................... 5%
Fourth...................................... 4%
Fifth....................................... 4%
Sixth....................................... 3%
Seventh..................................... 2%

The above schedule is higher than the schedules of CDSCs for Class B shares,
which start at maximums of 4% and extend for a maximum of six years. The CDSC
waivers, which are listed on page , are the same as those available for
Class B shares, except that the annual CDSC-free percentage redemption amount is
8% instead of 10%. We apply the same rules in determining a CDSC as we do for
Class B shares. Sentinel Financial receives the entire amount of any CDSC paid.

Distribution Plan. The Class D shares of the Balanced Fund have adopted a plan
under Rule 12b-1 that allows it to pay distribution fees for the sale and
distribution of their shares. The Fund pays a fee to Sentinel Financial at a
maximum annual rate of 0.75% of average daily net assets of the Class D shares
of the Balanced Fund. The Class D Distribution Plan is similar in its operation
to the Class B Distribution Plan, except that there is no service fee of up to
0.25%, and no asset-based service fee payable to dealers. These distribution
fees are lower than those that apply to Class B shares, but they are higher than
those that apply to Class A shares.

Conversion to Class A Shares. The Class D shares automatically convert to Class
A shares after 10 years.

Exchanges into Class A Shares of the Money Market Fund. You may exchange Class
D shares of the Balanced Fund into Class A shares of the Money Market Fund.
However, if you do so within seven years of the purchase of the Class D shares,
and subsequently redeem the Money Market Fund shares, you may pay a CDSC. You
may exchange back into Class D shares of the Balanced Fund at any time, but in
this case the time your investment was in the Money Market Fund will not count
toward the time for conversion to Class A shares of the Balanced Fund, or for
reduction or elimination of the CDSC.

Payments to Dealers. For sales of Class D shares of the Balanced Fund, Sentinel
Financial intends to make payments to selling broker-dealers, at the time you
purchase Class D shares, of amounts equal to 6% of the aggregate purchase
amount. If a selling broker-dealer has entered into agreements required by
Sentinel Financial, Sentinel Financial may pay annualized commissions in advance
with respect to Class D accounts which are set up to make, and are expected to
make monthly automated additional purchases.

WAIVER OR REDUCTION OF A CDSC

A CDSC will be waived in the following situations if you notify us at the time
of redemption that a waiver applies:

1. Redemptions of shares you acquire from the reinvestment of income
distributions and/or capital gains distributions;

2. Redemptions from your account (including when you own the shares as
joint tenant with your spouse) following your death, or from the
account of a trust whose primary income beneficiary has died, if the
redemption occurs within one year of your death or the beneficiary's
death;

3. Redemptions from qualified retirement accounts taken in equal or
substantially equal periodic payments not to exceed life, or joint
life expectency and not otherwise subject to the 10% penalty tax for
early withdrawal of Code section 72(t);

<PAGE>

4. Redemptions that occur as a result of a loan taken from an account
established as a retirement plan account for an employee of a tax-
exempt organization under section 403(b)(7) of the Code;

5. Redemptions in amounts up to 10% annually of the account's then
current net asset value. Note that in the case of Class D
shares, this amount is up to 8% annually instead of up to 10%
annually). Note also that to establish a Systematic Withdrawal Plan
during the period a CDSC will apply, Plan redemptions must be
calculated based upon a percentage of the account's net asset value,
rather than a fixed dollar amount; and

6. For Class B share 401(k) plans administered by BYSIS, redemptions
resulting from the termination of a participant's participation in the
plan.

Sentinel Financial may require documentation to show a waiver applies, such as
certifications by plan administrators, applicable tax forms, or death
certificates. The waiver provisions will not apply to Class B shares initially
invested in the Money Market Fund as part of the program described on page __.

No CDSC will apply to Class B, Class C or Class D share accounts owned by
affiliates of Sentinel Advisors, if Sentinel Financial has not paid an initial
commission to a selling dealer.

OTHER MATTERS RELATING TO DISTRIBUTION OF FUND SHARES

Equity Services, Inc., 1717 Capital Management Company, Janney Montgomery Scott,
Inc., and Hornor, Townsend & Kent, Inc., which are wholly-owned subsidiaries of
the partners of Sentinel Advisors, receive a dealer reallowance equal to the
entire sales charge on their sales of Fund shares. As a result, they may be
considered underwriters of the Funds' shares.

Sentinel Financial will reimburse all broker-dealers who agree with Sentinel
Financial to undertake activities designed to specifically promote the Funds,
for costs incurred by these broker-dealers in the course of these activities.
Sentinel Advisors may consider sales of shares of the Funds in the selection of
broker-dealers to execute portfolio transactions for the Funds, as long as
commissions paid are no higher than would otherwise be paid and the prices are,
in Sentinel Advisors' judgment, the best then available.

<PAGE>

How to Buy, Sell, Exchange and Transfer Shares

BUYING SHARES

THERE ARE SEVERAL CONVENIENT WAYS TO BUY SHARES

You may invest in the Funds with only $50 using the Automatic Investment Plan.
Otherwise, the minimum initial investment in any Fund is $1,000, except for
certain retirement plan accounts. The minimum subsequent investment is $50. We
reserve the right to reject any order.

Purchasing Shares by Check

To purchase shares by check, make your check payable to "Sentinel Administrative
Service Company" and mail it to Sentinel Administrative Service Company, P. O.
Box 1499, Montpelier, VT 05601-1499. To make your initial purchase by check,
please also fill out an application (one is attached to this prospectus) and
return the application with your check. all checks must be drawn in U.S.
dollars on a U.S. bank. The funds reserve the right to withhold the proceeds of
a redemption of shares purchased by check until the check has cleared, which may
take up to 15 days after the purchase date.

Your purchase will be effected on the day when federal funds are made available
to a Fund, usually within one business day after Sentinel Service receives the
check. We may charge a fee of $25 for each check returned unpaid due to
insufficient funds.

Purchasing Shares by Wire

You may purchase shares by wiring federal funds directly to Sentinel Service
when the New York Stock Exchange and Federal Reserve banks are open for
business.

To make your initial purchase by wire, call our toll-free number noted below and
obtain an account number. Complete the application and return it promptly to
Sentinel Service.

Your bank may charge you a fee to wire funds. Payments made by wire and received
by Sentinel Service on any business day are available to the Fund on the next
business day.

Dealer Wire Purchase Orders

As a convenience to shareholders, Sentinel Financial will, acting for the Funds
without charge, ordinarily accept orders from dealers who have sales agreements
with the Funds for the purchase of shares at the applicable offering price.

<PAGE>

Purchasing Shares Online

If you already have an account you may purchase shares of the Funds over the
Internet by accessing the Funds' website at www.sentinelfunds.com.

Automatic Investment Plan

This feature affords you the opportunity to dollar-cost average using periodic
electronic funds transfer from your bank account to the Fund(s) of your choice.

Telephone Investment Service

This feature enables you to purchase Fund shares via electronic funds transfers
from your bank account simply by phoning Sentinel Service.

Government Direct Deposit Privilege

You may purchase Fund shares (minimum of $50.00 per transaction) by having
local, state or Federal salary, Social Security, or certain veterans', military
or other payments from the Federal government automatically deposited into your
account. You may deposit as much of the payments as you elect. To enroll in
Government Direct Deposit, please contact Sentinel Service.

Payroll Savings Plan

You may purchase Fund shares (minimum of $50.00 per transaction) automatically
on a regular basis by having money withheld from your paycheck, if your employer
permits this. You may have part or all of your paycheck transferred to your
existing Sentinel account electronically each pay period. To establish a
Sentinel Payroll Savings Plan account, please contact Sentinel Service.

SELLING SHARES

You may sell your shares back to the Funds at net asset value, less any
applicable CDSC, as of the close of business on the day your instructions are
received, in good order, prior to 4:00 p.m. on a day that the NYSE is open for
business.

YOU MAY SELL YOUR SHARES IN A NUMBER OF CONVENIENT WAYS

If your shares are held by Sentinel Service, you can sell your shares in the
following ways.

By Mail

<PAGE>

You may sell your shares by providing Sentinel Service with the appropriate
instructions by mail. Your instructions must be signed by the registered
owner(s) exactly as the shares are registered. If the proceeds of the
redemption exceed $50,000, if the check is not made payable to the registered
owner(s) and mailed to the record address, or if the record address has been
changed within the past 30 days, the signatures of the registered owner(s) must
be guaranteed by an eligible financial institution that meets Sentinel Service's
requirements.

Dealer Wire Redemption Orders

For the convenience of shareholders, Sentinel Financial, acting for the Funds
without charge, ordinarily accepts orders from dealers who have sales agreements
with the Funds for the repurchase of shares based on net asset value, less any
applicable CDSC. Brokers are not prohibited from charging for their service
onfor these redemptions.

Telephone Redemption

You may redeem up to $1,000,000 from your account each business day by providing
instructions to do so over the telephone, by calling Sentinel Service at 1-800-
282-FUND(3863). You may request that a check made payable to the registered
owners be sent their address of record, or you may request that the proceeds be
sent directly to a predesignated commercial bank account. If proceeds are wired
to your bank, we will deduct a fee of $25 from the proceeds. In addition, it is
possible that your bank may charge a fee for receiving wire transfers. You may
request a redemption on the Funds' automated voice response system.

Neither the Funds, Sentinel Advisors nor Sentinel Service is responsible for the
authenticity of exchange or redemption instructions received by telephone, and
they are not liable in the event of an unauthorized telephone exchange or
redemption, provided that, in the case of the Funds, the Funds have followed
procedures reasonably designed to prevent losses that take into account the cost
of these procedures and the potential risk of loss. In processing telephone
exchange or redemption requests, the Funds will use reasonable procedures to
confirm that telephone instructions are genuine, and if these procedures are not
employed, the Funds may be liable for any resulting losses. These procedures
include receiving all calls for telephone redemptions and exchanges on a
recorded telephone line, and screening callers through a series of questions
regarding specific account information.

You may indicate on your purchase application that you do not wish to have
telephone transaction privileges.

Online Redemption

<PAGE>

You may also request a redemption over the Internet by accessing the Funds'
website at www.sentinelfunds.com.
---------------------

By Checkwriting

If you own Class A shares of the High Yield, Bond, New York, Pennsylvania, Tax-
Free Income, Government Securities, Short Maturity Government and Money Market
Funds, you may sell shares by writing a check against your account. This check
writing privilege is free. If you write a check to redeem shares, we normally
will not honor the redemption check if those shares have been purchased less
than 15 days prior to the date the check is presented to Sentinel Service.
Redemptions by checkwriting are taxable transactions.

By Systematic Withdrawals

You may arrange to receive automatic regular withdrawals from your account. Each
withdrawal will be a taxable event. You must reinvest dividends and capital
gains distributions to use systematic withdrawals. No interest will accrue on
amounts represented by uncashed checks sent under a systematic withdrawal plan.

If You Hold Share Certificates

If you are the shareholder of record and have a certificate representing
ownership in a Fund, you can redeem your shares by mailing the certificate to
Sentinel Administrative Service Company, P. O. Box 1499, Montpelier, VT 05601-
1499, with appropriate instructions to redeem. Your instructions should be
signed by the registered owner(s) exactly as the shares are registered. The
signatures of the registered owner(s) must be guaranteed by an eligible
financial institution which meets Sentinel Service's requirements if the
proceeds of the redemption exceed $50,000, if the check is not made payable to
the registered owner(s) and mailed to the record address, or if the record
address has been changed within the past 30 days. We suggest sending
certificates by certified mail. You may also redeem share certificates by
presenting them in person to Sentinel Service at its office at National Life
Drive, Montpelier, Vermont.

Other Information on Redeeming Shares

Normally, Sentinel Service will mail you a check in payment for your shares
within seven days after it receives all documents required to process the
redemption. We may delay payment during any period in which the right of
redemption is suspended or date of payment is postponed because the NYSE is
closed, trading on the NYSE is restricted, or the Securities and Exchange
Commission deems an emergency to exist. No interest will accrue on amounts
represented by uncashed redemption checks.

<PAGE>

We may require additional documentation to redeem shares that are registered in
the name of a corporation, trust, company retirement plan, agent or fiduciary,
or if a shareholder is deceased. We will not honor redemption requests if you
have bought the shares by check within 15 days of the redemption request, unless
we have confirmed that your check has been cleared for payment.

Distributions from retirement plans may be subject to withholding by the
Internal Revenue Service under the Code.

Certain Account Fees

Due to the expense of maintaining accounts with small balances, we reserve the
right to liquidate, and/or to charge an annual maintenance fee of up to $25 to
any account that has a current value less than $1,000 and that has been open for
at least 24 months.

Pension, 401(k) and profit-sharing plans which elect to have individually
registered accounts for the benefit of plan participants will be assessed an
annual service fee for each participant account, in the amounts shown below.

FEE PER
AVERAGE ACCOUNT VALUE PARTICIPATING ACCOUNT
- --------------------- ---------------------

$0 - $1000.................................. $20.00
$1000 - $2999............................... $10.00
$3000 and over.............................. No fee

This fee will be deducted automatically from each participant account in June of
each year unless it is prepaid.

EXCHANGES FROM ONE FUND TO ANOTHER

You may exchange shares of one Fund for shares of the same class of another
Fund, without charge, by phoning Sentinel Service or by providing appropriate
instructions in writing to Sentinel Service. Initial purchases of less than $1
million of the Short Maturity Government Fund must remain in the account for 90
days before they are eligible for an exchange.

Because Class B shares in the Tax-Free Income, New York, Pennsylvania,
Government Securities and Short Maturity Government Funds are not currently
offered, holders of Class B shares may not exchange into these Funds. Similarly,
because Class C shares of the Mid Cap Growth, Small Company, Bond, Tax-Free
Income, New York, Pennsylvania, Government Securities and Short Maturity
Government Funds are not currently offered, holders of Class C shares may not
exchange into these Funds. Class C shares may be exchanged for Class A shares of
the Money Market Fund (but if the Class C shares had not been held for a year
before the exchange into the Money Market Fund, a 1.00% CDSC may apply if the
Money

<PAGE>

Market Fund shares are then redeemed). The Money Market Fund shares may be
exchanged back into Class C shares at any time.

Holders of Class D shares of the Balanced Fund may not make exchanges into other
Funds, except that Class D shares may be exchanged for Class A shares of the
Money Market Fund. The Money Market Fund shares may be exchanged back into
Class D shares of the Balanced Fund at any time. If these Money Market Fund
shares are subsequently redeemed, however, we will assess a CDSC in the amount
which would have applied to the Class D shares of the Balanced Fund on the date
of the exchange into the Money Market Fund.

Funds are only available for exchange for residents of states in which these
Funds are registered. If you initially buy Class A shares in the Money Market
Fund, you may not exchange into other Funds without being treated as an initial
purchaser of the other Fund's shares. Holding periods for shares which have been
exchanged for the currently held shares will be included in the holding period
of the current shares, except that time in the Money Market Fund will not count
toward the holding period necessary to reduce or eliminate any applicable CDSC,
or to be converted into Class A shares. The normal minimum account sizes apply
to new accounts opened by exchange.

New purchases must remain in an account for 15 days before they can be exchanged
to another Fund. The Funds disclaim liability for unauthorized telephone
instructions under the same policy that applies to telephone redemption
instructions, discussed on page . We currently do not limit the number of
times you may exercise the exchange privilege. We may modify or terminate the
exchange privilege in accordance with the rules of the Securities and Exchange
Commission (the current rules require 60 days advance notice to shareholders
prior to the modification or termination of the exchange privilege).

You may also set up your account to exchange automatically a specified number or
dollar-value of shares in one of the Funds into shares of the same class in
another Fund at regular intervals.

TRANSFERS OF OWNERSHIP OF SHARES

When you need to change ownership of your shares or change the name on an
account, a Sentinel Service representative will assist you.

<PAGE>

How the Funds Are Priced

HOW THE VALUE OF FUND SHARES IS DETERMINED

Net asset value for each Fund is calculated once each business day at 4:00 p.m.,
Eastern Time, and becomes effective immediately upon its determination. The net
asset value per share is computed by dividing the total value of the assets of
each Fund, less its liabilities, by the total number of each Fund's outstanding
shares. The Funds' investments are valued as shown below:

. Equity securities are valued at the latest transaction prices on the
principal stock exchanges on which they are traded.

. Unlisted and listed securities for which there were no sales during the
day are valued at the mean between the latest available bid and asked
prices.

. Fixed-income securities are valued daily on the basis of valuations
furnished by an independent pricing service.

. Financial futures are valued at the settlement price established each day
by the board of trade or exchange on which they are traded.

. Exchange-traded options are valued at the last sale price unless there is
no timely sale price, in which event current prices provided by market
makers are used.

The Money Market Fund's assets are valued on the basis of amortized cost, which
involves valuing a portfolio instrument at its cost initially and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument.

The per share net asset value of Class A shares generally will be higher than
the per share net asset value of Class B, Class C or Class D shares, reflecting
the higher daily expense accruals of Class B, Class C and Class D shares. It is
expected, however, that the per share net asset value of the classes will tend
to converge (although not necessarily meet) immediately after the payment of
dividends or distributions. Dividends and distributions will differ by the
appropriate amount of the expense accrual differences between the classes.

<PAGE>

Dividends, Capital Gains and Taxes

The Funds distribute their net investment income as follows:

WHEN THE FUNDS PAY DIVIDENDS

FUND DIVIDENDS PAID
- ---- --------------

Mid Cap Growth Fund......................... Annually
Small Company Fund.......................... Annually
World Fund.................................. Annually
Common Stock Fund........................... Quarterly
Balanced Fund............................... Quarterly
High Yield Fund............................. Monthly
Bond Fund................................... Monthly
Government Securities Fund.................. Monthly
Short Maturity Government Fund.............. Monthly
Tax-Free Income Fund........................ Monthly
New York Tax-Free Income Fund............... Monthly
Pennsylvania Tax-Free Trust................. Monthly

The Money Market Fund's net income is determined as of the close of business,
4:00 p.m. Eastern Time, on each day the NYSE is open. The Fund declares
dividends of all of its daily net income to shareholders of record as of the
close of business the preceding business day. Dividends are declared and accrued
each day the NYSE is open and are payable monthly. The amount of the dividend
may fluctuate daily and dividends will not be paid on days when net realized
losses on securities in the portfolio or expenses exceed the Fund's income.

Distributions of any net realized capital gains for a fiscal year are paid in
December, following the November 30th fiscal year-end.

You may elect to receive all or any part of your dividends and/or capital gains
distributions in cash, shares of your Fund, or shares of another Fund of the
same class. Unless you elect otherwise, your dividends will be reinvested in
shares of the same Fund. Any dividend or distribution of less than $10.00 must
be reinvested. If you elect to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to your address of record, your distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed dividend or other distribution checks.

You will pay tax on dividends and capital gains distributions from the Funds
whether you receive them in cash or additional shares. If you redeem Fund
shares or exchange them for shares of another Fund, any gain or the transaction
may be subject to tax. Except for the Tax-Free Income, New York and
Pennsylvania Funds, the Funds intend to make distributions that will be taxed
either as ordinary income or capital gains.

<PAGE>

If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Funds' ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.

Dividends and interest received by the World Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. You may be
able to claim a credit or deduction with respect to such taxes if certain
requirements are met.

By law, the Funds must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.

New York, Pennsylvania and Tax-Free Income Funds

Each of the New York, Pennsylvania and Tax-Free Income Funds intends to invest a
sufficient portion of its assets in municipal bonds and notes to qualify to pay
"exempt-interest dividends" to shareholders. These exempt-interest dividends are
generally not subject to federal income tax. However, these Funds may invest
portions of their assets in investments which generate income that is not exempt
for federal income tax. Most of the income from the Tax-Free Income Fund will
be subject to any state income tax to which you are subject. Any capital gains
distributed by the these Funds will normally be taxable as capital gains. In
addition, gain from the sale of municipal bonds purchased at a market discount
will be treated as ordinary income for federal income tax purposes rather than
capital gain. This rule may increase the amount of ordinary income dividends you
receive.

Distributions from the New York Fund which are attributable to interest income
received from New York municipal bonds also will be exempt from New York State
and New York City personal income tax. Distributions from the Pennsylvania Fund
which are attributable to interest income received from Pennsylvania municipal
bonds also will be exempt from Pennsylvania personal income tax.

Distributions from the Pennsylvania Fund will be exempt from the Philadelphia
School District investment income tax for individual residents of the City of
Philadelphia if they are attributable to interest received from Pennsylvania
municipal bonds or from qualifying U.S. government obligations, or if they are
capital gain dividends for federal income tax purposes. Shares of the
Pennsylvania Fund will be exempt from Pennsylvania county personal property tax
to the extent Pennsylvania Fund holds Pennsylvania municipal bonds and
qualifying U.S. government obligations on the annual assessment date.

If the New York and Pennsylvania Funds invest in investments other than New York
municipal bonds and Pennsylvania municipal bonds, respectively, a portion of
their income distributions may be subject to state and local taxes, and possibly
federal income tax. The Funds will inform shareholders annually as to the
portions of their distributions which are exempt-interest dividends and which
are exempt from state and local income taxes.

This section summarizes some of the consequences under current federal tax law
and relevant state and local tax laws of investments in the Funds. It is not a
substitute for personal tax advice. Consult your personal tax advisor about the
potential tax consequences of investments in the Funds under all applicable tax
laws.

<PAGE>

Management of the Funds

INVESCO ACTS AS SUBADVISOR TO THE WORLD FUND

EVERGREEN ACTS AS SUBADVISOR TO THE HIGH YIELD FUND

Sentinel Advisors Company manages the Funds' investments and their business
operations under the overall supervision of the Board of Directors of Sentinel
Group Funds, Inc. (for all Funds except the Pennsylvania Fund) and the Board of
Trustees of Sentinel Pennsylvania Tax-Free Trust. Sentinel Advisors has the
responsibility for making all investment decisions for the Funds, except where
it has retained a subadvisor to make the investment decisions for a Fund.
Sentinel Advisors has retained INVESCO Capital Management, Inc. as the
subadvisor to manage the investments of the World Fund, and Evergreen Investment
Management Company as the subadvisor to manage the investments of the High Yield
Fund. Sentinel Advisors is a partnership of affiliates of three major insurance
companies, National Life Insurance Company, Provident Life Insurance Company,
and Penn Mutual Life Insurance Company. Its principal business address is
National Life Drive, Montpelier, Vermont 05604. INVESCO is located at 1315
Peachtree Street, Atlanta, Georgia 30309. Evergreen is located at 200 Berkeley
Street, Boston, Massachusetts 02116.

The Funds' investment advisory contracts call for the Funds to pay Sentinel
Advisors fees, which were, for the fiscal year ended November 30, 1998, equal
to the following percentages of the Funds' average daily net assets:

Common Stock Fund ..................................... 0.55%
Balanced Fund.......................................... 0.61%
Growth Fund............................................ 0.61%
Small Company Fund..................................... 0.61%
World Fund............................................. 0.61%
High Yield Bond Fund .................................. 0.75%
Bond Fund.............................................. 0.53%
Government Securities Fund............................. 0.53%
Short Maturity Government Fund......................... 0.53%
U.S. Treasury Money Market Fund ....................... 0.40%
Tax-Free Income Fund................................... 0.53%
New York Tax-Free Income Fund.......................... 0.53%
Pennsylvania Tax-Free Trust ........................... 0.55%

Sentinel Advisors currently waives all or a portion of its advisory fees for
some of the Funds. The effective advisory fee rates (as a percentage of each
Fund's average daily net assets) that these Funds paid in the fiscal year
ended November 30, 1998, after taking these waivers into account, were as
follows:

Bond Fund ............................................. 0.35%
Government Securities Fund ............................ 0.45%
Short Maturity Government Fund ........................ 0.23%
Tax-Free Income Fund .................................. 0.35%

<PAGE>

New York Tax-Free Income Fund ...................... 0%
Pennsylvania Tax-Free Trust ........................ 0.01%

Portfolio Managers

Sentinel Advisors employs a team approach in managing the Funds. The
management teams are comprised of a lead portfolio manager, other portfolio
managers and research analysts. Each team includes members with one or more
areas of expertise and shares the responsibility for providing ideas,
information and knowledge in managing the Funds. Rodney A. Buck, the Chief
Executive Officer of Sentinel Advisors, is also Chairman and Chief Executive
Officer of National Life Investment Management Company, Inc., and Senior Vice
President and Chief Investment Officer of National Life. Mr. Buck has been
employed by Sentinel Advisors or its affiliates since 1972. There are three
investment management teams: an Equity Value Team, headed by Daniel J. Manion,
Vice President of Sentinel Advisors; an Equity Growth Team, headed by Robert
L. Lee, Senior Vice President of Sentinel Advisors; and a Fixed Income Team,
headed by David M. Brownlee, Senior Vice President of Sentinel Advisors.

Each of Messrs. Buck, Lee, Brownlee and Manion is a Chartered Financial Analyst.
Mr. Lee, Mr. Brownlee and Mr. Manion have each been associated with Sentinel
Advisors since 1993.

The Common Stock Fund is managed by Mr. Manion. Mr. Manion has been a member
of the Common Stock Fund management team since 1994. Mr. Lee has been the
portfolio manager for the Growth Fund since November, 1993. The Small Company
Fund is managed by Scott T. Brayman, Vice President of Sentinel Advisors, and
Mr. Lee. Mr. Brayman is a Chartered Financial Analyst, and has been with
Sentinel Advisors since 1995. He has been involved with the Small Company Fund
since he joined Sentinel Advisors. Prior to joining Sentinel Advisors, he was
associated with Argyle Capital Management, Inc.

The Balanced Fund is managed by a team consisting of Mr. Buck, Mr. Manion and
Richard D. Temple, Vice President of Sentinel Advisors. Mr. Buck has been the
Fund's lead portfolio manager since 1982. Mr. Temple is a fixed-income
portfolio manager who has been employed by Sentinel Advisors or its affiliates
since 1969.

The portfolio managers for the Bond Fund are Mr. Temple and William C. Kane,
Vice President of Sentinel Advisors. Mr. Temple has been the lead portfolio
manager for the Bond Fund since 1985. Mr. Kane is a Chartered Financial
Analyst, and has been employed by Sentinel Advisors or its affiliates since
1992. The portfolio manager of the Government Securities and Short Maturity
Government Funds is Mr. Brownlee. The portfolio manager of the Tax-Free
Income, New York and Pennsylvania Funds is Kenneth J. Hart, Vice President of
Sentinel Advisors. Mr. Hart has been with Sentinel Advisors or its affiliates
since 1990. The portfolio managers of the Money Market Fund are Mr. Temple and
Darlene Coppola, Money Market Trader of Sentinel Advisors. Ms. Coppola has
been employed by Sentinel Advisors or its affiliates since 1974.

Erik B. Granade, International Equity Portfolio Manager of INVESCO, has been the
lead manager of the World Fund since June 1994. Michele T. Garren has been the
Fund's co-manager since September, 1997. Mr. Granade is a Chartered Financial
Analyst. He was associated with Cashman Farrell and Associates from June, 1994
to March 31, 1996, when he moved to INVESCO. Prior to June, 1994 he was an
International Portfolio Manager with Provident Capital Management, Inc. Ms.
Garren is a Chartered Financial Analyst. She was associated with AIG Global
Investment Corp from August, 1993 to July, 1996.

The portfolio manager for the High Yield Fund is Prescott B. Crocker, Senior
Vice President and Group Head of Corporate Fixed Income at Evergreen. Mr.
Crocker is a Chartered Financial Analyst, and has been the High Yield Fund's
portfolio manager since its inception on June 20, 1997. Mr. Crocker joined
Evergreen in February, 1997. Prior to that he was President of Boston Security
Counselors, the investment management subsidiary of the brokerage firm Advest
Co. Inc. He had joined Boston Security Counselors in November of 1993 as Senior
Vice President- Fixed Income, where he managed among others the Advest Advantage
series High Yield Trust. Upon the sale of the Advest Advantage funds to
Northstar Investment Management Co. in July of 1995, Mr. Crocker joined that
company as Fund Manager. He returned to Boston Security Counselors in August of
1996 as President.

Year 2000 Issues. Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the year 2000
from the year 1900 (commonly known as the "Year 2000 Problem"). Like other
investment companies and financial and business organizations, the Funds could
be adversely affected if the computer systems used by Sentinel Advisors and
Sentinel Service do not properly address this problem prior to January 1, 2000.
Sentinel Service and its parent companies are currently analyzing these issues
and are in the process of implementing the systems modifications necessary to
prepare for the year 2000. Currently neither Sentinel Service nor Sentinel
Advisors expects that the transition to the 21/st/ century will have any
material impact on its ability to continue to service the Funds at current
levels. In addition, Sentinel Service and Sentinel Advisors have sought
assurances from the Funds' other service providers that they are taking all
necessary steps to ensure that their computer systems will accurately reflect
the year 2000, and Sentinel Service and Sentinel Advisors will continue to
monitor the situation. At this time, however, no assurance can be given that
the Funds' other service providers have anticipated every step necessary to
avoid any adverse effect on the Funds attributable to the Year 2000 Problem.
The Year 2000 Problem could also have a negative impact on the companies in
which the Funds invest, and this could hurt the Funds' investment returns.

<PAGE>

Financial Highlights
- --------------------

The financial highlights table is intended to help you understand each Fund's
financial performance for the past five years, or for the period of the Fund's
operations, in the case of the High Yield, Short Maturity Government, and New
York Funds. Certain information reflects financial results for a single Fund
share. The total returns in the table represent the rate that an investor would
have earned on an investment in each Fund, assuming reinvestment of all
dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the financial statements of
the Funds, are included in the Funds' Annual Report to Shareholders, which is
available upon request.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations Less Distributions
- ----------------------------------------------------------------------------------------------------------------------------------

NET GAINS OR
LOSSES ON
FISCAL NET ASSET NET SECURITIES (BOTH DIVIDENDS
YEAR VALUE, INVESTMENT REALIZED TOTAL FROM (FROM NET DISTRIBUTIONS TOTAL
(PERIOD BEGINNING INCOME AND INVESTMENT INVESTMENT (FROM CAPITAL DISTRI-
FUND ENDED) OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME) GAINS) BUTIONS
- ------------------ ----------- --------- ----------- ----------------- ----------- ----------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common 11/30/94 $29.63 $ 0.83 $(1.35) $(0.52) $0.80 $0.06 $0.86
Stock - A 11/30/95 28.25 0.72 8.09 8.81 0.74 1.11 1.85
11/30/96 35.21 0.59 8.18 8.77 0.61 2.77 3.38
11/30/97 40.60 0.57 7.03 7.60 0.57 3.54 4.11
11/30/98 44.09 0.42 5.19 5.61 0.45 4.69 5.14

Balanced - 11/30/94 $15.27 $ 0.58 $(1.12) $(0.54) $0.56 $0.09 $0.65
A 11/30/95 14.08 0.58 2.78 3.36 0.59 0.01 0.60
11/30/96 16.84 0.54 2.13 2.67 0.54 0.42 0.96
11/30/97 18.55 0.56 2.18 2.74 0.55 0.45 1.00
11/30/98 20.29 0.54 1.76 2.30 0.55 1.16 1.71

Mid Cap 11/30/94 $17.51 $ 0.05 $(0.92) $(0.87) $0.03 $0.46 $0.49
Growth A 11/30/95 16.15 0.07 3.33 3.40 0.05 2.57 2.62
11/30/96 16.93 0.03 3.23 3.26 0.07 2.55 2.62
11/30/97 17.57 (0.02) 4.00 3.98 0.02 2.80 2.82
11/30/98 18.73 (0.03) 1.08 1.05 --- 5.13 5.13

Small 11/30/94 $ 6.87 $(0.04) $ 0.18 $ 0.14 $ --- $1.48 $1.48
Company- A 11/30/95 5.53 0.02 0.56 0.58 --- 0.91 0.91
11/30/96 5.20 0.01 0.95 0.96 0.03 0.96 0.99
11/30/97 5.17 0.02 1.16 1.18 0.01 0.04 0.05
11/30/98 6.30 --- 0.14 0.14 0.02 0.75 0.77

World - A 11/30/94 $11.86 $ 0.08 $ 0.89 $ 0.97 $0.03 $0.06 $0.09
11/30/95 12.74 0.14 1.14 1.28 0.09 0.15 0.24
11/30/96 13.78 0.12 1.99 2.11 0.13 0.07 0.20
11/30/97 15.69 0.11 1.80 1.91 0.11 0.24 0.35
11/30/98 17.25 0.18 1.52 1.70 0.12 0.64 0.76

High Yield 5 Mo. To
- - A 11/30/97(C) $10.00 $ 0.32 $ 0.41 $ 0.73 $0.32 $ --- $0.32
11/30/98 10.41 0.87 (0.58) 0.29 0.86 0.09 0.95

Bond - A 11/30/94 6.90 0.39 (0.70) (0.31) $0.39 $0.35 $0.74
11/30/95 5.85 0.42 0.64 1.06 0.42 --- 0.42
11/30/96 6.49 0.41 (0.14) 0.27 0.41 --- 0.41
11/30/97 6.35 0.40 0.01 0.41 0.40 --- 0.40
11/30/98 6.36 0.40 0.09 0.49 0.40 --- 0.40

Government 11/30/94 $10.45 $0.59 $(1.04) $(0.45) $0.58 $0.11 $0.69
Securities 11/30/95 9.31 0.63 0.99 1.62 0.63 --- 0.63
11/30/96 10.30 0.61 (0.30) 0.31 0.61 --- 0.61
11/30/97 10.00 0.59 0.09 0.68 0.59 --- 0.59
11/30/98 10.09 0.61 0.37 0.98 0.61 --- 0.61
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
RATIO OF NET
INVESTMENT
RATIO OF INCOME TO
EXPENSES TO RATIO AVG. NET
NET ASSET NET ASSETS AT RATIO OF AVERAGE NET OF NET ASSETS BEFORE
VALUE, TOTAL END OF EXPENSES TO ASSETS BEFORE INCOME TO VOLUNTARY EX- PORTFOLIO
END OF RETURN* PERIOD (000 AVERAGE NET EXPENSE AVG. NET PENSE REIM-- TURNOVER
FUND PERIOD (%) OMITTED) ASSETS (%) REDUCTION**(%) ASSETS (%) BURSEMENTS RATE (%)
- -------------------- --------- --------- -------------- ------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common $28.25 (1.8) $ 839,335 1.02 1.02 2.82 ---- 15
Stock - A 35.21 32.8 1,057,944 1.09 1.10 2.29 ---- 22
40.60 27.2 1,306,592 1.06 1.07 1.64 ---- 22
44.09 20.9 1,509,999 1.04 1.05 1.41 ---- 24
44.56 14.3 1,610,630 1.01 1.02 0.98 ---- 28

Balanced - $14.08 (3.6) $ 226,328 1.21 1.21 3.97 ---- 66
A 16.84 24.4 267,103 1.27 1.29 3.77 ---- 110
18.55 16.6 297,288 1.20 1.22 3.13 ---- 83
20.29 15.4 314,948 1.16 1.17 2.93 ---- 63
20.88 12.2 330,067 1.12 1.13 2.69 ---- 81

Mid Cap $16.15 (5.1) $ 50,447 1.43 1.43 0.30 ---- 58
Growth A 16.93 24.9 60,446 1.50 1.54 0.42 ---- 84
17.57 22.6 69,816 1.40 1.43 0.16 ---- 98
18.73 27.3 88,184 1.29 1.32 (0.15) ---- 161
14.65 8.3 97,895 1.26 1.29 (0.23) ---- 97

Small $ 5.53 2.0 $ 88,420 1.58 1.58 (0.74) ---- 46
Company- A 5.20 12.2 89,321 1.56 1.60 0.26 ---- 79
5.17 22.0 99,393 1.47 1.51 0.23 ---- 60
6.30 23.0 115,532 1.34 1.36 0.38 ---- 45
5.67 2.7 109,598 1.31 1.33 (0.07) ---- 45

World - A 12.74 8.2 $ 41,970 1.58 1.58 0.62 ---- 30
13.78 10.2 47,702 1.56 1.63 0.79 ---- 32
15.69 15.5 71,458 1.43 1.48 0.94 ---- 14
17.25 12.5 89,740 1.29 1.32 1.14 ---- 21
18.19 10.3 100,790 1.24 1.26 1.18 ---- 12

High Yield- A $10.41 7.3# $ 11,084 1.20+ 1.26+ 7.80+ ---- 133
9.75 2.7 31,120 1.26 1.28 8.42 ---- 139

Bond - A 5.85 (4.9) $ 80,487 0.98 0.98 6.34 6.34 133
6.49 18.8 108,755 0.99 1.03 6.81 6.81 237
6.35 4.5 99,408 0.98 1.00 6.46 6.46 176
6.36 6.7 88,756 0.97 0.99 6.37 6.37 130
6.45 8.0 91,297 0.77 0.95 6.26 6.11 147

Government $ 9.31 (4.5) $ 104,457 1.00 1.00 5.95 5.95 149
Securities - A 10.30 17.9 108,100 1.03 1.04 6.50 6.50 367
10.00 3.2 92,299 1.00 1.01 6.18 6.18 614
10.09 7.2 75,810 0.98 0.99 6.15 6.15 249
10.46 10.0 76,498 0.91 0.99 6.02 5.94 355
</TABLE>

<PAGE>

Less Distributions
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NET GAINS OR
LOSSES ON
FISCAL NET ASSET NET SECURITIES (BOTH DIVIDENDS
YEAR VALUE, INVESTMENT REALIZED TOTAL FROM (FROM NET DISTRIBUTIONS TOTAL
(PERIOD BEGINNING INCOME AND INVESTMENT INVESTMENT (FROM CAPITAL DISTRI-
FUND ENDED) of PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME) GAINS) BUTIONS
- ---- ------ --------- ------ ----------- ---------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short 8 Mo. to
Maturity 11/30/95 (A) $ 9.64 $ 0.40 $ 0.20 $ 0.60 $ 0.40 $ --- $ 0.40
Gov't. - A 11/30/96 9.84 0.57 (0.03) 0.54 0.57 --- 0.57
11/30/97 9.81 0.56 0.01 0.57 0.56 --- 0.56
11/30/98 9.82 0.57 0.06 0.63 0.57 --- 0.57

Money 11/30/94 $ 1.00 $ 0.03 $ --- $ 0.03 $ 0.03 $ --- $ 0.03
Market - A 11/30/95 1.00 0.05 --- 0.05 0.05 --- 0.05
11/30/96 1.00 0.04 --- 0.04 0.04 --- 0.04
11/30/97 1.00 0.04 --- 0.04 0.04 --- 0.04
11/30/98 1.00 0.04 --- 0.04 0.04 --- 0.04

Tax-Free - A 11/30/94 $13.81 $ 0.68 $(1.34) $(0.66) $ 0.68 $ 0.12 $ 0.80
11/30/95 12.35 0.67 1.27 1.94 0.67 --- 0.67
11/30/96 13.62 0.65 (0.09) 0.56 0.65 --- 0.65
11/30/97 13.53 0.65 0.24 0.89 0.65 0.13 0.78
11/30/98 13.64 0.65 0.33 0.98 0.65 0.19 0.84

New York - A 8 Mo. to
11/30/95(A) $11.19 $ 0.36 $ 0.53 $ 0.89 $ 0.36 $ --- $ 0.36
11/30/96 11.72 0.53 --- 0.53 0.53 --- 0.53
11/30/97 11.72 0.60 0.25 0.85 0.60 0.09 0.69
11/30/98 11.88 0.62 0.34 0.96 0.62 0.03 0.65

Pennsyl- 11/30/94 $13.57 $ 0.64 $(1.28) $(0.64) $ 0.64 $ --- $ 0.64
vania 11/30/95 12.29 0.66 1.11 1.77 0.66 --- 0.66
- - A 11/30/96 13.40 0.66 (0.03) 0.63 0.66 0.08 0.74
11/30/97 13.29 0.64 0.13 0.77 0.64 0.08 0.72
11/30/98 13.34 0.63 0.26 0.89 0.63 0.12 0.75

Common 8 Mo. To
Stock - B 11/30/96(B) $35.43 $ 0.22 $ 5.05 $ 5.27 $ 0.13 $ --- $ 0.13
11/30/97 40.57 0.27 6.99 7.26 0.26 3.54 3.80
11/30/98 44.03 0.07 5.19 5.26 0.13 4.69 4.82

Balanced - B 8 Mo. To
11/30/96(B) $17.09 $ 0.26 $ 1.37 $ 1.63 $ 0.14 $ --- $ 0.14
11/30/97 18.58 0.42 2.18 2.60 0.41 0.45 0.86
11/30/98 20.32 0.38 1.77 2.15 0.40 1.16 1.56

Mid Cap 11 Mo. to
Growth - B 11/30/98(E) $13.08 $(0.17) $ 1.61 $ 1.44 $ --- $ --- $ ---

Small 8 Mo. To
Company - B 11/30/96(B) $ 4.82 $(0.03) $ 0.33 $ 0.30 $ --- $ --- $ ---
11/30/97 5.12 (0.03) 1.13 1.10 --- 0.04 0.04
11/30/98 6.18 (0.03) 0.11 0.08 --- 0.75 0.75

World - B 8 Mo. to
11/30/96(B) $14.49 $(0.08) $ 1.17 $ 1.09 $ --- $ --- $ ---
11/30/97 15.58 0.01 1.74 1.75 0.04 0.24 0.28
11/30/98 17.05 0.04 1.47 1.51 --- 0.64 0.64
</TABLE>

<TABLE>
<CAPTION>
RATIO OF NET
INVESTMENT
RATIO OF INCOME TO
EXPENSES TO RATIO AVG. NET
NET ASSET NET ASSETS AT RATIO OF AVERAGE NET OF NET ASSETS BEFORE
VALUE, TOTAL END OF EXPENSES TO ASSETS BEFORE INCOME TO VOLUNTARY EX-
PORTFOLIO
END OF RETURN* PERIOD (000 AVERAGE NET EXPENSE AVG. NET PENSE REIM- TURNOVER
FUND PERIOD (%) OMITTED) ASSETS (%) REDUCTION**(%) ASSETS (%) BURSEMENTS RATE (%)
- ---- ------ --- -------- ---------- -------------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Maturity $ 9.84 6.3# $ 28,417 1.00+ 1.38+ 6.07+ 5.76 58
Gov't. - A 9.81 5.6 36,474 1.00 1.20 6.09 5.93 120
9.82 6.0 45,044 1.00 1.18 6.20 6.14 61
9.88 6.6 68,346 0.82 1.12 6.04 5.76 229

Money $ 1.00 3.1 $ 75,301 0.81 0.81 3.01 ---- ----
Market - A 1.00 5.0 80,664 0.81 0.82 4.83 ---- ----
1.00 4.6 80,804 0.78 0.78 4.38 ---- ----
1.00 4.6 85,911 0.76 0.77 4.46 ---- ----
1.00 4.6 98,115 0.72 0.73 4.47 ---- ----

Tax-Free - A $12.35 (5.1) $ 99,935 0.75 0.94 5.11 4.92 92
13.62 16.0 110,506 0.90 0.99 5.06 5.00 112
13.53 4.3 99,967 0.94 0.97 4.86 4.86 112
13.64 6.9 87,935 0.91 0.95 4.84 4.84 47
13.78 7.4 88,683 0.74 0.92 4.77 4.59 37

New York - A $11.72 8.1# $ 5,332 1.22+ 1.29+ 4.60+ 4.60+ 32
11.72 4.8 5,749 1.04 1.10 4.65 4.65 48
11.88 7.7 7,704 0.30 1.09 5.31 4.57 21
12.19 8.3 11,978 ---- 1.01 5.17 4.19 6

Pennsyl- $12.29 (4.9) $ 31,172 1.30 1.30 4.84 4.84 56
vania - A 13.40 14.8 34,975 0.97 1.36 5.14 4.78 80
13.29 5.0 35,545 0.75 1.37 5.07 4.48 56
13.34 6.1 34,844 0.85 1.34 4.86 4.41 28
13.48 6.9 34,720 0.77 1.31 4.65 4.14 50

Common $40.57 14.9# $ 27,257 1.91+ 1.92+ 0.80+ ---- 22
Stock - B 44.03 19.9 77,299 1.79 1.80 0.66 ---- 24
44.47 13.4 129,966 1.81 1.81 0.19 ---- 28

Balanced - B $18.58 9.6# $ 10,948 2.12+ 2.13+ 2.21+ ---- 83
20.32 14.6 26,593 1.88 1.89 2.21 ---- 63
20.91 11.3 46,946 1.89 1.90 1.91 ---- 81

Mid Cap Growth - B $14.52 11.0# 3,841 2.27+ 2.29+ (1.24)+ ---- 97

Small $ 5.12 6.2# $ 1,943 2.62+ 2.64+ (0.91)+ ---- 60
Company - B 6.18 21.6 7,656 2.35 2.36 (0.62) ---- 45
5.51 1.7 12,103 2.24 2.25 (1.00) ---- 45

World - B $15.58 7.5# $ 3,188 2.56+ 2.59+ (0.19)+ ---- 14
17.05 11.5 10,121 2.16 2.18 0.23 ---- 21
17.92 9.2 18,163 2.23 2.25 0.19 ---- 12
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------

Income From Investment Operations Less Distributions
====================================================================================================================================

NET GAINS OR
LOSSES ON
FISCAL NET ASSET NET SECURITIES (BOTH DIVIDENDS
YEAR VALUE, INVESTMENT REALIZED TOTAL FROM (FROM NET DISTRIBUTIONS TOTAL
(PERIOD BEGINNING INCOME AND INVESTMENT INVESTMENT (FROM CAPITAL DISTRI-
FUND ENDED) OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME) GAINS) BUTIONS
- ----- ---------- --------- ---------- ----------------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield 5 Mo. To
- - B 11/30/97(C) $10.00 $ 0.32 $ 0.39 $ 0.71 $0.31 $ --- $0.31
11/30/98 10.40 0.84 (0.57) 0.27 0.84 0.09 0.93

Bond - B 8 Mo. To
11/30/96(B) $ 6.30 $ 0.21 $ 0.06 $ 0.27 $0.21 $ --- $0.21
11/30/97 6.36 0.34 0.02 0.36 0.34 --- 0.34
11/30/98 6.38 0.34 0.08 0.42 0.34 --- 0.34

Money 8 Mo. To
Market - B 11/30/96(B) $ 1.00 $ 0.03 $ --- $ 0.03 $0.03 $ --- $0.03
11/30/97 1.00 0.05 --- 0.05 0.05 --- 0.05
11/30/98 1.00 0.04 --- 0.04 0.04 --- 0.04

Common Stock - C 7 mo. to
11/30/98(D) $45.23 $ 0.06 $ (0.71) $(0.65) $0.03 $ --- $0.03

Balanced - C 7 mo. to
11/30/98(D) $20.87 $ 0.20 $ (0.01) $ 0.19 $0.16 $ --- $0.16

World - C 7 mo. to
11/30/98(D) $19.57 $(0.02) $ (1.50) $(1.52) $ --- $ --- $ ---

High Yield - C 7 mo. to
11/30/98(D) $10.70 $ 0.41 $ (0.91) $(0.50) $0.45 $ --- $0.45
- ------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------

Ratios/Supplemental Data
====================================================================================================================================

INVESTMENT
RATIO OF INCOME TO
EXPENSES TO RATIO AVG. NET
NET ASSET NET ASSETS AT RATIO OF AVERAGE NET OF NET ASSETS BEFORE
VALUE, TOTAL END OF EXPENSES TO ASSETS BEFORE INCOME TO VOLUNTARY EX- PORTFOLIO
END OF RETURN* PERIOD (000 AVERAGE NET EXPENSE AVG. NET PENSE REIM-- TURNOVER
FUND PERIOD (%) OMITTED) ASSETS (%) REDUCTION**(%) ASSETS (%) BURSEMENTS RATE (%)
- ---- --------- ------- ------------- ----------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield -B $10.40 7.2# $ 33,808 1.30+ 1.34+ 7.70+ ---- 133
9.74 2.4 55,911 1.49 1.52 8.19 ---- 139

Bond - B $ 6.36 4.5# $ 4,714 2.16+ 2.18+ 5.28+ 5.28+ 176
6.38 5.9 8,115 1.87 1.90 5.46 5.46 130
6.46 6.8 16,601 1.64 1.84 5.40 5.22 147

Money $ 1.00 3.0# $ 3,160 0.76+ 0.77+ 4.40+ ---- ---
Market - B 1.00 4.7 3,434 0.73 0.73 4.50 ---- ---
1.00 4.5 4,422 0.77 0.78 4.42 ---- ---

Common Stock - C $44.55 (1.4)# $ 5,358 1.92+ 1.92+ 0.08+ ---- 28

Balanced - C $20.90 0.9# $ 1,523 2.17+ 2.18+ 1.63+ ---- 81

World - C
$18.05 (7.8)# $ 1,013 2.20+ 2.21+ 0.23+ ---- 12

High Yield -
Yield - C $ 9.75 (4.7)# $ 1,956 2.05+ 2.06+ 7.63+ ---- 139
</TABLE>
_____________________________________________________________
(A) Commenced operations March 27, 1995.
(B) Commenced operations April 1, 1996.

(C) Commenced operations June 23, 1997.
(D) Commenced operations May 4, 1998.
(E) Commenced operations January 12, 1998.
+ 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 that are received from
the custodian and dividend paying agent on cash balances.

<PAGE>

THE SENTINEL FUNDS
Shareholder Reports

Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected investment performance of each of the Funds during
its last fiscal year. You may obtain copies of these reports at no cost by
calling 1-800-282-FUND (3863).

The Funds will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account at no cost, call Sentinel Service
at 1-800-282-FUND (3863).

Statement of Additional Information

The Funds' Statement of Additional Information contains further information
about the Funds and is incorporated by reference (legally considered to be part
of this Prospectus). You may request a free copy by writing the Funds at the
address shown below or by calling 1-800-282-FUND (3863). Please contact your
registered representative or the Funds if you have any questions.

The Funds' Statement of Additional Information is also available at the Funds'
website at www.sentinelfunds.com. Information about the Funds (including the
Statement of Additional Information) can also be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the public reference room. This information is
also available on the SEC's Internet site at http://www.sec.gov and copies may
------------------
be obtained upon payment of a duplicating fee by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.

THE SENTINEL FUNDS
National Life Drive
Montpelier, VT 05604

INVESTMENT ADVISOR COUNSEL
Sentinel Advisors Company Brown & Wood LLP
National Life Drive One World Trade Center
Montpelier, VT 05604 New York, NY 10048

PRINCIPAL UNDERWRITER INDEPENDENT ACCOUNTANTS
Sentinel Financial Services Company PricewaterhouseCoopers LLP
National Life Drive 1177 Avenue of the Americas
Montpelier, VT 05604 New York, NY 10036

TRANSFER AGENT, SHAREHOLDER SERVICING CUSTODIAN AND DIVIDEND PAYING AGENT
AGENT AND ADMINISTRATOR *Investors Fiduciary Trust Company
Sentinel Administrative Service Company 801 Pennsylvania Avenue
*National Life Drive Kansas City, MO 64105
Montpelier, VT 05604
800-282-FUND (3863)

<PAGE>

- ------------
* All mail and correspondence should be sent to Sentinel Administrative
Service Company, P. O. Box 1499, Montpelier, VT 05601-1499

Investment Company Act files #811- 214, and #811- 4781.

<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 15, 1999

The information contained in this Statement of Additional Information is not
complete and may be changed. We may not use this Statement of Additional
Information to sell securities until the registration statement containing
this Statement of Additional information, which has been filed with the
Securities and Exchange Commission, is effective. This Statement of
Additional information is not an offer to sell these securities
and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

STATEMENT OF ADDITIONAL INFORMATION

March 31, 1999, as amended on February , 2000

THE SENTINEL FUNDS
National Life Drive
Montpelier, Vermont 05604
(800) 282-FUND (3863)

Sentinel Common Stock Fund (the "Common Stock Fund")
Sentinel Balanced Fund (the "Balanced Fund")
Sentinel Mid Cap Growth Fund (the "Growth Fund")
Sentinel Small Company Fund (the "Small Company Fund")
Sentinel Growth Index Fund (the "Growth Index Fund")
Sentinel Flex Cap Opportunity Fund (the "Flex Cap Opportunity Fund")
Sentinel World Fund (the "World Fund")
Sentinel High Yield Bond Fund (the "High Yield Fund")
Sentinel Bond Fund (the "Bond Fund")
Sentinel Government Securities Fund (the "Government Securities Fund")
Sentinel Short Maturity Government Fund (the "Short Maturity Government Fund")
Sentinel U.S. Treasury Money Market Fund (the "Money Market Fund")
Sentinel Tax-Free Income Fund (the "Tax-Free Income Fund")
Sentinel New York Tax-Free Income Fund (the "New York Fund")
Sentinel Pennsylvania Tax-Free Trust (the "Pennsylvania Fund")

Each of SENTINEL GROUP FUNDS, INC. (the "Company") and the Pennsylvania Fund is
a managed, open-end investment company, which continuously offers its shares to
investors. The Company consists of fourteen separate and distinct funds,
thirteen of which are diversified (the New York Fund being non-diversified),
and the Pennsylvania Fund is a separate, non-diversified fund. The fourteen
funds of the Company and the Pennsylvania Fund are referred to hereinafter
collectively as the "Funds", and individually as a "Fund". The Funds are
described in a Prospectus of the Funds dated March 31, 1999, as amended on
December , 1999 (the "Prospectus"), and the Prospectus Supplement dated
February , 2000. Each of the Funds has different investment objectives and risk
characteristics.

Sentinel Advisors Company (the "Advisor") acts as the investment advisor to the
Funds. Shares of the Funds are distributed by Sentinel Financial Services
Company ("SFSC"). Both the Advisor and SFSC are partnerships whose partners are
affiliates of National Life Insurance Company ("National Life"), Provident Life
Insurance Company ("Provident") and The Penn Mutual Life Insurance Company
("Penn Mutual").

This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the Prospectus. The Prospectus, which has been filed with
the Securities and Exchange Commission (the "SEC"), can be obtained upon
request and without charge by writing to the Funds at the above address, or by
calling 1-800-282-FUND(3863). The Financial Statements of the Funds that are
included in the Annual Report of the Funds dated November 30, 1999 have been
incorporated by reference into this Statement of Additional Information. This
Annual Report can be obtained in the same way as the Prospectus of the Funds.
This Statement of Additional Information has been incorporated by reference
into the Prospectus.

<PAGE>

TABLE OF CONTENTS

Page

The Funds.................................................................. 4
Investment Objectives and Policies......................................... 5
Investment Restrictions.................................................... 17
Management of the Funds.................................................... 19
Principal Shareholders..................................................... 24
The Investment Advisor..................................................... 24
Principal Underwriter...................................................... 28
The Distribution Plans..................................................... 28
The Fund Services Agreements............................................... 30
Portfolio Transactions and Brokerage Commissions........................... 31
Portfolio Turnover......................................................... 34
Capitalization............................................................. 34
How To Purchase Shares and Reduce Sales Charges............................ 35
Issuance of Shares at Net Asset Value...................................... 35
Determination of Net Asset Value........................................... 35
Computation of Maximum Offering and Redemption Prices...................... 37
Taxes...................................................................... 38
Shareholder Services....................................................... 43
Total Return, Yield and Tax-Equivalent Yield Information................... 44
General Information........................................................ 47
Financial Statements....................................................... 48
Appendix A - Description of Bond Ratings................................... 49
Appendix B - Economic and Other Conditions in New York..................... 53
Appendix C - Economic and Financial Conditions in Pennsylvania............. 70

<PAGE>

THE FUNDS

Originally incorporated in the State of Delaware on December 5, 1933 as
Group Securities, Inc., the Company became a Maryland corporation on February
28, 1973. On November 30, 1973, the Company's name was changed to USLIFE Funds,
Inc. On September 30, 1976, the Company's name was changed to Sentinel Group
Funds, Inc.

On March 31, 1978, Sentinel Bond Fund, Inc. (formerly Sentinel Income
Fund, Inc.) and Sentinel Mid Cap Growth Fund, Inc., both managed, open-end,
diversified investment companies incorporated in Maryland on October 24, 1968,
were merged into the Company as separate classes of stock. On March 27, 1986,
the Board of Directors created, as a new class of stock of the Company, the
Government Securities Fund. The Board of Directors created the Tax-Free Income
Fund as a new class of the Company's stock on June 14, 1990.

The Pennsylvania Fund is a trust formed under the laws of Pennsylvania
in 1986. The Fund became a member of the Sentinel Family of Funds on March 1,
1993. On that date the Advisor and SFSC became the investment advisor and
distributor, respectively, to the Fund. Immediately prior to March 1, 1993, the
investment advisor to the Fund was ProvidentMutual Management Co., Inc.
("PMMC"), and its distributor was ProvidentMutual Financial Services, Inc.,
both of which are affiliates of Provident.

On March 1, 1993, the Company completed the acquisition of
substantially all of the assets of eight ProvidentMutual Funds, and Sentinel
Cash Management Fund, Inc., ("SCMF") in exchange solely for common stock of the
corresponding Funds of the Company that acquired such assets. In order to
facilitate the acquisitions, on August 13, 1992 the Board of Directors
authorized the creation of three new classes of stock of the Company, namely,
the Small Company, World and Money Market Funds. From March 1, 1993 to March
29, 1994, the Small Company Fund's name was Sentinel Aggressive Growth Fund,
and from March 29, 1994 to March 31, 1997, the Small Company Fund's name was
Sentinel Emerging Growth Fund. Also on March 1, 1993, the Investment Advisory
Agreement between the Company and Sentinel Advisors, Inc., ("Sentinel
Advisors"), an indirect wholly-owned subsidiary of National Life, and the
Distribution Agreement between the Company and Equity Services, Inc. ("ESI"),
also an indirect wholly-owned subsidiary of National Life, terminated, and were
replaced by the arrangements described in the Prospectus under "Management of
the Funds" and "Purchase Options".

On March 27, 1995, the Company completed the acquisition of
substantially all of the assets of seven funds of The Independence Capital
Group of Funds, Inc., in exchange solely for common stock of the corresponding
Funds of the Company that acquired such assets. In order to facilitate the
acquisitions, on December 15, 1994, the Board of Directors authorized the
creation of two new classes of stock of the Company, namely, the New York and
Short Maturity Government Funds. From March 27, 1995 to February 3, 1997, the
Short Maturity Government Fund's name was Sentinel Short-Intermediate
Government Fund.

On March 14, 1997, the Board of Directors of the Company authorized the
creation of the High Yield Fund as a new series of the Company. On June 10,
1999, the Board of Directors of the Company authorized the creation of the
Growth Index Fund as a new series of the Company. On December 9, 1999, the
Board of Directors of the Company authorized the creation of the Flex Cap
Opportunity Fund as a new series of the Company.

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and certain fundamental policies of each of
the Funds are set forth in the Prospectus.

General Considerations

Each Fund is an open-end, management investment company. All Funds are
diversified investment companies except the New York and Pennsylvania Funds,
which are non-diversified investment companies.

Each Fund's fundamental policies and investment objectives as they
affect each such Fund cannot be changed without the approval of the lesser of
(i) 67 percent or more of the voting securities of each such Fund present at a
meeting if the holders of more than 50 percent of the outstanding voting
securities of each such Fund are present or represented by proxy, or (ii) more
than 50 percent of the outstanding voting securities of each such Fund. With
respect to the submission of a change in fundamental policy or investment
objective of each such Fund, such matter shall be deemed to have been
effectively acted upon with respect to any such Fund if a majority of the
outstanding voting securities of such Fund vote for the approval of such
matters, notwithstanding (1) that such matter has not been approved by a
majority of the outstanding voting securities of any other Fund affected by
such matter and (2) that such matter has not been approved by a majority of the
outstanding voting securities of the Company. Fundamental policies adopted with
respect to each Fund, except the Pennsylvania Fund and the New York Fund,
provide that no Fund shall concentrate its investments in a particular industry
or, except for the Flex Cap Opportunity Fund, group of industries, nor will it
purchase a security if, as a result of such purchase, more than 25% of its
assets will be invested in a particular industry.

Repurchase Agreements. Each of the Funds to a limited extent may enter
into repurchase agreements with selected banks and broker-dealers under which
the Fund purchases securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities") and agrees to
resell the securities at an agreed upon time and at an agreed upon price. The
difference between the amount a Fund pays for securities and the amount it
receives upon resale is interest income to a Fund. Failure of the seller to
repurchase the securities as agreed may result in a loss to a Fund if the
market value of the securities has fallen to less than the repurchase price. In
the event of such a default, a Fund may also experience certain costs and be
delayed or prevented from recovering or liquidating the collateral securities,
which could result in further loss to a Fund. The Funds (except for the Flex
Cap Opportunity Fund, whose investments in repurchase agreements are discussed
separately below) will use repurchase agreements as a means of making
short-term investments of seven days or less and in aggregate amounts of not
more than 25% of the net assets of the Fund. All repurchase agreements used by
the Funds, except for the Flex Cap Opportunity Fund, will provide that the
value of the collateral underlying the repurchase agreement always will be at
least equal to 102% of the repurchase price. The Advisor will monitor on a
continuing basis the creditworthiness of all parties with which it might enter
into repurchase agreements and will enter into repurchase agreements only if it
determines that the credit risk of such a transaction is minimal.

Illiquid and Restricted Securities. As stated in the Prospectus, the
High Yield Fund may invest in Rule 144A Securities and corporate loans;
however, the High Yield Fund's investment in illiquid securities is limited to
15% of its net assets. The Bond Fund may not invest in illiquid securities, but
may invest Rule 144A Securities to the extent deemed to be liquid under the
policies and procedures discussed below. The Flex Cap Opportunity Fund may also
invest up to 15% of its net assets in illiquid securities, which include
restricted securities, securities for which there is readily available market,
and repurchase agreements with maturities of greater than 7 days. In
promulgating Rule 144A under the Securities Act of 1933 (the "Securities Act"),
the Securities and Exchange Commission ("SEC") stated that although the
ultimate responsibility for liquidity determinations rests with a fund's board
of directors, the board may delegate the day-to-day function of determining
liquidity to the investment advisor or subadvisor provided the board retains
sufficient oversight. The Board of Directors of the Company will consider the
adoption of policies and procedures for the Bond Fund, the High Yield Fund and
the Flex Cap Opportunity Fund for the purpose of determining whether Rule 144A
Securities and, in the case of the High Yield Fund only, corporate loans, in
which such Fund proposes to invest are liquid or illiquid and will consider
guidelines under these policies and procedures pursuant to which the Advisor or
applicable subadvisor will make these determinations on an ongoing basis. In
making these determinations, consideration will be given to, among other
things, the frequency of trades and quotes for the investment, the number of
dealers willing to sell the investment and the number of potential purchasers,
dealer undertakings to make a market in the investment, the nature of the
investment, the time needed to dispose of the investment, the method of
soliciting offers, and the mechanics of transfer. The Board of Directors will
review periodically purchases and sales of Rule 144A Securities by the Bond
Fund, the High Yield Fund and the Flex Cap Opportunity Fund, and corporate
loans by the High Yield Fund.

To the extent that liquid Rule 144A Securities or corporate loans in
which the Bond Fund, the High Yield Fund or the Flex Cap Opportunity Fund
invests become illiquid, due to the lack of sufficient qualified institutional
buyers or market or other conditions, the Advisor (or the subadvisor, in the
case of the High Yield or Flex Cap Opportunity Funds), under the supervision of
the Board of Directors, will consider appropriate measures to enable the Bond
Fund, the High Yield Fund and the Flex Cap Opportunity Fund to maintain
sufficient liquidity for operating purposes and to meet redemption requests. If
institutional trading in restricted securities were to decline to limited
levels, the liquidity of these Funds could be adversely affected.

Considerations Applicable to the Fixed-Income Funds

Each of the Bond Fund and the fixed income portion of the Balanced Fund
may invest up to 20% of its total assets, and each of the New York Fund and the
Tax-Free Income Fund may invest up to 5% of its total assets, in debt
securities which are rated below "investment grade", i.e., lower than "Baa" by
Moody's Investors Service, Inc. ("Moody's") or lower than "BBB" by Standard &
Poor's Ratings Services ("Standard & Poor's") or which, in the Advisor's
judgment, possess similar credit characteristics. See Appendix A - "Description
of Bond Ratings" for additional information regarding ratings of debt
securities. The Advisor considers the ratings assigned by Standard & Poor's or
Moody's as one of several factors in its independent credit analysis of
issuers. Such securities are considered by Standard & Poor's and Moody's to
have varying degrees of speculative characteristics. Consequently, although
securities rated below investment grade can be expected to provide higher
yields, such securities may be subject to greater market price fluctuations and
risk of loss of principal than lower yielding, higher rated debt securities.
Investments in such securities will be made only when in the judgment of the
Advisor, such securities provide attractive total return potential relative to
the risk of such securities, as compared to higher quality debt securities. The
Funds do not intend to purchase debt securities that are in default or which
the Advisor believes will be in default. The risks of below-investment grade
securities are described further in the Prospectus under "Details About the
Funds' Investment Objectives, Principal Investment Strategies and Related Risks
- - General Information Relevant to the Investment Practices of the Funds, and
Associated Risks - Information Relevant to the Fixed Income Funds - Risks of
Lower Quality Bonds" on pages .

When Issued Purchases. The High Yield, Bond, New York, Pennsylvania,
Tax-Free Income, Government Securities and Short Maturity Government Funds and
the bond portion of the Balanced Fund may purchase bonds on a when issued or
delayed-delivery basis. Delivery of and payment for these bonds could take
place a month or more after the date of the transaction. During this time, the
value of the purchase commitment will fluctuate with the market for these
bonds. However, when a Fund makes a commitment to purchase the bonds, the
payment and interest terms of these issues are fixed. A Fund will make these
commitments only with the intention of acquiring the bonds, but may sell those
bonds before settlement date if Sentinel Advisors or Evergreen Investment
Management Company ("Evergreen"), the subadvisor to the High Yield Fund,
believes that would benefit shareholders. When a Fund purchases bonds on a when
issued or delayed-delivery basis, it will provide its custodian with enough
cash or short-term investments to pay the purchase price of these bonds upon
delivery. This policy ensures that when issued or delayed-delivery purchases
will not be used as a form of borrowing to make investments.

Considerations Applicable to the Tax-Exempt Funds

As described in the Prospectus, the Tax-Free Income Fund, the
Pennsylvania Fund and the New York Fund (together, the "Tax-Exempt Funds") may
purchase and sell exchange-traded financial futures contracts ("financial
futures contracts") to hedge their portfolios of municipal bonds against
declines in the value of such securities and to hedge against increases in the
cost of securities they intend to purchase. To hedge their portfolios, the
Tax-Exempt Funds may take an investment position in a financial futures
contract which will move in the opposite direction from the portfolio position
being hedged. While the use of hedging strategies is intended to moderate
capital changes in portfolio holdings and thereby reduce the volatility of the
net asset value of Fund shares, the Tax-Exempt Funds anticipate that their net
asset values will fluctuate. Set forth below is information concerning
financial futures transactions.

Description of Financial Futures Contracts. A financial futures
contract is an agreement between two parties to buy and sell a security, or in
the case of an index-based financial futures contract, to make and accept a
cash settlement for a set price on a future date. A majority of transactions in
financial futures contracts, however, do not result in the actual delivery of
the underlying instrument or cash settlement, but are settled through
liquidation, i.e., by entering into an offsetting transaction. Financial
futures contracts have been designed by boards of trade which have been
designated "contracts markets" by the Commodity Futures Trading Commission (the
"CFTC").

The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker and the
relevant contract market, which varies but is generally about 5% of the
contract amount, must be deposited with the broker. This amount is known as
"initial margin" and represents a "good faith" deposit assuring the performance
of both the purchaser and seller under the financial futures contract.
Subsequent payments to and from the broker, called "variation margin", are
required to be made on a daily basis as the price for the futures contract
fluctuates and makes the long and short positions in the futures contract more
or less valuable, a process known as "mark to the market". At any time prior to
the settlement date of the futures contract, the position may be closed out by
taking an opposite position which will operate to terminate the position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid to or released by the broker and the
position generates a loss or a gain. In addition, a nominal commission is paid
on each completed sale transaction.

The Tax-Exempt Funds may deal in financial futures contracts based on a
long-term municipal bond index developed by the Chicago Board of Trade (the
"CBT") and The Bond Buyer (the "Municipal Bond Index"). The Municipal Bond
Index is comprised of 40 tax-exempt municipal revenue bonds and general
obligations bonds. Each bond included in the Municipal Bond Index must be rated
"A" or higher by Moody's or Standard & Poor's and must have a remaining
maturity of 19 years or more. Twice a month new issues satisfying the
eligibility requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal Bond Index
is computed daily according to a formula based on the price of each bond in the
Municipal Bond Index, as evaluated by six dealer-to-dealer brokers.

The Municipal Bond Index financial futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance under
financial futures contracts through a clearing corporation, a non-profit
organization managed by the exchange membership which is also responsible for
handling daily accounting of deposits or withdrawals of margin.

The Tax-Exempt Funds may purchase and sell financial futures contracts
on U.S. Government Securities as a hedge against adverse changes in interest
rates as described below. With respect to U.S. Government Securities, currently
there are financial futures contracts based on long-term U.S. Treasury bonds,
U.S. Treasury notes, Government National Mortgage Association ("GNMA")
Certificates and three-month U.S. Treasury bills. The Tax-Exempt Funds may
purchase and write call and put options on financial futures contracts on U.S.
Government Securities in connection with their hedging strategies.

The Tax-Exempt Funds also may engage in other financial futures
contracts transactions, such as financial futures contracts on other municipal
bond indices which may become available, if the Advisor should determine that
there is normally a sufficient correlation between the prices of such financial
futures contracts and the municipal bonds in which the Tax-Exempt Funds invest
to make such hedging appropriate.

Futures Strategies. A Tax-Exempt Fund may sell a financial futures
contract (i.e., assume a short position) in anticipation of a decline in the
value of their investments in municipal bonds resulting from an increase in
interest rates or otherwise. The risk of decline could be reduced without
employing futures as a hedge by selling such municipal bonds and either
reinvesting the proceeds in securities with shorter maturities or by holding
assets in cash. This strategy, however, entails increased transaction costs in
the form of dealer spreads and typically would reduce the average yield of the
Funds' portfolio securities as a result of the shortening of maturities. The
sale of financial futures contracts provides an alternative means of hedging
against declines in the value of their investments in municipal bonds. As such
values decline, the value of the Funds' positions in the financial futures
contracts will tend to increase, thus offsetting all or a portion of the
depreciation in the market value of the Funds' municipal bond investments which
are being hedged. While the Tax-Exempt Funds will incur commission expenses in
selling and closing out financial futures contract positions, commissions on
financial futures contract transactions are lower than transaction costs
incurred in the purchase and sale of municipal bonds. In addition, the ability
to trade in the standardized contracts available in the futures markets may
offer a more effective defensive position than a program to reduce the average
maturity of the portfolio securities, due to the unique and varied credit and
technical characteristics of the municipal debt instruments available to the
Funds. Employing futures as a hedge also may permit the Tax-Exempt Funds to
assume a defensive posture without reducing the yield on their investments
beyond any amounts required to engage in futures trading.

When the Tax-Exempt Funds intend to purchase municipal bonds, they may
purchase financial futures contracts as a hedge against any increase in the
cost of such municipal bonds, resulting from a decrease in interest rates or
otherwise, that may occur before such purchases can be effected. Subject to the
degree of correlation between the municipal bonds and the financial futures
contracts, subsequent increases in the cost of municipal bonds should be
reflected in the value of the futures held by the Tax-Exempt Funds. As such
purchases are made, an equivalent amount of financial futures contracts will be
closed out. Due to changing market conditions and interest rate forecasts,
however, a financial futures contract position may be terminated without a
corresponding purchase of portfolio securities.

Call Options on Financial Futures Contracts. The Tax-Exempt Funds also
may purchase and sell exchange-traded call and put options on financial futures
contracts on U.S. Government Securities. The purchase of a call option on a
financial futures contract is analogous to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the financial futures contract on which it is based, or the price of the
underlying debt securities, it may or may not be less risky than ownership of
the financial futures contract or the underlying debt securities. Like the
purchase of a financial futures contract, a Tax-Exempt Fund will purchase a
call option on a financial futures contract to hedge against a margin advance
when it is not fully invested.

The writing of a call option on a financial futures contract
constitutes a partial hedge against declining prices of the securities which
are deliverable upon exercise of the financial futures contract. If the futures
price at expiration is below the exercise price, the Tax-Exempt Fund will
retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio holdings.

Put Options on Financial Futures Contracts. The purchase of a put
option on a financial futures contract is analogous to the purchase of a
protective put option on a portfolio security. The Tax-Exempt Funds may
purchase put options on financial futures contracts to hedge the Funds'
portfolios against the risk of rising interest rates.

The writing of a put option on a financial futures contract constitutes
a partial hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration is higher than the exercise price, the Tax-Exempt Funds will retain
the full amount of the option premium which provides a partial hedge against
any increase in the price of municipal bonds which the Funds intend to
purchase.

The writer of an option on a financial futures contract is required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to financial futures contracts. Premiums received from the writing
of an option will be included in initial margin. The writing of an option on a
financial futures contract involves risks similar to those relating to
financial futures contracts.

Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to the Tax-Exempt Funds provide that the Tax-Exempt Funds may
purchase and sell financial futures contracts and options thereon either (a)
for bona fide hedging purposes or (b) for non-hedging purposes, provided that
the aggregate initial margins and premiums required to establish positions in
such contracts and options do not exceed 5% of the liquidation value of a
Tax-Exempt Fund's portfolio assets after taking into account any unrealized
profits and losses on such contracts or options. (However, as stated above, the
Tax-Exempt Funds intend to engage in futures and options transactions for
hedging purposes only.) Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.

When the Tax-Exempt Funds purchase a financial futures contract or a
call option with respect thereto or write a put option on a financial futures
contract, an amount of cash, cash equivalents or short-term, high-grade,
fixed-income securities will be deposited in a segregated account with the
Funds' custodian so that the amount so segregated, plus the amount of initial
and variation margin held in the account of their broker, equals the market
value of the financial futures contract, thereby ensuring that the use of such
futures is unleveraged.

Risk Factors in Futures and Options Transactions. Investment in
financial futures contracts involves the risk of imperfect correlation between
movements in the price of the financial futures contract and the price of the
security being hedged. The hedge will not be fully effective when there is
imperfect correlation between the movements in the prices of two financial
instruments. For example, if the price of the financial futures contract moves
more than the price of the hedged security, the Tax-Exempt Funds will
experience either a loss or gain on the financial futures contract which is not
completely offset by movements in the price of the hedged securities. To
compensate for imperfect correlations, the Tax-Exempt Funds may purchase or
sell financial futures contracts in a greater dollar amount than the hedged
securities if the volatility of the price of the hedged securities is
historically greater than that of the financial futures contracts. Conversely,
the Tax-Exempt Funds may purchase or sell fewer financial futures contracts if
the volatility of the price of the hedged securities is historically less than
that of the financial futures contracts.

The particular municipal bonds comprising the index underlying the
Municipal Bond Index financial futures contract may vary from the bonds held by
the Tax-Exempt Funds. As a result, each Fund's ability to hedge effectively all
or a portion of the value of its municipal bonds through the use of such
financial futures contracts will depend in part on the degree to which price
movements in the index underlying the financial futures contract correlate with
the price movements of the municipal bonds held by that Fund. The correlation
may be affected by disparities in the average maturity, ratings, geographic mix
or structure of such Fund's investments as compared to those comprising the
Municipal Bond Index, and general economic or political factors. In addition,
the correlation between movements in the value of the Municipal Bond Index may
be subject to change over time as additions to and deletions from the Municipal
Bond Index alter its structure. The correlation between financial futures
contracts on U.S. Government Securities and the municipal bonds held by the
Tax-Exempt Funds may be adversely affected by similar factors and the risk of
imperfect correlation between movements in the prices of such financial futures
contracts and the prices of the municipal bonds held by the Tax-Exempt Funds
may be greater.

The Tax-Exempt Funds expect to liquidate a majority of the financial
futures contracts they enter into through offsetting transactions on the
applicable contract market. There can be no assurance, however, that a liquid
secondary market will exist for any particular financial futures contract at
any specific time. Thus, it may not be possible to close out a financial
futures contract position. In the event of adverse price movements, the
Tax-Exempt Funds would continue to be required to make daily cash payments of
variation margin. In such situations, if a Fund has insufficient cash, it may
be required to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. The inability
to close out financial futures contract positions also could have an adverse
impact on a Fund's ability to hedge effectively its investments in municipal
bonds. The Tax-Exempt Funds will enter into a financial futures contract
position only if, in the judgment of the Advisor, there appears to be an
actively traded secondary market for such financial futures contracts.

The liquidity of a secondary market in a financial futures contract may
be adversely affected by "daily price fluctuation limits" established by
commodity exchanges which limit the amount of fluctuation in a futures contract
price during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open financial futures contract positions. Prices
have in the past reached or exceeded the daily limit on a number of consecutive
trading days.

The successful use of transactions in futures and related options also
depends on the ability of the Advisor to forecast correctly the direction and
extent of interest rate movements within a given time frame. To the extent
interest rates remain stable during the period in which a financial futures
contract or option is held by the Tax-Exempt Funds or such rates move in a
direction opposite to that anticipated, a Fund may realize a loss on the
hedging transaction which is not fully or partially offset by an increase in
the value of portfolio securities. As a result, a Fund's total return for such
period may be less than if it had not engaged in the hedging transaction.

Because of low initial margin deposits made on the opening of a
financial futures contract position, futures transactions involve substantial
leverage. As a result, relatively small movements in the price of the financial
futures contracts can result in substantial unrealized gains or losses. Because
the Tax-Exempt Funds will engage in the purchase and sale of financial futures
contracts solely for hedging purposes, however, any losses incurred in
connection therewith should, if the hedging strategy is successful, be offset
in whole or in part by increases in the value of securities held by the Funds
or decreases in the price of securities that the Funds intend to acquire.

The amount of risk the Tax-Exempt Funds assume when they purchase an
option on a financial futures contract is the premium paid for the option plus
related transaction costs. In addition to the correlation risks discussed
above, the purchase of an option on a financial futures contract also entails
the risk that changes in the value of the underlying financial futures contract
will not be fully reflected in the value of the option purchased.

Municipal Bond Index financial futures contracts only recently have
been approved for trading and therefore have little trading history. It is
possible that trading in such financial futures contracts will be less liquid
than trading in other futures contracts. The trading of financial futures
contracts also is subject to certain market risks, such as inadequate trading
activity, which could at times make it difficult or impossible to liquidate
existing positions.

Tax-Exempt Obligations. The Tax-Exempt Funds may invest in municipal
obligations that constitute "private activity bonds" under the Internal Revenue
Code of 1986, as amended (the "Code") which may subject certain investors to a
federal alternative minimum tax ("AMT"). The provisions of the Code relating to
private activity bonds generally apply to bonds issued after August 15, 1986,
with certain transitional rule exemptions. Private activity bonds are eligible
for purchase by the Tax-Exempt Funds provided that the interest paid thereon
qualifies as exempt from federal income taxes (and in the case of the New York
and Pennsylvania Funds, New York State and City, and Pennsylvania, personal
income taxes, respectively). It is the position of the SEC and the Funds that
municipal obligations that generate income subject to the AMT should not be
counted as tax-exempt for the purpose of determining whether 80% of a Fund's
net assets are invested in tax-exempt obligations.

Tax-exempt obligations held by the Tax-Exempt Funds generally will
consist of investment grade municipal obligations with maturities of longer
than one year. Long-term obligations normally are subject to greater market
fluctuations as a result of changes in interest rates and market conditions
than are short-term obligations. The two principal classifications of municipal
obligations which may be held by the Tax-Exempt Funds are "general obligation"
bonds and "revenue" bonds. General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power in support of the payment of
principal and interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of the facility being financed. Tax-exempt private activity bonds
(including industrial development bonds) are in most cases revenue bonds and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds usually is related directly to the
credit standing of the corporate user of the facility involved. In addition,
the Tax-Exempt Funds may invest in short-term municipal obligations (commonly
referred to as municipal notes). Municipal notes often are used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include variable and floating rate demand obligations, tax
anticipation notes, revenue anticipation notes, construction loan notes and
bond anticipation notes.

The Pennsylvania Fund will attempt to invest 100% of its assets in
Pennsylvania obligations, and the New York Fund will attempt to invest 100% of
its assets in New York obligations. As a matter of fundamental policy, the
Pennsylvania and New York Funds, under normal market conditions, will invest at
least 80% of their net assets in tax-exempt Pennsylvania obligations or New
York obligations, respectively, in each case which are rated within the top
four rating categories by a nationally recognized statistical rating
organization or, if not rated, which, in the opinion of the Advisor, possess
equivalent investment characteristics. The fourth grade is considered
medium-grade and has speculative characteristics. The Pennsylvania Fund may
invest up to 25% of its assets in securities rated at this fourth grade, and
the New York Fund may invest without limitation in securities rated at this
fourth grade. These bond ratings are described in Appendix A.

During temporary defensive periods when, in the Advisor's opinion,
suitable Pennsylvania or New York obligations are unavailable, or the Advisor
anticipates an increase in interest rates, the Pennsylvania and New York Funds
may invest not more than 20% of their assets in obligations, the interest on
which is exempt only from federal income taxes (such as obligations issued by
states other than Pennsylvania or New York, respectively) or is exempt only
from Pennsylvania or New York personal income taxes, respectively (such as
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities). Moreover, under such conditions, all three Tax-Exempt Funds
may make temporary investments in high-quality obligations, the interest on
which is not exempt from either federal or any state personal income taxes.
Such investments will consist of debt securities (including commercial paper)
of issuers having, at the time of purchase, a quality rating within the two
highest categories of either Standard & Poor's or Moody's, certificates of
deposit, banker's acceptances, or repurchase agreements.

Variable or Floating Rate Notes. The Tax-Exempt Funds may invest in
variable or floating rate demand obligations, which are securities that provide
for adjustment in their interest rates at intervals ranging from daily to up to
one year based upon prevailing market rates for similar investments and an
adjustment formula that is intended to maintain the market value of the
security at par. These obligations normally have a stated maturity in excess of
one year but permit the holder to demand repayment of principal plus payment of
accrued interest at any time upon a specified number of days' notice. The
Tax-Exempt Funds will have the right to receive repayment of principal and
payment of accrued interest within seven days. Some notes may be rated by
credit rating agencies but unrated notes purchased by the Funds, in the
Advisor's opinion, will be of comparable quality at the time of purchase to
instruments that are rated as high quality. Where necessary to ensure that an
unrated note is of high quality, the Funds will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional
domestic or foreign bank letter or line of credit, guarantee or commitment to
lend. In such a case, the quality of the bank will be looked to for purposes of
satisfying the Funds' quality standards. In addition, the Advisor will consider
that foreign banks are not subject to the same regulations as are domestic
banks and may be involved in different business activities and have different
risks. Although there may be no active secondary market for a particular
instrument, the Funds may, upon notice, exercise a note's demand feature or
resell the note at any time to a third party. If a significant portion of a
Fund's assets were invested in notes of a single issuer, however, the issuer's
ability to meet the demand feature could affect that Fund's liquidity. Included
in the variable and floating rate demand instruments that the Tax-Exempt Funds
may purchase are participations in municipal obligations purchased from and
owned by financial institutions, primarily banks, the interest on which, in the
opinion of counsel to the issuer, is exempt from federal income taxes and in
the case of the New York and Pennsylvania Funds, New York State and City, and
Pennsylvania, personal income taxes, respectively. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate
adjustment or the demand notice period.

Municipal Bond Insurance. Certain of the municipal obligations held in
the portfolios of the Tax-Exempt Funds may be insured. Different types of such
insurance include a "New Issue Insurance Policy", a "Mutual Fund Insurance
Policy" or a "Secondary Market Insurance Policy".

A New Issue Insurance Policy is obtained by the issuer of the
securities, and all premiums for such a policy are paid in advance by the
issuer. Such policies are generally used by an issuer to increase the credit
rating of a lower-rated security, and therefore may increase both the purchase
price and the subsequent resale value of a security for a Fund's portfolio.
They are non-cancellable and continue in force as long as the securities are
outstanding and the respective insurers remain in business. Premiums for issuer
insurance are paid in advance by the issuer and are reflected in a somewhat
higher purchase price paid by the Tax-Exempt Funds for these obligations. The
creditworthiness of the issuer will be evaluated in order to determine its
ability to meet its obligations to pay interest and repay principal. The
insurance covers the event that the issuer defaults on an interest payment or
principal repayment; if this occurs, the insurer will be notified and will make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. These insurance policies do not protect bondholders
from adverse changes in interest rates.

A Mutual Fund Insurance Policy is used to guarantee specific bonds only
while owned by a mutual fund. If a Fund were to purchase such a policy, payment
of the annual premiums would reduce such Fund's current yield. The Tax-Exempt
Funds have no plans to purchase a Mutual Fund Insurance Policy at this time.

A Secondary Market Insurance Policy is purchased by an investor
subsequent to a security's issuance and generally insures a particular security
for the remainder of its term. The Tax-Exempt Funds may purchase securities
which already have been insured under a Secondary Market Insurance Policy by a
prior investor, or such Funds may purchase such a policy from a vendor
providing such a service.

Other Matters Specific to the New York Fund. The New York Fund is a
non-diversified series of the Company under the Investment Company Act of 1940,
as amended (the "1940 Act"). Therefore, the New York Fund could invest all of
its assets in securities of a single issuer. However, as the Fund intends to
comply with Subchapter M of the Code, at least 50% of its total assets must be
comprised of individual issues, each of which represents no more than 5% of
such Fund's total assets and not more than 10% of the issuer's outstanding
voting securities. Those issues which represent more than 5% of the New York
Fund's total assets must be limited in the aggregate to 50% of such Fund's
total assets, provided, however, that no more than 25% of the Fund's total
assets may be invested in any one issuer. For these purposes, a security is
considered to be issued by the governmental entity (or entities) whose assets
or revenues back the security, or with respect to a private activity bond that
is backed only by the assets and revenues of a non-governmental user, a
security is considered to be issued by such non-governmental user. In
accordance with SEC regulations, the guarantor of a guaranteed security may be
considered to be an issuer in connection with such guarantee. Since investment
return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio, the New York Fund is more susceptible to economic,
political and regulatory developments and the change in value of any one
security will affect the overall value of a non-diversified portfolio and
thereby subject its net asset value per share to greater fluctuations.

Because the New York Fund invests at least 80% of its assets in New
York obligations, its net asset value is particularly sensitive to changes in
the economic conditions and governmental policies of the State of New York. See
Appendix B - "Economic Conidtions in New York" for additional information
regarding these factors.

Other Matters Specific to the Pennsylvania Fund. The Pennsylvania Fund
is registered as a non-diversified, open-end investment company under the 1940
Act. Therefore, the Pennsylvania Fund could invest all of its assets in
securities of a single issuer. However, as the Pennsylvania Fund also intends
to comply with Subchapter M of the Code, it must observe the same
diversification restrictions set forth in the preceding section for the New
York Fund. Since investment return on a non-diversified portfolio typically is
dependent upon the performance of a smaller number of securities relative to
the number held in a diversified portfolio, the Pennsylvania Fund is also more
susceptible to economic, political and regulatory developments, and the change
in value of any one security will affect the overall value of a non-diversified
portfolio and thereby subject the Pennsylvania Fund's net asset value per share
to greater fluctuations.

Because the Pennsylvania Fund invests at least 80% of its assets in
Pennsylvania obligations, its net asset value is particularly sensitive to
changes in the economic conditions and governmental policies of the
Commonwealth of Pennsylvania. See Appendix C - "Economic Conditions in
Pennsylvania" for additional information regarding these factors.

The Pennsylvania Fund's portfolio turnover rate generally will not
exceed 100%. A portfolio turnover rate of 100% or higher will result in higher
transaction costs, which must be borne directly by the Pennsylvania Fund and
ultimately by its shareholders. High portfolio turnover may result in the
realization of substantial net capital gains, and possibly interest income,
representing accrued market discount. To the extent net short-term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for federal income tax purposes.

In addition, the Pennsylvania Fund does not intend to (i) invest in
securities secured by real estate or interests therein or issued by companies
or investment trusts which invest in real estate or interests therein, or (ii)
invest in securities issued by companies which, together with any predecessor,
have been in continuous operation for fewer than three years. The Pennsylvania
Fund would seek to notify shareholders before changing any of these policies.

Considerations Applicable to the Flex Cap Opportunity Fund

Cash Position. In order to afford the Flex Cap Opportunity Fund the
flexibility to take advantage of new opportunities for investments in
accordance with its investment objective or to meet redemptions, it may, under
normal circumstances, hold up to 15% of its total assets in money market
instruments including, but not limited to, certificates of deposit, time
deposits and bankers' acceptances issued by domestic bank and thrift
institutions, U.S. Government securities, commercial paper and repurchase
agreements. When the analysis of economic and technical market factors by the
subadvisor, Fred Alger Management, Inc. ("Alger") suggests that common stock
prices will decline sufficiently that a temporary defensive position is deemed
advisable, the Fund may invest in high-grade senior securities or U.S.
Government securities or retain cash or cash equivalents, all without
limitation.

Small Capitalization Investments. Certain companies in which the Flex
Cap Opportunity Fund will invest may still be in the developmental stage, may
be older companies that appear to be entering a new stage of growth progress
owing to factors such as management changes or development of new technology,
products or markets or may be companies providing products or services with a
high unit volume growth rate. Investing in smaller, newer issuers generally
involves greater risk than investing in larger, more established issuers. Such
companies may have limited product lines, markets or financial resources and
may lack management depth. Their securities may have limited marketability, and
may be subject to more abrupt or erratic market movements than securities of
larger, more established companies or the market averages in general.

Repurchase Agreements. Like the other Funds, the Flex Cap Opportunity
Fund may invest in repurchase agreements. Repurchase agreements the Fund will
enter into will usually be for periods of one week or less, and the value of
the underlying securities, including accrued interest, will be at least equal
at all times to the total amount of the repurchase obligation, including
interest. The Fund bears the same risk of loss in the event that the other
party to a repurchase agreement declares bankruptcy or defaults on its
obligations that is discussed on page 4 of this Statement of Additional
Information. Alger reviews the creditworthiness of the banks and dealers with
which the Fund enters into repurchase agreements to evaluate these risks and
monitors on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level.

Warrants and Rights. The Flex Cap Opportunity Fund may invest in
securities convertible into or exchangeable for equity securities including
warrants and rights. A warrant is a type of security that entitles the holder
to buy a proportionate amount of common stock at a specified price, usually
higher than the market price at the time of issuance, for a period of years or
to perpetuity. In contrast, rights, which also represent the right to buy
common shares, normally have a subscription price lower than the current market
value of the common stock and a life of two to four weeks. Warrants are freely
transferable and are traded on the major securities exchanges.

Portfolio Depositary Receipts. To the extent otherwise consistent with
its investment policies and applicable law, the Flex Cap Opportunity Fund may
invest up to 5% of its total assets in Portfolio Depositary Receipts, which are
exchange-traded shares issued by investment companies, typically unit
investment trusts, holding portfolios of common stocks designed to replicate
and, therefore, track the performance of various broad securities indexes or
sectors of such indexes. For example, the Fund may invest in Standard & Poor's
Depositary Receipts(R) (SPDRs), issued by a unit investment trust whose
portfolio tracks the S&P 500 Composite Stock Price Index, or Standard & Poor's
MidCap 400 Depositary Receipts(R) (MidCap SPDRs), similarly linked to the S&P
MidCap 400 Index.

Foreign Securities. The Flex Cap Opportunity Fund may invest up to 20%
of the value of its total assets in foreign securities (not including American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") or U.S.
dollar denominated securities of foreign issuers). Foreign securities
investments may be affected by changes in currency, rates or exchange control
regulations, changes in governmental administration or economic or monetary
policy (in the United States and abroad) or changed circumstances in dealings
between nations. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes that may decrease the net return on these
investments as compared to dividends paid to the Fund by domestic corporations.
There may be less publicly available information about foreign issuers than
about domestic issuers, and foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those of domestic issuers. Securities of some foreign issuers are
less liquid and more volatile than securities of comparable domestic issuers
and foreign brokerage commissions are generally higher than commissions in the
United States. Foreign securities markets may also be less liquid, more
volatile and subject to less government supervision than those in the United
States. Investments in foreign countries could be affected by other factors not
present in the United States, including expropriation, confiscatory taxation
and potential difficulties in enforcing contractual obligations. Securities
purchased on foreign exchanges may be held in custody by a foreign bank or a
foreign branch of a domestic bank.

The Flex Cap Opportunity Fund may purchase ADRs, ADSs or U.S.
dollar-denominated securities of foreign issuers which are not subject to the
20% foreign securities limitation. ADRs and ADSs are traded in U.S. securities
markets and represent the securities of foreign issuers. While ADRs and ADSs
may not necessarily be denominated in the same currency as the foreign
securities they represent, many of the risks associated with foreign securities
may also apply to ADRs and ADSs.

Borrowing. The Flex Cap Opportunity Fund may borrow money from banks
and use it to purchase additional securities. This borrowing is known as
leveraging. Leveraging increases both investment opportunity and investment
risk. If the investment gains on securities purchased with borrowed money
exceed the cost of borrowing, including interest paid on the borrowing, the net
asset value of the Flex Cap Opportunity Fund's shares will rise faster than
would otherwise be the case. On the other hand, if the investment gains fail to
cover the cost (including interest) of borrowings, or if there are losses, the
net asset value of the Flex Cap Opportunity Fund's shares will decrease faster
than would otherwise be the case. The Flex Cap Opportunity Fund may also borrow
from banks for temporary or emergency purposes. The Fund is required to
maintain continuous asset coverage (that is, total assets including borrowings,
less liabilities exclusive of borrowings) of 300% of the amount borrowed. If
such asset coverage should decline below 300% as a result of market
fluctuations or other reasons, the Flex Cap Opportunity Fund may be required to
sell some of its portfolio holdings within three days to reduce the debt and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.

Considerations Applicable to the World Fund

Foreign Currency Transactions. The value of the assets of the World
Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies.

The Fund will conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market or through the use of forward contracts to purchase or
sell foreign currencies. A forward foreign currency exchange contract involves
an obligation by the Fund to purchase or sell a specific amount of currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirements, and no
commissions are charged at any stage for trades. Neither type of foreign
currency transaction will eliminate fluctuations in the prices of the Fund's
portfolio securities or prevent loss if the prices of such securities should
decline.

The World Fund may enter into forward foreign currency exchange
contracts only under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security. The
Fund will then enter into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying securities transactions; in this manner the Fund will be better able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency
during the period between the date the securities are purchased or sold and the
date on which payment is made or received.

Second, when the Advisor or INVESCO Global Asset Management (N.A.),
Inc., the World Fund's subadvisor ("INVESCO") believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract to sell, for a fixed amount
of dollars, the amount of foreign currency approximating the value of some or
all of the Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved generally will not be possible since the future value of those
securities may change between the date the forward contract is entered into and
the date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Advisor does not intend to enter into such
forward contracts under this second circumstance on a regular or continuous
basis. The Fund will not enter into such forward contracts or maintain a net
exposure to such contracts when the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in that currency.
The Advisor believes that it is important to have the flexibility to enter into
such forward contracts when it determines that to do so is in the best interest
of the Fund. The Fund's custodian bank segregates cash or equity or debt
securities in an amount not less than the value of the Fund's total assets
committed to forward foreign currency exchange contracts entered into under the
second circumstance. If the value of the securities segregated declines,
additional cash or securities are added so that the segregated amount is not
less than the amount of the Fund's commitments with respect to such contracts.
Under normal circumstances, the Fund expects that any appreciation
(depreciation) on such forward exchange contracts will be offset approximately
by the (depreciation) appreciation in translation of the underlying foreign
investment arising from fluctuations in foreign currency exchange rates.

The Fund will experience the unrealized appreciation or depreciation
from the fluctuation in a foreign currency forward contract as an increase or
decrease in the Fund's net assets on a daily basis, thereby providing an
appropriate measure of the Fund's financial position and changes in financial
position.

Foreign Securities for Funds other than the World Fund

Before foreign securities are purchased for Funds other than the World
Fund, the differences between them and U.S. securities are considered. This
includes possible differences in taxation, regulation, trading volume and
currency controls, the possibility of expropriation and lack of uniform
accounting and reporting standards. While there may be investment opportunities
in foreign securities, there also may be investment risks not usually
associated with U.S. securities.

INVESTMENT RESTRICTIONS

The Company. Certain By-Laws of the Company, which may be changed only
by a shareholder vote, prohibit the purchase by any Fund other than the Flex
Cap Opportunity Fund of the securities of any company not in operation
continuously for at least three years (including any predecessor company) and,
except for U.S. Government Securities and obligations of the government of
Canada, forbid the purchase of the securities of any one issuer, if the market
value of such securities exceeds 5% of the total market value of all of the
Company's securities and cash.

The Company's Board of Directors has also adopted a policy under which
each of the Common Stock Fund, Balanced Fund, Growth Fund and Bond Fund cannot
purchase securities of any one issuer if the market value of such securities
exceeds 5% of the total market value of each such Fund's securities and cash.

It is also a fundamental policy of the Company that it may not borrow
money, except as otherwise described above for the Flex Cap Opportuinity Fund
and except, for all Funds, from banks in an amount up to 5% of a Fund's total
assets for temporary or emergency purposes or to meet redemption requests which
might otherwise require the untimely disposition of securities, and it may not
purchase securities on margin. Also, the Company may not lend its cash or
securities, may not deal in real estate, may not act as underwriter of
securities issued by others, and may not purchase from or sell to any officer,
director or employee of the Company, the Advisor, a subadvisor or underwriter,
or any of their officers or directors, any securities other than shares of the
Company's capital stock. None of its Funds may deal in options, commodities or
commodities contracts , except as otherwise described in the Prospectus for the
Growth Index Fund, and except further to the extent the Tax-Exempt Funds or the
High Yield Fund may enter into futures transactions and related options for
hedging purposes as described above. None of the Funds may invest in oil, gas
or other mineral exploration or development programs or leases. None of the
Funds , except for the Flex Cap Opportunity Fund, are able to invest more than
5% of its net assets in warrants valued at the lower of cost or market, or more
than 2% of its net assets in warrants which are not listed on either the New
York Stock Exchange or the American Stock Exchange.

The Company's By-Laws also prohibit the purchase or retention of the
securities of any one issuer if officers and directors of the Company, its
Advisor or underwriter owning individually more than .5% of the securities of
such issuer together own more than 5% of the securities of such issuer.

The Company may not purchase more than 10% of the voting securities of
any issuer. The Company may not invest in companies for purposes of exercising
control or management and, except to the extent described above for the Flex
Cap Opportunity Fund, the High Yield Bond Fund and the Bond Fund, may not
invest in any securities of any issuer which the Company is restricted from
selling to the public without registration under the Securities Act . It also
may not purchase for any Fund securities of any issuer beyond a market value of
5% of such Fund's net assets, except for the Growth Index Fund and the Flex Cap
Opportunity Fund, and may not invest in securities which are not readily
marketable, except to the extent described above for the High Yield Bond Fund
and the Flex Cap Opportunity Fund.. The Company may not make short sales of
securities, except to the extent described above for the Flex Cap Opportunity
Fund.

Although not a fundamental policy, so long as the Common Stock Fund is
used as the underlying investment vehicle for a National Life separate account,
it is the view of management that its investment policies will be affected by
insurance laws of certain states, principally New York, which, among other
things, may limit most of the Common Stock Fund's investment in common stocks
to the common stocks of listed companies meeting certain earnings tests. These
essentially are qualitative limitations imposed upon the investments of life
insurance companies in order to reduce the risk of loss.

Restrictions and policies established by resolution of the directors
may be changed by the Board, with any material changes to be reported to
shareholders. Those presently in effect provide that under circumstances that
the directors with the advice of independent investment counsel determine to be
extraordinary, assets of all Funds may be invested entirely or in part in U.S.
Government Securities or an agency thereof, or held as cash deposits in a bank
or trust company having resources of not less than $2,000,000. The securities
of foreign companies or governments may be selected as being suitable for one
or more of the Funds.

The Pennsylvania Fund. The following investment limitations are
applicable to the Pennsylvania Fund, and may not be changed without a vote of
the Pennsylvania Fund's shareholders.

The Pennsylvania Fund may not:

1. Purchase or sell real estate, except that the Fund may invest in
municipal obligations which are secured by real estate or interests therein.

2. Make loans, except that the Fund may purchase or hold debt
instruments and enter into repurchase agreements pursuant to its investment
objective and policies.

3. Underwrite the securities of other issuers, except to the extent
that the acquisition or disposition of municipal obligations or other
securities directly from the issuer thereof in accordance with the Fund's
investment objective and policies might be deemed to be an underwriting.

4. Purchase securities of companies for the purpose of exercising
control.

5. Acquire any other investment company or investment company security,
except in connection with a merger, consolidation, reorganization or
acquisition of assets.

6. Purchase securities on margin, make short sales of securities or
maintain a short position, provided that the Fund may enter into futures
contracts.

7. Issue senior securities except insofar as borrowing in accordance
with the Fund's investment objective and policies might be considered to result
in the issuance of a senior security; provided that the Fund may enter into
futures contracts.

8. Invest in or sell interests in oil, gas or other mineral exploration
development programs.

9. Invest in private activity bonds where the payment of principal and
interest are the responsibility of a company (including its predecessors) with
less than three years of continuous operations.

The above investment limitations are considered at the time that
portfolio securities are purchased.

If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of the restriction.

In order to permit the sale of Pennsylvania Fund shares in certain
states, the Pennsylvania Fund may make commitments more restrictive than the
investment policies and limitations described above. Should the Pennsylvania
Fund determine that any such commitment is no longer in the best interests of
the Fund, it will revoke the commitment by terminating sales of its shares in
the state involved.

MANAGEMENT OF THE FUNDS

Management is made up of (i) the Company's Board of Directors and the
Pennsylvania Fund's Board of Trustees, which consist of the same twelve
individuals and which are responsible for the Funds' operations; (ii) the
officers of the Company and the Pennsylvania Funds, who are responsible to the
Boards; and (iii) the Advisor which, under agreements with the Company and the
Pennsylvania Fund, supervises and assists in the management of the Funds and
the purchase and sale of securities. In addition, the Advisor has retained the
services of INVESCO with respect to the World Fund, Evergreen with respect to
the High Yield Fund, and Alger with respect to the Flex Cap Opportunity Fund.
See the "The Investment Advisor", below. Set forth below is information
regarding the directors/trustees and officers of the Company and the
Pennsylvania Fund, their ages and their principal occupations during the past
five years. In the case of those persons who also hold positions with
affiliated persons of the Funds, such positions are also indicated.

PATRICK E. WELCH * - CHAIRMAN AND DIRECTOR/TRUSTEE
National Life Drive
Montpelier, VT 05604
Age 52
National Life - Chairman and Chief Executive Officer, 1997 to present; GNA
Corporation (Insurance) - Chairman of the Board, Chief Executive Officer and
President of GNA Corporation - 1992 to 1996; LSW National Holdings, Inc.
Chairman and Director; National Financial Services, Inc. - President and
Director; Administrative Services Director - 1997 to present, National Life
Investment Management Company, Inc., - Director - 1997 to present; Equity
Services, Inc. - Director - 1997 to present; Sentinel Administrative Service
Corporation - Director - 1997 to present; and National Retirement Plan
Advisors, Inc.- Director - 1997 to present.

JOSEPH M. ROB* - PRESIDENT AND DIRECTOR/TRUSTEE
National Life Drive
Montpelier, Vermont 05604
Age 56
Sentinel Management Company - Chief Executive Officer, 1993 to present;
Sentinel Financial Services Company Chief Executive Officer, 1993 to present;
Sentinel Administrative Services Company - Chief Executive Officer, 1993 to
present; ESI - Chairman, Chief Executive Officer, and Director, 1985 to
present, President, 1997 to present; American Guaranty & Trust Company -
Director, 1993 to present; LSW National Holdings, Inc. - Director, 1996 to
present; Life Insurance Company of the Southwest - Director, 1996 to present.

RICHARD J. BORDA - DIRECTOR/TRUSTEE
P. O. Box 6091
Carmel, California 93923
Age 67
National Life - Former Vice Chairman of the Board, 1985 to 1990, Director, 1975
to 1991;; The Monterey Institute for International Studies - Vice Chairman,
Director and Trustee, 1991 to present; Air Force Aid Society President, 1980 to
1995.

DR. KALMAN J. COHEN - DIRECTOR/TRUSTEE
2312 Honeysuckle Court
Chapel Hill, North Carolina 27514-1711
Age 68
Distinguished Bank Research Professor Emeritus, The Fuqua School of Business,
Duke University, 1993 to present; USLIFE Income Fund, Inc. - Director, 1973
to present; Sentinel Cash Management Fund, Inc. - Director, 1981 to
1993.

JOHN D. FEERICK - DIRECTOR/TRUSTEE
140 West 62nd Street
New York, New York 10023
Age 62

Fordham University School of Law - Dean, 1982 to present; American Home
Products Corporation - Director, 1987 to present; The Association of the Bar of
the City of New York - President, 1992 to 1994.

RICHARD I. JOHANNESEN, JR. - DIRECTOR/TRUSTEE
87 Whitney Lane
Stowe, Vermont 05672
Age 64
Retired; Former Vice President and Manager - Bond Market Research Department,
Salomon Brothers Inc.

ROBERT B. MATHIAS - DIRECTOR/TRUSTEE
7469 East Pine Avenue
Fresno, California 93727
Age 68

Sports Consultant; formerly Executive Director- National Fitness Foundation;
former U.S. Congressman.

KENISTON P. MERRILL* - DIRECTOR/TRUSTEE
Brainstorm Farm, P. O. Box 404
Randolph, Vermont 05060
Age 62

Chairman of the Board of the Company, 1990 to 1997; Chairman of the Board of
the Pennsylvania Fund, 1990 to 1997; Sentinel Advisors Company - Chairman and
Chief Executive Officer, 1993 to 1997; National Life - Executive Vice President
and Chief Investment Officer, 1994 to 1995, Senior Vice President and Chief
Investment Officer, 1989 to 1994; National Life Investment Management Company,
Inc. - Chairman and Chief Executive Officer, 1990 to 1995; American Guaranty &
Trust Company - Director, 1993 to 1997.

DEBORAH G. MILLER - DIRECTOR/TRUSTEE
1117 Hamilton Avenue
Palo Alto, CA 94301
Age 49

Digital Equipment Corporation - Vice President-Americas Systems Business Unit,
1995 to present; Miller Van Buren, Inc. - Chief Executive Officer, 1994 to
1995; Silicon Graphics - Vice President, 1991 to 1994.

<PAGE>

JOHN RAISIAN, Ph.D. - DIRECTOR/TRUSTEE
Hoover Institution, Stanford University
Serra and Galvey Streets
Stanford, California 94305-6010
Age 49
Director and Senior Fellow - Hoover Institution, 1991 to present; Director,
Stanford Faculty Club, 1994 to present; Member of the Editorial Board, Journal
of Labor Research, 1983 to present; Member, American Economic Association,
World Affairs Council, Council of Foreign Relations, National Association of
Scholars.

SUSAN M. STERNE - DIRECTOR/TRUSTEE
5 Glen Court
Greenwich, Connecticut 06830-4505
Age 53
Economic Analysis Associates, Inc. - President and Chief Economist, 1979 to
present.

ANGELA E. VALLOT - DIRECTOR/TRUSTEE
Director of Stakeholder Relations
Texaco, Inc.
200 Westchester Avenue
White Plains, New York 10650
Age 42
Texaco, Inc. - Director of Stakeholder Relations, 1997 to present; Arent Fox
Kintner Plotkin & Kahn - Lawyer, 1990 to 1997; Trustee, District of Columbia
Retirement Board; Member of the Steering Committee of the NAACP Legal Defense
Fund.

JOHN M. GRAB, JR., C.P.A.* - VICE PRESIDENT
National Life Drive
Montpelier, Vermont 05604
Age 52
Sentinel Management Company - Senior Vice President, 1993 to present; Sentinel
Administrative Service Company Senior Vice President, 1993 to present; ESI -
Senior Vice President and Chief Financial Officer, 1988 to present; American
Institute of Certified Public Accountants; The Vermont Society of Certified
Public Accountants.

THOMAS P. MALONE* - VICE PRESIDENT & TREASURER
National Life Drive
Montpelier, Vermont 05604
Age 43
Sentinel Administrative Service Company - Vice President, 1997 to present;
Assistant Vice President, 1990 to 1997; Sentinel Group Funds, Inc. - Vice
President & Treasurer, 1997 to present; Assistant Vice President, 1990 to 1997

D. RUSSELL MORGAN* - SECRETARY
National Life Drive
Montpelier, Vermont 05604
Age 43

National Life - Counsel, 1994 to present; Associate Counsel, 1990 to 1994; ESI
- - Counsel, 1986 to present; Sentinel Advisors Company - Sentinel Financial
Services Company - Sentinel Administrative Service Company Counsel, 1993 to
present; LSW National Holdings, Inc. - Secretary, 1996 to present.

*"Interested Persons" (as defined in the 1940 Act).

The officers and directors/trustees of the Funds who are employees of
National Life, Provident, Penn Mutual, or their respective subsidiaries do not
receive any compensation from the Funds. The Company pays to each director who
is not an affiliate of the Advisor an annual fee of $16,000 plus $1,500 for
each meeting of the Board of Directors attended by the director, and the
Pennsylvania Fund pays to each such trustee an annual fee of $2,500 plus $200
for each meeting of the Board of Trustees attended by such trustee. The Company
and the Pennsylvania Fund also reimburse directors/trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. The aggregate remuneration paid by the Funds during the fiscal year
ended November 30, 1998 to the officers and directors/trustees of the Funds as
a group was $341,348.

The following table sets forth for the fiscal year ended November 30,
1998 compensation paid by the Company and by the Pennsylvania Fund to the
directors/trustees who are not affiliated with the Advisor:

Pension or Total
Aggregate Retirement Compensation
Compensation Benefits from Fund
Name of Aggregate From Accrued as and Sentinel
Director/ Compensation Pennsylvania Part of Fund Pennsylvania
Trustee from Company Tax-Free Trust Expense Tax-Free Trust
- ------- ------------ -------------- ------- --------------
<S> <C> <C> <C>
Richard J. Borda $23,500 $3,500 None $27,000
Kalman J. Cohen $23,500 $3,500 None $27,000
Richard D. Farman $17,500 $2,700 None $20,200
John D. Feerick $20,500 $3,100 None $23,600
Richard I. Johannesen $23,500 $3,500 None $27,000
Robert B. Mathias $23,500 $ 3,500 None $27,000
Deborah G. Miller $23,500 $ 3,500 None $27,000
John Raisian $23,500 $ 3,500 None $27,000
Susan M. Sterne $23,500 $3,500 None $27,000
Angela E. Vallot $23,500 $3,500 None $27,000

</TABLE>

Code of Ethics

The Boards of the Funds have adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act, and the Advisor has adopted a similar Code of Ethics
(together, the "Codes of Ethics"). The Codes of Ethics significantly restrict
the personal investing activities of all employees of the Advisor.

The Codes of Ethics require that all employees preclear any personal
securities transaction (with limited exceptions, such as mutual funds and
government securities). The preclearance requirement and associated procedures
are designed to identify any substantive prohibition or limitation applicable
to the proposed transaction. The substantive restrictions include a ban on
acquiring any securities in an initial public offering, and a prohibition on
profiting from short-term trading in securities. In addition, no employee may
purchase or sell any security which at the time is being purchased or sold by
any mutual fund advised by the Advisor. Furthermore, the Codes of Ethics
provide for seven day trading "blackout periods" which prohibit trading by
employees of the Advisor in proximity to periods of trading by mutual funds
managed by the Advisor in the same (or equivalent) security.

PRINCIPAL SHAREHOLDERS

As of December 31, 1998, the Company's and the Pennsylvania Fund's
directors/trustees and officers as a group owned less than 1% of the
outstanding shares of each Fund. In addition, as of such date, National Life
and its affiliates, each of whose address is National Life Drive, Montpelier,
Vermont 05604, except for American Guaranty & Trust Company, whose address is
220 Continental Drive, Newark, Delaware 19713 owned of record and beneficially
23,142,070.792 shares amounting to 9.2% of the outstanding shares of the
Company (8.8% of the voting power) which included 3,520,339.863 shares of the
Common Stock Fund amounting to 8.3% of such Fund, 2,273,210.668 shares of the
Balanced Fund amounting to 11.5% of such Fund, 1,473,441.28 shares of the
Growth Fund amounting to 19.4% of such Fund, 1.302,097.866 shares of the Small
Company Fund amounting to 5.5% of such Fund, 1,836,406.151 shares of the World
Fund amounting to 27.3% of such Fund, 2,795,891.681 shares of the High Yield
Fund amounting to 30.1% of such Fund, 4,072,021.466 shares of the Bond Fund
amounting to 24.2% of such Fund, 755,422.62 shares of the Government Securities
Fund amounting to 10.3% of such Fund, 311,211.575 shares of Short Maturity Fund
amounting to 4.3% of such Fund, 4,278,649.16 shares of the Money Market Fund
amounting to 4.3% of such Fund, 468,674.781 shares of the Tax-Free Income Fund
amounting to 7.2% of such Fund, and 2,194.839 shares of the New York Fund
amounting to 0.2% of such Fund. National Life and its affiliates also owned
52,508.842 shares of the Pennsylvania Fund amounting to 2.0% of the outstanding
shares on such date.

As of December 31, 1998, none of the approximately 116,205 shareholders
owns as much as 5% of the voting stock of any Fund except National Life and its
affiliates, and except for the following shareholders of the New York Fund: Mr.
Louis P. Dicerbo, 261 Madison Avenue, New York, New York 10016-2303 -
148,410.254 shares amounting to 12.9% of the class; Donaldson, Lufkin &
Jenrette Securities Corporation Inc., P. O. Box 2052, Jersey City, New Jersey
07303-2052, 122,448.98 shares amounting to 10.7% of the class; Mr. John Kenny
Carlin and Mary Anne Carlin, 6110 South County Line Road, Burr Ridge, Illinois
60521-5220, 84,411.691 shares amounting to 7.3% of the class; Ms. Arlene
Federico, 39 Fruitledge Road, Brookville, New York 11545-3315 - 69,588.094
shares amounting to 6% of the class; and the following shareholder of the Short
Maturity Fund: PaineWebber for the Benefit of Catherine V. Robinson, 1970
Pompano Drive, Garden City, South Carolina 29576-5534 - 366,195.376 shares
amounting to 5.1% of the class.

In the case of the High Yield Fund and the World Fund, the ownership by
National Life and its affiliates may be deemed to be a controlling interest in
the Fund. As a result, on matters in which these Funds vote separately as a
class, it may be difficult for the other shareholders to adopt resolutions
opposed by National Life, or to defeat proposed resolutions supported by
National Life. National Life is organized under the laws of the State of
Vermont.

THE INVESTMENT ADVISOR

The Advisor provides general supervision of the Funds' investments as
well as certain administrative and related services. The Advisor is a Vermont
general partnership, the general partners of which are affiliates of National
Life, Provident, and Penn Mutual. National Life's affiliate is the majority
partner of the Advisor. Patrick E. Welch, the Chairman and Chief Executive
Officer of the Funds, is also Chairman and Chief Executive Officer of National
Life. As such, he may be deemed to control the Advisor. Joseph M. Rob, the
President of the Funds, is also Chief Executive Officer of SFSC, the Funds'
distributor, Sentinel Administrative Service Company, the Funds' transfer agent
and fund accounting service provider, and Sentinel Management Company, an
umbrella partnership which coordinates the activities of the other
partnerships. SFSC, Sentinel Administrative Service Company and Sentinel
Management Company are all also Vermont general partnerships of which the
general partners are affiliates of National Life, Provident and Penn Mutual,
with National Life being the majority partner in each case. Mr. Rob is also
Chairman, Chief Executive Officer and President of Equity Services, Inc., a
broker-dealer which is wholly owned by National Life. John M. Grab, Jr., Thomas
P. Malone, and D. Russell Morgan, the Vice President, Vice President and
Treasurer, and Secretary of the Funds, respectively, also hold the positions
with the affiliates of the Advisor shown on pages .

As compensation in full for services rendered under its advisory
agreement applicable to all Funds other than the High Yield Fund, the Growth
Index Fund and the Flex Cap Opportunity Fund, the Company will pay to the
Advisor a monthly fee determined as follows: (1) With respect to the Small
Company, Growth, World and Balanced Funds: 0.70% per annum on the first $200
million of aggregate average daily net assets of such funds in the aggregate;
0.65% per annum on the next $100 million of such assets; 0.60% per annum on the
next $100 million of such assets; and 0.55% per annum on such assets in excess
of $400 million. (2) With respect to the Common Stock Fund: 0.55% per annum on
the aggregate average daily net assets of the Fund. (3) With respect to the
Bond, New York, Tax-Free Income, Government Securities and Short Maturity
Government Funds: 0.55% per annum on the first $200 million of aggregate
average daily net assets of such funds in the aggregate; 0.50% per annum on the
next $200 million of such assets; and 0.45% per annum on such assets in excess
of $400 million. (4) With respect to the Money Market Fund: 0.40% per annum on
the first $300 million of aggregate average daily net assets; and 0.35% per
annum on such assets in excess of $300 million. Under a separate advisory
agreement with the High Yield Fund, the Advisor receives from the High Yield
Fund a fee based on the average daily value of the net assets of the High Yield
Fund in accordance with the following schedule: 0.75% per annum on the first
$100 million of average daily net assets of the High Yield Fund; 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. Under a separate advisory agreement with the Growth Index Fund, the
Advisor receives from the Growth Index Fund a fee based on the average daily
value of the net assets of the Growth Index Fund equal to 0.30% per annum on
such average daily net assets. Under a separate advisory agreement with the
Flex Cap Opportunity Fund, the Advisor receives from the Flex Cap Opportunity
Fund a fee based on the average daily value of the net assets of the Flex Cap
Opportunity Fund equal to 0.90% per annum on such average daily net assets.
Before waivers of advisory fees, for the fiscal year ended November 30, 1998,
such fees aggregated $16,207,972, for the fiscal year ended November 30, 1997,
such fees aggregated $13,907,812, and for the fiscal year ended November 30,
1996, such fees aggregated $11,732,548. Of the above advisory fees, $519,063
were waived in the fiscal year ended November 30, 1998.

As compensation in full for services rendered under its advisory
agreement, the Pennsylvania Fund pays to the Advisor a monthly fee of 0.55% per
annum on the first $50 million of aggregate average daily net assets of the
Fund; 0.50% per annum on the next $50 million of such assets; and 0.45% per
annum on such assets in excess of $100 million. For the fiscal years ended
November 30, 1998, November 30, 1997 and November 30, 1996, the Pennsylvania
Fund paid advisory fees of $190,754, $188,819, and $189,231, respectively. Of
these advisory fees, $ 135,034 were waived in the fiscal year ended November
30, 1998.

Under the Company's advisory agreement applicable to all Funds other
than the High Yield Fund, the Growth Index Fund and the Flex Cap Opportunity
Fund, fees are allocated to the various Funds of the Company which share common
fee schedules in proportion to such Funds' net assets.

Effective March 31, 1999, the Advisor has voluntarily agreed for a
period at least until November 30, 1999, to waive the following Funds' advisory
fees or other expenses necessary to limit these Funds' overall expense ratios
to the amounts shown below:

Bond Fund Class A shares.....................................0.76%
Government Securities Fund Class A shares....................0.83%
Short Maturity Government Fund Class A shares................0.77%
Tax-Free Income Fund Class A shares..........................0.73%
Pennsylvania Fund Class A shares.............................0.69%
New York Fund Class A shares0................................0.00%

In the case of the Bond Fund, the waiver of advisory fees also benefits the
Class B shares of the Bond Fund, which will experience the same reduced
effective advisory fee rate as the Class A shares of the Bond Fund. The Advisor
currently intends to reset the above expense caps annually to amounts
approximately equal to 90% of the average expense ratios of the Class A shares
of such Funds' peer groups (except that in the case of the Short Maturity
Government Fund, the expense cap is expected to be increased by approximately
0.15% to take that Fund's higher Rule 12b-1 fee into account). However, these
arrangements may be changed or terminated at any time after November 30, 1999.

Effective September 10, 1999, the Advisor has voluntarily agreed for a
period at least until November 30, 2000, to waive advisory fees or other
expenses necessary to cap the expense ratio of the Growth Index Fund at 0.65%.

In addition to the above waiver program, the Advisor has a policy of
waiving advisory fees to the extent, if any, necessary to maintain the
aggregate expense ratios of the Class A shares of all of the Funds, except for
the World Fund, to 1.30%. In the event that a waiver were required under this
policy, the waiver would apply to the same extent across all classes of shares
of these Funds, and the aggregate expense ratios of the Class B and Class C
shares of these Funds, and the Class D shares of the Balanced Fund, would be
reduced proportionately. Although the Advisor has no present intention to do
so, this arrangement may be terminated at any time. The aggregate expense ratio
of the Class A shares of the Funds was less than 1.30% during fiscal 1998, and
no reimbursement was required under this policy.

The Company's advisory agreement applicable to all Funds other than the
High Yield Fund, which was approved by the Company's shareholders on November
30, 1992, the advisory agreement applicable to the High Yield Fund, which was
approved by the Company's Board of Directors on March 14, 1997 and the High
Yield Fund's shareholders on June 20, 1997, the advisory agreement applicable
to the Growth Index Fund, which was approved by the Company's Board of
Directors on June 10, 1999 and the Growth Index Fund's shareholders on
September 13, 1999, and the advisory agreement applicable to the Flex Cap
Opportunity Fund, which was approved by the Company's Board of Directors on
December 9, 1999 and the High Yield Fund's shareholders on February , 2000,
must each be approved annually by vote of the Board of Directors of the Company
or by the vote of a majority of the outstanding voting securities of the
applicable Fund, but in either event it must also be approved by a vote of a
majority of the directors who are not parties to the contract, or "interested
persons", as defined in the 1940 Act, of any such party cast in person at a
meeting called for the purpose of voting on such approval. With respect to the
submission of the Company's advisory agreement applicable to all Funds other
than the High Yield Fund, for approval by the shareholders, such matters shall
be deemed to be acted upon effectively with respect to any class of the Company
if a majority of the outstanding voting securities of such class vote for
approval of such matter, notwithstanding (A) that such matter has not been
approved by a majority of the outstanding voting securities of any other class
affected by such matter, and (B) that such matter has not been approved by a
vote of a majority of the outstanding voting securities of the Company.

The Pennsylvania Fund's advisory agreement, which was approved by the
shareholders of the Fund on February 19, 1993, must be approved annually by
vote of the Board of Trustees or by the vote of a majority of the outstanding
voting securities of the Pennsylvania Fund, but in either event it must also be
approved by a vote of a majority of the trustees who are not parties to the
contract, or "interested persons", as defined in the 1940 Act, of any such
party cast in person at a meeting called for the purpose of voting on such
approval.

Each advisory agreement will terminate automatically in the event of
its assignment and is terminable at any time without penalty by the Board, or,
with respect to a particular Fund, by a majority of the Fund's outstanding
voting securities on not more than 60 days' written notice to the Advisor and
by the Advisor on 60 days' written notice to the Fund.

As described in the Prospectus, with respect to the World Fund only,
the Advisor has entered into a sub-advisory agreement with INVESCO dated July
1, 1999. In accordance with this sub-advisory agreement, INVESCO provides the
World Fund with a continuous investment program consistent with its stated
investment objectives and policies. The Advisor pays to INVESCO a fee equal to
the greater of (i) 0.375% per annum of the World Fund's aggregate average daily
net assets up to $500 million, and 0.30% per annum of such net assets in excess
of $500 million, or (ii) $20,000 per year. Such fee is paid monthly in arrears.
The sub-advisory agreement must be approved annually in one of the same ways as
for the Company's advisory agreement as described above. The sub-advisory
agreement also may be terminated by either INVESCO or by action of the Board of
Directors of the Company or the shareholders of the World Fund on 60 days'
written notice, without penalty, and terminates automatically in the event of
its assignment. For the period April 1, 1996 to February 28, 1997, INVESCO
provided the same services under an identical sub-advisory agreement dated
April 1, 1996, and prior to that, Cashman Farrell & Associates was the
subadvisor under a similar sub-advisory agreement.

Also as described in the Prospectus, the Advisor has entered into a
sub-advisory agreement with Evergreen with respect to the High Yield Fund.
Pursuant to this agreement, Evergreen provides the Advisor with a continuous
investment program consistent with the High Yield Fund's stated investment
objectives and policies. Under this agreement, the Advisor pays a fee to
Evergreen equal to one half of the fee paid by the High Yield Fund to the
Advisor, provided that the fee paid by the Advisor to Evergreen will always be
at least 0.35% per annum of the average daily net assets of the High Yield
Fund. This agreement became effective June 20, 1997. This sub-advisory
agreement also may be terminated by either of the Advisor or Evergreen or by
action of the Board of Directors of the Company or the shareholders of the High
Yield Fund on 60 days' written notice, without penalty, and terminates
automatically in the event of its assignment.

As described in the Prospectus Supplement, the Advisor has entered into
a sub-advisory agreement with Alger with respect to the Flex Cap Opportunity
Fund. Pursuant to this agreement, Alger provides the Advisor with a continuous
investment program consistent with the Flex Cap Opportunity Fund's stated
investment objective and policies. Under this agreement, the Advisor pays a fee
to Alger equal to 0.50% per annum of the average daily net assets of the Flex
Cap Opportunity Fund. This agreement became effective February , 2000. This
sub-advisory agreement also may be terminated by either of the Advisor or Alger
or by action of the Board of Directors of the Company or the shareholders of
the Flex Cap Opportunity Fund on 60 days' written notice, without penalty, and
terminates automatically in the event of its assignment.

The fees paid to INVESCO and Evergreen by the Advisor for the fiscal
year ended November 30, 1998 were $430,058 and $253,092, respectively. The fees
paid to INVESCO and Evergreen by the Advisor for the fiscal year ended November
30, 1997 were $329,200 and $52,589, respectively; the fees paid by the Advisor
to INVESCO were $166,806 for the period April 1, 1996 to November 30, 1996, and
the Advisor paid $66,645 to Cashman Farrell for the period December 1, 1995 to
March 31, 1996, for a total of $233,451 for the fiscal year ended November 30,
1996.

PRINCIPAL UNDERWRITER

SFSC acts as the principal underwriter of shares of the Funds. Its
principal business address is National Life Drive, Montpelier, Vermont 05604.
The Funds receive the net asset value, as determined for the purpose of
establishing the offering price, of each share sold. SFSC has advised the Funds
that it allows dealer concessions as shown in the Prospectus, except that items
of a promotional nature amounting in value to not more than $100 may be given
from time to time as a sales incentive to registered representatives. SFSC has
advised the Funds that the total amount of underwriting commissions paid to it
in the fiscal years ended November 30, 1998, 1997 and 1996 were $4,834,945,
$4,790,051, and $5,908,736, respectively. Of this amount, SFSC retained, in the
fiscal years ended November 30, 1998, 1997 and 1996, $153,177, $148,883 and
$181,026.

During the fiscal year ended November 30, 1998, SFSC also received
$360,069 in contingent deferred sales loads. It did not receive any brokerage
commissions or other compensation from the Funds. The distribution contracts of
the Company and the Pennsylvania Fund provide that SFSC use its best efforts to
continuously offer the Funds' shares. These contracts may be terminated by
either party thereto on 60 days' written notice, without penalty, and they
terminate automatically in the event of their assignment. The distribution
contracts must be approved annually in one of the same ways as described above
for the advisory agreements.

THE DISTRIBUTION PLANS

The Company and the Pennsylvania Fund have adopted several plans
pursuant to Rule 12b-1 under the 1940 Act. One such plan applies to the Class A
shares of the Company's Funds (other than the Money Market Fund). In addition,
the Short Maturity Government Fund has a separate Supplemental Distribution
Plan applicable only to it. The Pennsylvania Fund has a Distribution Plan
applicable only to it. The Class B shares of the Small Company, World, Common
Stock, Balanced, and Bond Funds have adopted a Class B Distribution Plan,
effective April 1, 1996. The Plans were extended to include the High Yield
Fund's Class A and Class B shares on March 14, 1997, and the Class B
Distribution Plan was extended to include the Class B shares of the Growth Fund
effective January 12, 1998. The Plans were extended to include the Class A
shares and Class B shares of the Growth Index Fund on June 10, 1999. Effective
May 4, 1998, the Class C shares of the Common Stock, Balanced, World and High
Yield Funds have adopted a Class C Distribution. The Class D shares of the
Balanced Fund adopted a Class D Distribution Plan on August 21, 1998 Plan (all
of these plans are collectively hereinafter referred to as the "Plans"). The
Plans were further extended to include the Class A, Class B and Class C shares
of the Flex Cap Opportunity Fund on December 9, 1999. In all cases, the Plans
reimburse SFSC for expenses actually incurred.

The Class A, Class B and Class C shares of each Fund (except for the
Money Market Fund) paid fees for the various activities shown below under the
Plans in the amounts set forth below for the fiscal year ended November 30,
1998:

RECOVERY OF SALARY RENT
SERVICE FEES PREPAID SALES AND & OTHER
FUND PAID TO DEALERS COMMISSION BENEFITS MISC. EXP.

<S> <C> <C> <C> <C>
COMMON $ 2,200,360 $ 774,994 $1,436,259 $ 166,100
BALANCED 572,883 252,349 225,985 35,521
GROWTH 143,487 15,432 61,228 9,508
SMALL COMPANY 218,637 72,161 44,797 12,350
WORLD 216,941 108,476 33,592 11,464
HIGH YIELD 28,342 200,327 14,366 4,923
BOND 92,335 75,365 43,939 9,860
GOVERNMENT 60,084 - 29,158 7,295
SHORT MATURITY 136,951 - 18,914 5,594
TAX-FREE 69,781 - 38,826 8,735
N.Y. TAX-FREE 9,171 - 2,237 895
PA TAX-FREE 25,865 - 16,223 3,402

TOTAL $ 3,774,837 $ 1,499,104 $1,965,524 1,965,524 $ 275,647

</TABLE>

PROSPECTUS
PRINTING & TOTAL
SALES TRAVEL & 12B-1
FUND PROMOTION ENTERTAINMENT ACCRUAL

<S> <C> <C> <C>
COMMON $ 904,192 $ 250,571 $5,732,476
5,732,476
BALANCED 198,650 53,784 1,339,172
GROWTH 58,328 14,285 302,268
SMALL COMPANY 78,852 18,523 445,320
WORLD 67,119 17,228 454,820
HIGH YIELD 57,915 7,465 313,338
BOND 55,211 15,040 291,750
GOVERNMENT 41,373 11,160 149,070
SHORT MATURITY 30,758 8,513 200,730
TAX-FREE 47,352 13,306 178,000
N.Y. TAX-FREE 4,753 1,374 18,430
PA TAX-FREE 18,691 5,189 69,370
-
TOTAL $ 1,563,194 $ 416,438 $9,494,744
9,494,744

</TABLE>

Under the Plan applicable to the Class B shares of the Funds, it is
expected that the amounts payable to SFSC will be equal to 1.00% of the net
assets of the Class B shares of the relevant Funds (except that this amount
will be less for the High Yield Fun Class B shares for so long as National Life
maintains a significant investment in High Yield Fund Class B shares). SFSC
will use such payments to recoup the cost of commissions paid to brokers at the
time of sale of the Class B shares, service fees to brokers with respect to the
Class B shares, and the same types of other marketing expenses for which SFSC
receives reimbursement under the Plans applicable to the Class A shares.

Under the Plan applicable to the Class C shares of the Funds, it is
expected that the amounts payable to SFSC will be equal to 1.00% of the net
assets of the Class C shares of the relevant Funds. SFSC will use such payments
to recoup the cost of commissions paid to brokers at the time of sale of the
Class C shares, and pay continuing commissions and service fees to brokers with
respect to the Class C shares.

Under the Plan applicable to the Class D shares of the Balanced Fund ,
it is expected that the amounts payable to SFSC will be equal to 0.75% of the
net assets of the Class D shares of the Balanced Fund. SFSC will use such
payments to recoup the cost of commissions paid to brokers at the time of sale
of the Class D shares.

The Boards of the Funds believe that a consistent cash flow resulting
from the sale of new shares is necessary and appropriate to meet redemptions
and for the Funds to take advantage of buying opportunities without having to
make unwarranted liquidations of portfolio securities. Since SFSC receives no
other compensation from the Funds, the Boards believe it would benefit the
Funds to have monies available for the direct distribution activities of SFSC
in promoting the sale of shares of the Funds.

The Plans have been approved by the Company's Board of Directors and
the Pennsylvania Fund's Board of Trustees, including all of the
directors/trustees who are not interested persons as defined in the 1940 Act.
The Plans must be renewed annually by the Boards, including a majority of the
directors/trustees who are not interested persons and who have no direct or
indirect financial interest in the operation of the Plans. It is also required
that the selection and nomination of such directors/trustees be done by the
disinterested directors/trustees. The Plans and any distribution agreement may
be terminated at any time, without penalty, by such directors/trustees on 60
days' written notice. SFSC or any dealer may also terminate their respective
distribution agreement at any time upon written notice.

The Plans and any distribution agreement may not be amended to increase
materially the amount spent for distribution expenses or in any other material
way without approval by a majority of the Funds' outstanding shares, and all
such material amendments to any Plan or any distribution agreement also shall
be approved by a vote of a majority of the disinterested directors/trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.

SFSC is required to report in writing to the Board of Directors of the
Company and the Board of Trustees of the Pennsylvania Fund at least quarterly
on the amounts and purpose of any payments made under the Plans and any
distribution agreement, as well as to furnish the Boards with such other
information as reasonably may be requested in order to enable the Boards to
make informed determinations of whether the Plans should be continued.

THE FUND SERVICES AGREEMENTS

Sentinel Administrative Service Company ("Sentinel Service"), in
accordance with its Fund Services Agreements with the Funds, provides the Funds
with certain fund accounting, financial administration, transfer agency and
shareholder relations services. Sentinel Service performs the transfer agency
responsibilities utilizing, through Investors Fiduciary Trust Company ("IFTC"),
the computer system of DST Systems, Inc. ("DST") on a remote basis.

For these services, the Fund Services Agreements provide for the Funds
to pay to Sentinel Service fixed fees totalling $926,500 per year for fund
accounting and financial administration services. The Agreements also provide
for an annual fee for transfer agency and shareholder relations services to the
Company and the Pennsylvania Fund of $2,563,000 and $37,000, respectively, plus
amounts equal to annual rates of $15 per shareholder account in excess of
106,500 and 1,500, respectively, in each case as of the last day of the month
preceding the installment due date. Each Fund also is responsible for the
charges for remote access to the computer system of DST. Generally, this is a
fixed annual charge per shareholder account, plus certain out-of-pocket
expenses, minus certain credits. The fixed fees are subject to increase under
inflation clauses for fiscal years beginning December 1, 1994, and thereafter,
to the extent approved by the Board of Directors or Board of Trustees. Fees are
payable monthly in arrears.

Total fees payable to Sentinel Service under the Fund Services
Agreements for the years ended November 30, 1998, 1997, and 1996 were
$3,596,581, $3,526,500, and $3,526,500, respectively.

Sentinel Service is a Vermont general partnership of which affiliates
of National Life, Provident and Penn Mutual are the general partners.

The Company's Fund Services Agreement was approved by the Company's
shareholders on November 30, 1992, and the Pennsylvania Fund's Fund Services
Agreement was approved by that Fund's shareholders on February 19, 1993. The
agreements were approved by the Company's Board of Directors and the
Pennsylvania Fund's Board of Trustees on August 13, 1992 and August 14, 1992,
respectively. Each agreement must be approved annually by vote of the Board or
by the vote of a majority of the outstanding voting securities of each Fund,
but in either event it must also be approved by a vote of a majority of the
directors/trustees who are not parties to the contract, or interested persons,
as defined in the 1940 Act, of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Fund Services Agreements
will terminate automatically in the event of their assignment and are
terminable at any time without penalty by the applicable Board or, as to a
particular Fund, by a majority of the applicable Fund's outstanding voting
securities on not more than 60 days' written notice to Sentinel Service and by
Sentinel Service on 60 days' notice to the Fund.

PORTFOLIO TRANSACTIONS
AND BROKERAGE COMMISSIONS

The Funds' policy, other than for the Flex Cap Opportunity Fund, in
the case of listed securities is to place its orders with firms that are
members of a stock exchange on which such securities are listed or traded and
in the case of securities traded in the over-the-counter market to deal
directly with dealers who are primary market makers in such securities, without
the use of a broker unless the Funds can obtain better price or execution
through the use of a broker. Purchases are made for investment and not for
trading purposes, except for the fixed income Funds where trading may be an
important factor. Subject to the direction and control of the Boards and in
accordance with its advisory agreements, the Advisor supervises the investments
of the Funds and, as an essential feature thereof, places orders for the
purchase and sale of portfolio securities and supervises their execution,
including negotiating the amount of the commission rate paid, in each case at
prices it believes to be the best then available, taking into consideration
such factors as price, commission, size of order, difficulty of execution and
skill required of the executing broker-dealer as well as the extent to which a
broker capable of satisfactory execution may provide research information and
statistical and other services to the Advisor. Sales of shares of the Funds may
also be considered as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds, subject to the conditions that
commissions paid to such broker-dealers be no higher than would otherwise be
paid, and that the prices be, in the judgment of the Advisor, the best then
available.

To the extent consistent with applicable provisions of the 1940 Act
and the rules and exemptions adopted by the SEC thereunder, as well as other
regulatory requirements, portfolio transactions for the Flex Cap Opportunity
Fund will be executed through Fred Alger & Company, Incorporated (the "Alger
Broker"), if in the judgment of Alger, the use of the Alger Broker is likely to
result in price and execution at least as favorable as those of other qualified
broker-dealers and if, in particular transactions, the Alger Broker charges the
Flex Cap Opportunity Fund a rate consistent with that charged to comparable
unaffiliated customers in similar transactions. Over-the-counter purchases and
sales are transacted directly with principal market makers except in those
cases in which better prices and executions may be obtained elsewhere.
Principal transactions are not entered into with affiliates of the Fund except
pursuant to exemptive rules or orders adopted by the SEC.

In selecting brokers or dealers to execute portfolio transactions for
the Flex Cap Opportunity Fund, Alger seeks the best overall terms available. In
assessing the best overall terms available for any transaction, Alger will
consider the factors it deems relevant, including the breadth of the market in
the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis.

In making such purchases and sales, the brokerage commissions are paid
by the Funds. The Funds may also buy or sell securities from, or to, dealers
acting as principals.

Section 28(e) of the 1934 Act, which was enacted by Congress in
connection with the elimination of fixed commission rates on May 1, 1975,
provides that, except as agreements such as investment advisory contracts
otherwise provide, money managers such as the Advisor and the Funds'
subadvisors will not be deemed to have acted unlawfully or to have breached a
fiduciary duty if, subject to certain conditions, a broker-dealer is paid in
return for brokerage and research services an amount of commission for
effecting transactions for accounts, such as the Funds, in excess of the amount
of commission another broker-dealer would charge for effecting the transaction.
In order to cause the Funds to pay such greater commissions, the Advisor or
subadvisor has to determine in good faith that the greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the broker-dealer viewed in terms of either a particular
transaction or the Advisor's or subadvisor's overall responsibilities to the
Funds and to its other clients.

Brokerage and research services, as provided in Section 28(e) of the
1934 Act, include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, the availability of securities
or purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and effecting securities
transactions and performing functions incidental thereto (such as clearance,
settlement and custody).

Although research and market and statistical information from brokers and
dealers can be useful to the Funds, to the Advisor, and to the subadvisors, it
is the opinion of the management of the Funds that such information is only
supplementary to the Advisor's and the subadvisors' own research effort since
the information must still be analyzed, weighed and reviewed by the Advisor's
staff or the subadvisors' staffs.

The Advisor obtains several research services specifically in exchange
for commissions paid by the Funds and its other clients. These services
primarily consist of electronic research services from Bloomberg, ILX, Factset,
and First Call. The Funds also obtain Lipper Directors' Analytical Data from
Lipper Analytical Distributors, Inc., in exchange for Fund brokerage
commissions. This service is available only for brokerage commissions.

The research services provided by brokers through which the Funds
effect securities transactions may be used by the Advisor or the subadvisors in
managing its other client accounts, as well as the Funds. However, the Advisor
and the subadvisors use the commissions paid by most of their other client
accounts to obtain research services as well, and this research is also useful
in managing the Funds' accounts, as well those of other clients.

Except for implementing the policies stated above, there is no
commitment to place portfolio transactions with brokers or dealers who provide
investment research. The Advisor has advised the Funds that it is not feasible
to assign any precise value to services provided by such brokers and dealers to
it, nor does the use of such services reduce its expense by any measurable or
significant amount. For the years ended November 30, 1998, 1997, and 1996, the
Funds paid total brokerage commissions of $1,804,189, $1,467,627, and
$1,156,527, respectively. Brokerage commissions paid by each Fund were as
follows:

Year Ended
Fund 11/30/98 11/30/97 11/30/96
- ----
Common Stock $1,152,082 $860,093 $656,739
Balanced 194,922 119,380 91,540

Growth 255,666 222,905 135,426
Small Company 201,520 128,474 162,972

World 90,926 136,775 109,850
High Yield(1) --- --- ---
Bond --- --- ---
Government Securities --- --- ---
Short Maturity Gov't (2) --- --- ---
Money Market --- --- ---
Tax-Free Income --- --- ---
New York (3) --- --- ---
Pennsylvania --- --- ---
Growth Index (4) --- --- ---
================ === === ===
Flex Cap Opportunity(5) --- --- ---
======================== ==== === ===

(1) Commenced operations on June 23, 1997
(2) Commenced operations on March 24, 1995.
(3) Commenced operations on March 27, 1995.
(4) Commenced operations on September 10, 1999.
(3) Commenced operations on February , 2000.

The Funds paid brokerage commissions of $28,702, $24,384 and $30,367 to Janney
Montgomery Scott Inc. for the fiscal years ended November 30, 1998, 1997 and
1996, repsectively. Janney Montgomery Scott, Inc. is wholly owned by Penn
Mutual, an affiliate of a general partner of the Advisor. These commissions
were 1.6% of the Funds' aggregate brokerage commissions paid in the fiscal
year ended November 30, 1998. The commission rate applicable to all such
transactions was $.06 per share, the same commission rate paid by the Funds in
all its transactions. The Funds believes that the aggregate dollar amount of
transactions involving the payment of commissions to Janney Montgomery Scott,
Inc. was not materially different than the 1.6% of total commissions that were
paid to Janney Montgomery Scott, Inc.

Such commissions were allocated on the basis of research and statistical or
other services provided by the dealer, although selling group dealers may have
participated therein. Of the total commissions paid by the Funds, 100% was
allocated in 1998, 1997, and 1996 to brokers or dealers whose furnishing of
research information was a factor in their selection.

PORTFOLIO TURNOVER

Purchases for the Small Company, Growth, Common Stock, Growth Index,
World, Balanced and Pennsylvania Funds are made for long-term investment, and
not for short-term trading profits. However, during rapidly changing
conditions, there necessarily may be more portfolio changes than in a more
stable period and these may result in short-term gains or short-term losses.

The Flex Cap Opportunity Fund may have a high level of portfolio
turnover. This Fund may engage in relatively short term trading in some stocks.
This activity may create higher transaction costs due to commissions and other
expenses. In addition, a high level of short term trading may increase the Flex
Cap Opportunity Fund's realized gains, thereby increasing the amount of taxable
distributions to shareholders at the end of the year.

In pursuit of the investment objectives of the High Yield, Bond,
Government Securities, Short Maturity Government, Tax-Free Income and New York
Funds, it is expected that assets will be managed actively. In order to
maximize income and protect the income stream or improve the quality of the
portfolio, in light of market and economic conditions as interpreted or
anticipated by the Advisor, these Funds' portfolios will be monitored
constantly and will be adjusted when deemed appropriate in furtherance of the
Funds' investment objectives. Portfolio turnover is the ratio of the lesser of
annual purchases or sales of portfolio securities to average monthly market
value, not including short-term securities.

There were no significant variations in the Funds' portfolio turnover
rates over the two most recently completed fiscal years, or any anticipated
variations in these portfolio turnover rates from those in the fiscal year
ended November 30, 1998, except for the Short Maturity Government Fund, for
which portfolio turnover increased from 61% to 229%, due to increased dollar
roll activity and more active trading in response to more volatile spreads in
mortgage-backed securities. The Government Securities Fund's portfolio turnover
rate also increased from 249% in fiscal 1997 to 355% in fiscal 1998, due to
increased dollar roll activity, but 1998's portfolio turnover rate was not
significantly greater than other recent years for this Fund.

CAPITALIZATION

Shares of the Company's common stock and shares of beneficial interest
in the Pennsylvania Fund are fully paid and non-assessable. Each such share is
freely assignable to another bona fide investor by way of pledge (as, for
example, for collateral purposes), gift, settlement of an estate and, also, by
an investor who has held such Fund shares for not less than 30 days. Each share
of the Company is entitled to one vote per dollar of net asset value per share,
on matters on which all Funds of the Company vote as a single class. Each share
of the Pennsylvania Fund entitles the holder to one vote for all purposes.

The proceeds from the sale of shares of each Fund or class of shares of
the Company and all income, earnings and profits therefrom irrevocably
appertain to the Fund or class of shares. Each such Fund or class of shares
records all liabilities (including accrued expenses) in respect of such Fund or
class of shares, as well as a share of such liabilities (including general
liabilities of the Company) in respect to two or more Funds or classes of
shares, in proportion to their average net assets, or in proportion to the
number of their respective shareholders. The Company's Board has adopted an
"Amended Rule 18f-3 Plan" under which the methods of allocating income and
expenses among classes of shares of each Fund which has multiple classes, is
specified, and the Company intends to comply fully with the provisions of Rule
18f-3 under the 1940 Act in allocating income and expenses among the classes of
such Funds. If any reasonable doubt exists as to the Fund or class of shares to
which any asset or liability appertains, the Board may resolve such doubt by
resolution.

In the case of dissolution or liquidation of the Company, the
shareholders of each Fund of the Company are entitled to receive ratably per
share the net assets of such Fund, with any general assets of the Company
distributed ratably per share, regardless of the Fund.

Voting rights are non-cumulative, meaning that the holders of more than
50% of the shares voting for the election of directors/trustees can elect 100%
of the directors/trustees being voted upon if they choose to do so, and, in
such event the holders of the remaining minority of the shares voting for the
election of directors/trustees will not be able to elect any person or persons
to the Board.

HOW TO PURCHASE SHARES
and
REDUCE SALES CHARGES

Shares of the Funds may be purchased at the public offering price from
any authorized investment dealer as described in the Prospectus. The public
offering price of Class A shares, which are offered by every Fund, is the sum
of the current net asset value per share plus a sales charge which ranges from
5.0% to 0% of the purchase price. The public offering price of Class B shares,
which are offered by the Common Stock, Balanced, Growth, Small Company, World,
High Yield and Bond Funds, is equal to the current net asset value per share.
The public offering price of Class C shares, which are offered by the Common
Stock, Balanced, World and High Yield Funds, and the Class D shares offered by
the Balanced Fund, is also equal to the current net asset value per share. A
contingent deferred sales charge ("CDSC") may apply to redemptions of Class B
and Class D shares, redemption of Class C shares in the first year after
purchase, or to redemptions of Class A shares where the initial sales charge
was zero based on a purchase of $1,000,000 or more. See "Purchase Options" in
the Prospectus.

The Group Purchase Program - Clients of a single registered
representative or group of affiliated registered representatives who make
purchases by opening new accounts within a 60-day period and whose funds for
such purchases all originate from a single other source may aggregate such
purchases for purposes of determining the applicable sales charge level or CDSC
schedule for such purchases.

ISSUANCE OF SHARES AT NET ASSET VALUE

Subject to the applicable provisions of the 1940 Act, certain investors
may purchase Class A shares of the Funds at net asset value. Such investors are
listed in the Prospectus. Such investors include officers, directors and
employees of the Funds, the Advisor, and the Advisors' affiliates. See
"Purchase Options - Class A Shares - Reduced Sales Charges" in the Prospectus.

The Funds normally will buy back your shares on demand on any business
day (as defined below). Class A shares generally are repurchased at current net
asset value; a CDSC may be payable on redemptions of Class B, Class C or Class
D shares, or Class A shares of the Money Market Fund received in exchange for
Class C shares of another Fund or Class D shares of the Balanced Fund, and will
be deducted from the redemption proceeds. For further information, please refer
to the Prospectus.

DETERMINATION OF NET ASSET VALUE

The net asset value per share of each Fund or class of shares is
computed by dividing the total value of the assets of that Fund or class of
shares, less its liabilities, by the total number of such Fund's or class of
shares' outstanding shares. Equity securities which are traded on a national
securities exchange are valued at the last reported sale price each business
day at the regular close of trading, currently 4:00 p.m. Eastern time. Equity
securities for which there were no sales during the day are valued at the mean
between the latest available bid and asked prices. Fixed-income securities are
valued daily on the basis of valuations furnished by a pricing service which
determines valuations for normal institutional-sized trading units of debt
securities, without exclusive reliance upon quoted prices. These valuations by
the pricing service are believed to reflect more accurately the fair market
value of such securities. Net asset value is calculated once each business day,
at 4:00 p.m. Eastern time, and becomes effective immediately upon its
determination. Orders to purchase shares of the Funds received by dealers prior
to 4:00 p.m. Eastern time will be confirmed on the basis of such closing price,
provided they are received by the Distributor prior to the close of its
business day. Orders received by dealers after 4:00 p.m. Eastern time will be
confirmed on the same basis as previously stated with respect to the next
business day. "Business day" means a day on which the New York Stock Exchange
is open. The New York Stock Exchange is not open on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

The Money Market Fund values its portfolio securities based on their
amortized cost in accordance with SEC regulations. The amortized cost method of
valuation involves valuing a security at its cost at the time of purchase and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. During such periods the yield to investors in the
Money Market Fund may differ somewhat from that obtained in a similar
investment company which uses mark-to-market value for all of its portfolio
securities. For example, if the use of amortized cost resulted in a lower
(higher) aggregate portfolio value on a particular day, a prospective investor
in the Money Market Fund would be able to obtain a somewhat higher (lower)
yield than would result from investment in such a similar company which
utilizes mark-to-market values and existing investors would receive less (more)
investment income. The purpose of this method of calculation is to attempt to
maintain a constant net asset value per share of $1.00.

In accordance with the SEC rule permitting the use of the amortized
cost method of valuation, the Money Market Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less, and must purchase instruments
having remaining maturities of 397 days (13 months) or less. In addition, the
Directors of the Company have established procedures designed to stabilize, to
the extent reasonably possible, the Money Market Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. The Company's
Directors will review periodically the Money Market Fund's portfolio holdings
to determine whether a deviation exists between the net asset value calculated
using market quotations and that calculated on an amortized cost basis. In the
event the directors determine that a deviation exists which may result in
material dilution or other unfair results to existing shareholders, the Money
Market Fund will take such corrective action as it regards as necessary and
appropriate, including (i) the reduction of the number of outstanding shares of
the Money Market Fund by having each shareholder proportionately contribute
shares to the Money Market Fund's capital, (ii) the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, (iii) the withholding of dividends or (iv) the
establishment of a net asset value per share by using available market
quotations. If the number of outstanding shares is reduced in order to maintain
a constant net asset value of $1.00 per share, the shareholders will contribute
proportionately to the Money Market Fund's capital the number of shares which
represent the difference between the amortized cost valuation and the market
valuation of the portfolio. Each shareholder will be deemed to have agreed to
such contribution by such shareholder's investment in the Money Market Fund.

Since the net income of the Money Market Fund is determined and
declared as a dividend immediately prior to each time the asset value of the
Money Market Fund is determined, the net asset value per share of the Money
Market Fund normally remains at $1.00 per share immediately after each such
dividend declaration. Any increase in the value of a shareholder's investment
in the Money Market Fund, representing the reinvestment of dividend income, is
reflected by an increase in the number of shares of the Money Market Fund in
that shareholder's account and any decrease in the value of a shareholder's
investment may be reflected by a reduction in the number of shares in the
account. See "Taxes" below.

COMPUTATION OF MAXIMUM OFFERING PRICES AT NOVEMBER 30, 1998

Class A Shares:

(Reduced offering prices apply on purchases of $100,000 or more of shares of
the Funds, as described in the Prospectus.)

======================================================================================

Common Small
Stock Balanced Growth Company World
Fund Fund Fund Fund Fund

<S> <C> <C> <C> <C> <C>
Net assets $1,610,630,312 $330,066,783 $97,894,832 $109,597,879 $100,789,778

Shares outstanding 36,146,489 15,808,573 6,683,438 19,316,736 5,540,261
Net asset value per
share (redemption
price) $44.56 $20.88 $14.65 $5.67 $18.19
Maximum offering
price per share* $46.91 $21.98 $15.42 $5.97 $19.15

======================================================================================
======================================================================================

Government Short Maturity
Bond Securities Gov't. Money Market
Fund Fund Fund Fund

Net assets $91,296,600 $76,498,486 $68,345,937 $98,115,042
Shares outstanding 14,157,366 7,313,259 6,917,259 98,115,042
Net asset value per
share (redemption
price) $6.45 $10.46 $9.88 $1.00
Maximum offering
price per share* $6.72 $10.90 $9.98 $1.00

======================================================================================
======================================================================================

Tax-Free
Income New York Pennsylvania High Yield
Fund Fund Fund Bond Fund

Net assets $88,683,426 $11,977,632 $34,720,112 $31,119,632
Shares outstanding 6,437,752 982,448 2,576,514 3,190,634
Net asset value per
share (redemption
price) $13.78 $12.19 $13.48 $9.75
Maximum offering
price per share* $14.35 $12.70 $14.04 $10.16

======================================================================================

</TABLE>

The Growth Index Fund and the Flex Cap Opportunity Fund did not exist as of
November 30, 1998.

For the Common Stock Fund, Balanced Fund, Growth Fund, Small Company Fund and
World Fund, the maximum offering price is 1000/950 times the net asset value
per share. For the High Yield Bond Fund, Bond Fund, Government Securities Fund,
Tax-Free Income Fund, New York Tax-Free Income Fund and Pennsylvania Tax-Free
Trust, the maximum offering price is 1000/960 times the net asset value per
share. For the Short Maturity Government Fund, the maximum offering price is
1000/990 times the net asset value per share. For the Money Market Fund, the
maximum offering price per share is equal to the net asset value per share.

In the case of Class B, Class C shares and Class D shares, the maximum offering
price is equal to the net asset value per share.

TAXES

General

Each Fund intends to continue to qualify (and the Flex Cap Opportunity
Fund intends to elect and to qualify) for the special tax treatment afforded
regulated investment companies ("RICs") under the Code. As long as it so
qualifies, a Fund will not be subject to federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B Class C and Class D shareholders, as applicable. Each Fund
intends to distribute substantially all of such income.

As discussed in the Prospectus, the Company consists of fouteen
separate Funds. Each such Fund is treated as a separate corporation for federal
income tax purposes and is thus considered to be a separate entity in
determining its treatment under the rules for RICs described in the Prospectus.
Losses in one Fund do not offset gains in another Fund, and the requirements
(other than certain organizational requirements) for qualifying for RIC status
are determined at the Fund level rather than at the Company level.

Dividends paid by a Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income for federal income tax purposes. However,
"exempt-interest dividends" (as defined in Section 852(b)(5) of the Code) not
subject to federal income tax are expected to be paid by the Tax-Free Income
Fund, "exempt-interest dividends" not subject to either federal income tax or
Pennsylvania personal income tax are expected to be paid by the Pennsylvania
Fund, and "exempt-interest dividends" not subject to either federal income tax
or New York State and City personal income tax are expected to be paid by the
New York Fund, as described in the Prospectus. Distributions made from an
excess of net long-term capital gains over net short-term capital losses
(hereinafter referred to as "capital gain dividends") are taxable to
shareholders as long-term capital gains for federal income tax purposes,
regardless of the length of time the shareholder has owned such Fund's shares.
Certain categories of capital gains are taxable at different rates. Generally
not later than 60 days after the close of its taxable year, each Fund will
provide its shareholders with a written notice designating the amounts of any
exempt-interest dividends and capital gain dividends, (as well as any amount of
capital gain dividends in the different categories of capital gain referred to
above), and the portion of any ordinary income dividends eligible for the
dividends received deduction allowed to corporations under the Code. Any loss
upon the sale or exchange of Fund shares held for six months or less will be
disallowed for federal income tax purposes to the extent of any capital gain
dividends received by the shareholder. Distributions in excess of a Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder for federal income tax purposes (assuming the
shares are held as a capital asset).

With the exception of exempt-interest dividends paid by the Tax-Exempt
Funds, dividends are taxable to shareholders for federal income tax purposes
even though they are reinvested in additional shares of the Funds. Generally,
distributions by the Tax-Exempt Funds, the World Fund, the Bond Fund, the
Government Securities Fund, the High Yield Fund, the Short Maturity Government
Fund and the Money Market Fund will not be eligible for the dividends received
deduction allowed to corporations under the Code. The Funds will allocate any
dividends eligible for dividends received deduction among theClass A, Class B,
Class C and Class D shareholders as applicable according to a method (which
they believe is consistent with SEC Rule 18f-3 which authorizes the issuance
and sale of multiple classes of shares) that is based on the gross income
allocable to Class A, Class B, Class C and Class D shares during the taxable
year, or such other method as the Internal Revenue Service may prescribe. If a
Fund pays a dividend in January which was declared in the previous October,
November or December to shareholders of record on a specified date in one of
such months, then such dividend will be treated for federal income tax purposes
as having been paid by the RIC and received by its shareholders on December
31st of the year in which the dividend was declared.

If the value of assets held by the Money Market Fund declines, the
Board of Directors may authorize a reduction in the number of outstanding
shares in shareholders' accounts so as to preserve a net asset value of $1.00
per share. After such a reduction, the basis of eliminated shares will, for
federal income tax purposes, be added to the basis of shareholders' remaining
Fund shares, and any shareholders disposing of shares at that time may
recognize a capital loss. Distributions, including distributions reinvested in
additional shares of the Fund, will nonetheless be fully taxable for federal
income tax purposes, even if the number of shares in shareholders' accounts has
been reduced as described above.

Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on most ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Company or the Pennsylvania
Fund, as the case may be, or who, to the Company's or Pennsylvania Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.

Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities, unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisors concerning the applicability of the United
States withholding tax.

Dividends and interest received by the World Fund (and to a lesser
extent, some of the other Funds) may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of the World
Fund may be able to claim United States foreign tax credits with respect to
such taxes, subject to certain conditions and limitations contained in the
Code. Recent legislation permits a foreign tax credit to be claimed with
respect to withholding tax on a dividend only if the shareholder meets certain
holding period requirements. A Fund also must meet these holding period
requirements, and if the Fund fails to do so, it will not be able to "pass
through" to shareholders the ability to claim a credit or a deduction for the
related foreign taxes paid by such Fund. If a Fund satisfies the holding period
requirements and if more than 50% in value of a Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, such
Fund will be eligible to file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include their
proportionate shares of such withholding taxes in their United States income
tax returns as gross income, treat such proportionate shares as taxes paid by
them, and deduct such proportionate shares in computing their taxable incomes
or, alternatively, use them as foreign tax credits against their United States
income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is
a nonresident alien individual or a foreign corporation may be subject to
United States withholding tax on the income resulting from a Fund's election
described in this paragraph but may not be able to claim a credit or deduction
against such United States tax for the foreign taxes treated as having been
paid by such shareholder. Additionally, certain retirement accounts cannot
claim foreign tax credits on investments in foreign securities held in a Fund.
The World Fund, and other Funds to the extent applicable, will report annually
to shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit. For purposes of passing
through the foreign tax credit, the World Fund will allocate foreign taxes and
foreign source income among the Class A, Class B and Class C shares according
to a method similar to that described above for the allocation of dividends
eligible for the dividends received deduction.

No gain or loss will be recognized for federal income tax purposes by
Class B shareholders on the conversion of their Class B shares into Class A
shares. A shareholder's basis in the Class A shares acquired will be the same
as such shareholder's basis in the Class B shares converted, and the holding
period of the acquired Class A shares will include the holding period for the
converted Class B shares.

If a shareholder exercises an Exchange Privilege as described below
within 90 days of acquiring such shares, then the loss such shareholder can
recognize on the exchange for federal income tax purposes will be reduced (or
the gain increased) to the extent any sales charge paid to the Company (or
Pennsylvania Fund) reduces any sales charge such shareholder would have owed
for the shares of the new Fund in the absence of the Exchange Privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares. Shareholders should consult their tax advisers regarding the state and
local tax consequences of exchanging or converting classes of shares.

A loss realized on a sale or exchange of shares of a Fund will be
disallowed for federal income tax purposes if other Fund shares are acquired
(whether through the automatic reinvestment of dividends or otherwise) within a
61-day period beginning 30 days before and ending 30 days after the date the
shares are disposed of. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.

The Code requires each Fund to pay a non-deductible 4% excise tax to
the extent it does not distribute, during each calendar year, 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gains and foreign currency gains, determined on a November 30th year end, plus
certain undistributed amounts from previous years. The Company and the
Pennsylvania Fund anticipates that the Funds will make sufficient timely
distributions to avoid the imposition of the excise tax. Since the required
distributions are based only on taxable income, the excise tax generally will
not apply to the Tax-Exempt Funds, discussed below.

At November 30, 1998, the Bond, Government Securities, Short Maturity
Government, High Yield and World Funds had capital loss carryforwards for
federal income tax purposes of $3,731,389, $2,952,502, $1,289,609, $1,490,419
and $1,283,934, respectively.

Tax-Exempt Funds

The Tax-Exempt Funds intend to continue to qualify to pay
exempt-interest dividends. The relevant Code provision states that if, at the
close of each quarter of the respective Fund's taxable year, at least 50% of
the value of its total assets consists of obligations exempt from federal
income tax ("tax-exempt obligations") under Section 103(a) of the Code
(relating generally to obligations of a state or local governmental unit), such
Fund shall be qualified to pay exempt-interest dividends to its shareholders.
Exempt-interest dividends are dividends or any part thereof paid by a
Tax-Exempt Fund which are attributable to interest on tax-exempt obligations
and designated by the Company or the Pennsylvania Fund, as the case may be, as
exempt-interest dividends in a written notice mailed to shareholders within 60
days after the close of the Fund's taxable year. Exempt-interest dividends may
be treated by shareholders for all purposes as items of interest excludable
from their federal gross income under Code Section 103(a). Exempt-interest
dividends are included, however, in determining the portion, if any, of a
person's social security benefits and railroad retirement benefits subject to
federal income taxes. Interest on indebtedness incurred or continued to
purchase or carry shares of a RIC paying exempt-interest dividends will not be
deductible by the shareholder for federal income tax purposes to the extent
attributable to exempt-interest dividends. Each shareholder is advised to
consult a tax advisor with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if such shareholder were to be treated
as a "substantial user" or "related person" under Code Section 147(a) with
respect to property financed with the proceeds of an issue of "industrial
development bonds" or "private activity bonds", if any, held by the Tax-Exempt
Funds.

All or a portion of the Tax-Exempt Funds' gain from the sale or
redemption of tax-exempt obligations purchased at a market discount will be
treated as ordinary income for federal income tax purposes rather than capital
gain. This rule may increase the amount of ordinary income dividends received
by shareholders of these Funds.

Any loss upon the sale or exchange of Tax-Exempt Fund shares held for
six months or less will be disallowed for federal income tax purposes to the
extent of any exempt-interest dividends received by the shareholder. In
addition, any such loss that is not disallowed under the rule stated above will
be treated as long-term capital loss to the extent of any capital gain
dividends received by the shareholder.

The Code subjects interest received on certain otherwise tax-exempt
securities to a federal AMT. The AMT applies to interest received on private
activity bonds issued after August 7, 1986. Private activity bonds are bonds
which, although tax-exempt, are used for purposes other than those generally
performed by governmental units and which benefit non-governmental entities
(e.g., bonds used for industrial development or housing purposes). Income
received on such bonds is classified as an item of "tax preference" which could
subject investors in such bonds, including shareholders of the Tax-Exempt
Funds, to an AMT. The Tax-Exempt Funds may purchase such private activity
bonds, and will report to shareholders before February 1 of each year the
portion of such Fund's dividends declared during the preceding calendar year
which constitutes an item of tax preference for AMT purposes. The Code further
provides that corporations are subject to an AMT based, in part, on certain
differences between taxable income as adjusted for other tax preferences and
the corporation's "adjusted current earnings", which more closely reflect a
corporation's economic income. Because an exempt-interest dividend paid by a
Tax-Exempt Fund will be included in adjusted current earnings, a corporate
shareholder may be required to pay the AMT on exempt-interest dividends paid by
such Funds.

The Code provides that every person required to file a tax return must
include on such return the amount of exempt-interest dividends received from
the Tax-Exempt Funds during the taxable year.

Tax Treatment of Options and Futures Transactions

The Tax-Exempt Funds may purchase or sell financial futures contracts
and call and put options on financial futures contracts. In general, unless an
election is available to a Fund or an exception applies, such options and
futures contracts that are "Section 1256 contracts" will be "marked to market"
for federal income tax purposes at the end of each taxable year, i.e., each
such option or financial futures contract will be treated as having been sold
for its fair market value on the last day of the taxable year, and any gain or
loss attributable to Section 1256 contracts will be 60% long-term and 40%
short-term capital gain or loss. Application of these rules to Section 1256
contracts held by the Tax-Exempt Funds may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above,
however, will not apply to certain transactions entered into by the Tax-Exempt
Funds solely to reduce the risk of changes in price or interest rates with
respect to their investments.

Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Tax-Exempt Funds' sales of securities and transactions in
financial futures contracts or options thereon and the World Fund's sales of
securities and transactions in forward foreign exchange contracts, discussed
below. Under Section 1092, the Tax-Exempt Funds may be required to postpone
recognition for tax purposes of losses incurred in certain sales of securities
and closing transactions in financial futures contracts or options thereon. The
World Fund likewise may be required to postpone recognition of losses in
connection with its forward foreign exchange contracts.

Foreign Currency Transactions

A forward foreign exchange contract held by the World Fund that is a
Section 1256 contract will be marked to market, as described under "Tax
Treatment of Options and Futures Transactions". However, the character of gain
or loss from such a contract will generally be ordinary under Code Section 988.
The World Fund may, nonetheless, elect to treat the gain or loss from certain
forward foreign exchange contracts as capital. In this case, gain or loss
realized in connection with a forward foreign exchange contract that is a
Section 1256 contract will be characterized as 60% long-term and 40% short-term
capital gain or loss.

In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether a Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the diversification requirements applicable to RICs.

Under the Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U. S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, a Fund may elect
capital gain or loss treatment for such transactions. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of a Fund's
investment company taxable income available to be distributed to shareholders
as ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, a Fund would not be
able to make any ordinary income dividend distributions, and all or a portion
of distributions made before the losses were realized but in the same taxable
year would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of a shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than such
shareholder's basis in the Fund shares (assuming the shares were held as a
capital asset). These rules, however, will not apply to certain transactions
entered into by a Fund solely to reduce the risk of currency fluctuations with
respect to its investments.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code section and
the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.

Ordinary income and capital gain dividends may also be subject to state
and local taxes.

Certain states exempt from state income taxation dividends paid by RICs
that are derived from interest on U.S. Government Securities. State law varies
as to whether dividend income attributable to U.S. Government Securities is
exempt from state income taxes.

Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Funds.

SHAREHOLDER SERVICES

Open Account An open account is established automatically for each new
investor, unless elected otherwise, in which all income dividends and any
capital gains distributions are reinvested in additional shares, without
charge, at the then current net asset value. Purchases made in this account
will be made at the offering price on the day federal funds are available to
the Funds as described in the Prospectus.

The Funds reserve the right at any time to vary the initial and
subsequent investment minimums of any Fund and to reject any purchase order.

Policyowners of National Life, Provident or Penn Mutual who invest
policy dividends may open an account in any of the Funds with a minimum initial
purchase of $50 or more of policy dividends and subsequent assignment of
dividends to the Funds.

Stock certificates will be issued upon written request and without
charge.

Except for confirmation of purchases made under the Open Account, the
cost of these shareholder services are borne by the Funds.

Automated Clearing House ("ACH") The ACH Network expedites the transfer
of monies by electronically transmitting funds between member financial
institutions. To take advantage of this convenient fund transfer method, you
must provide Sentinel Service with a pre-designated destination. There is no
charge for this service.

Distribution Options Shareholders of the Funds may elect to reinvest
automatically their income dividends and any capital gains distributions in
additional full and fractional shares of any one of the other Funds at the net
asset value of the selected Fund at the close of business on the valuation date
for the dividend, without the payment of any charge. Before exercising this
option, shareholders should read the portions of the Prospectus relating to the
selected Fund's objectives and policies. The target and original accounts for
dividends must be in different Funds.

Automatic Investment Plan See the Prospectus for information and an
application. The minimum initial investment and subsequent investment is $50.

Telephone Investment Service See the Prospectus for information and an
application.

Check Writing Service (Class A shares of the High Yield, Bond,
Government Securities, Short Maturity Government, Money Market, Tax-Free
Income, New York and Pennsylvania Funds) A special feature of the Class A
shares of these Funds is the Check Writing privilege available through IFTC.
Any shareholder who would like to draw checks on his account should check the
box on the application captioned "Check Writing Service" or subsequently, make
a written request to the Funds. Checks then will be provided by IFTC. These
checks may be made payable in any amount not less than $500, except for the
Money Market Fund which has a minimum amount of not less than $250. Withdrawals
by check may not be made until shares have been in the account for at least
fifteen (15) days. The price at which shares will be redeemed to cover a check
will be the net asset value determined on the day the check clears. Potential
fluctuations in net asset value of the Funds' shares should be taken into
account when writing checks. If a dividend or capital gains distribution is
paid during the period between writing and clearing of a check, the shareholder
will be entitled to the dividend or distribution, but the net asset value of
the shares will be reduced by the amount of the dividend payment. Because
shareholders cannot determine the exact redemption price of their shares at the
time a check is written, closing an account through check writing is not
possible.

There is no fee for check writing, but, upon notice, a fee for this
service may be charged in the future. Fees are charged for stop payments,
insufficient funds or other valid reasons.

Exchange Privilege This privilege also permits a shareholder whose
financial needs have changed to transfer an investment from a National Life
Variable Annuity account (presently the only such entity is the Variable
Annuity Account I). Such transfers from a National Life Variable Annuity
account are made without a sales charge on the basis of respective net asset
values after payment of a fee of $75 (in addition to any applicable transfer
taxes) to Sentinel Service for such transfer.

An exchange is a taxable transaction for income tax purposes and any
gain or loss realized is recognizable for such purposes.

Reinstatement Privilege Shareholders who have redeemed all or part of
their shares may reinvest all or part of the redemption proceeds at the current
net asset value without charge if a written request is received or is
postmarked within one year after the redemption. Short Maturity Government Fund
shareholders who have held their shares for 90 days or less, however, may only
use the reinstatement privilege to reinvest in the Short Maturity Government
Fund. The privilege may be exercised only once by a shareholder as to any of
the Funds except where the sole purpose of the transaction is to transfer the
shareholder's interest or a portion thereof in the Funds to a trustee or
custodian for such shareholder's Self-Employed Retirement Plan or IRA. If the
shareholder realizes a gain on redemption, the transaction is taxable and
reinvestment will not alter any capital gains tax payable. If the shareholder
realizes a loss on redemption and subsequently uses the reinstatement
privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested.

If the reinstatement is made for the purpose of effecting a rollover
into an IRA, as described in Section 408(d)(3) of the Code, of a distribution
from a tax sheltered retirement plan which had been invested in shares of the
Funds, such reinvestment of redemption proceeds may be made any time within 60
days from the date on which the investor received the distribution.

TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD INFORMATION

Each of the Funds (except the Money Market Fund) from time to time may
include its average annual total return in advertisements or information
furnished to present or prospective shareholders. The average annual total
return for each of the Funds for the one, five and ten year periods ended
November 30, 1998 were:

Average Annual Total Return for the
One Year Ended Five Years Ended Ten Years Ended
November 30, 1998 November 30, 1998 November 30, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Common Stock Fund-A 8.6% 16.8% 15.2%
Common Stock Fund-B 9.5% 17.4%(6)

Balanced Fund-A 6.6% 11.5% 11.6%
Balanced Fund-B 7.5% 12.5%(6)

Growth Fund-A 2.9% 13.7% 12.6%

Small Company Fund-A -2.5% 10.9% 10.5%(2)
Small Company Fund-B -1.8% 9.9%(6)

World Fund-A 4.8% 10.2% 13.0%(2)
World Fund-B 5.4% 9.7%(6)

High Yield Fund - A -1.4% 4.0%(1) N/A
High Yield Fund - B -1.1% 4.2%(1) N/A

Bond Fund-A 3.6% 5.5% 8.4%
Bond Fund-B 3.8% 5.8%(6)

Gov. Sec. Fund-A 5.6% 5.6% 8.1%

Short Maturity Fund-A 5.6% 6.4%(3) N/A

Tax-Free Income Fund-A 3.2% 4.8% 7.3%(4)

New York Fund-A 4.0% 6.6%(5) N/A

Pennsylvania Fund-A 2.6% 4.5% 6.6%

Growth Index Fund-A(7) N/A N/A N/A
Growth Index Fund-B(7) N/A N/A N/A

Flex Cap Opp. Fund-A(8) N/A N/A N/A
======================= === === ===
Flex Cap Opp. Fund-B(8) N/A N/A N/A
======================= === === ===
Flex Cap Opp. Fund-C(8) N/A N/A N/A
======================= === === ===

</TABLE>

(1) For the period June 23, 1997 (commencement of operations) through November
30, 1998. (2) For the period from March 1, 1993 (commencement of operations)
through November 30, 1998. (3) For the period from March 24, 1995 (commencement
of operations) through November 30, 1998. (4) For the period from October 1,
1990, when Sentinel Tax-Free Income Fund commenced operations, through
November 30, 1998.
(5) For the period from March 27, 1995 (commencement of operations) through
November 30, 1998. (6) For the period from April 1, 1996 (commencement of
operations) through November 30, 1998.

(7) Commenced operations on September 10, 1999.
(8) Commenced operations on February , 2000.

The above amounts were computed by assuming a hypothetical initial
payment of $1,000. From this $1,000 the maximum sales load of $50 (5.0% of the
public offering price for the Class A shares of the Common Stock, Balanced,
Growth, Small Company and World Funds; $40 (4.0% of the public offering price
for the Class A shares of the Bond, Government Securities, Tax-Free Income, New
York and Pennsylvania Funds); and $10 (1% for the Class A shares of the Short
Maturity Government Fund) was deducted. It then was assumed that all of the
dividends and distributions by each of the Funds over the relevant time period
were reinvested. It then was assumed that at the end of the one-, five- or
ten-year period, after taking into account all applicable recurring and
nonrecurring expenses, the entire amount was redeemed. The average annual total
return then was calculated by calculating the annual rate required for the
initial payment to grow to the amount which would have been received upon
redemption (i.e., the average annual compound rate of return). For the Class B
shares, the maximum offering price is equal to the net asset value, and it is
assumed that the investment is redeemed at the end of the period. No
information is shown for the Class B shares of the Growth Fund and the Class C
shares of the Common Stock, Balanced, World and High Yield Funds, since they
had less than one year of results as of November 30, 1998, or for the Class D
shares of the Balanced Fund, the Class A and B shares of the Growth Index Fund,
or the Class A, B and C shares of the Flex Cap Opportunity Fund, which had not
begun operations as of November 30, 1998.

Each Fund's average annual total return and current yield will vary
depending upon market conditions, the securities comprising such Fund's
portfolio, such Fund's operating expenses and the amount of net capital gains
or losses realized by such Fund during the period. An investment in any of the
Funds will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.

Each of the Funds also from time to time may advertise its total return
for specified periods without subtracting the sales load, to illustrate better
the performance of money already invested in the Fund during those periods.

On occasion, the Funds may compare their average annual total return
figures to mutual fund averages such as those compiled by Lipper Analytical
Services, Inc., and to market indices such as the Dow Jones Industrial Average,
the Standard & Poor's 500, the Standard & Poors 500 BARRA Growth Index, the
Standard & Poors 500 BARRA Value Index, the Standard and Poors 400 Midcap
Index, the Russell 2000 Index and the Shearson Lehman Aggregate Bond Index.

The High Yield, Bond, Tax-Free Income, Pennsylvania, New York,
Government Securities and Short Maturity Government Funds' annualized yields
for the 30-day period ended November 30, 1998 were:

Class A Shares Class B Shares Class C shares
<S> <C> <C> <C>
High Yield 9.55% 9.43% 8.47%
Bond Fund 6.09% 5.44%
Tax-Free Income 3.91% NA
Pennsylvania 3.99% N/A
New York 4.33% N/A
Gov.'t Securities 5.59% N/A
Short Maturity 6.05% N/A
</TABLE>

The average daily number of shares outstanding during the period that were
eligible to receive dividends were:

Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
High Yield 3,155,048 5,683,846 190,006
Bond Fund 14,174,880 2,475,185

Tax-Free Income 6,428,407 N/A
Pennsylvania 2,580,551 N/A
New York 969,691 N/A
Gov.'t Securities 7,339,878 N/A
Short Maturity 6,941,348 N/A
</TABLE>

Income was computed by totalling the interest earned on all debt obligations
during the 30-day period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield then was
annualized on a bond equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.

These Funds also may show yield to those already invested in the Funds
by using the net asset value per share instead of the maximum offering price
per share in the above calculations, which has the effect of raising the quoted
yields. Using net asset values, the yields of the Class A shares of the High
Yield, Bond, Tax-Free Income, Pennsylvania, New York, Government Securities and
Short Maturity Government Funds as of November 30, 1998 were 9.95%, 6.34%,
4.08%, 4.16%, 4.51%, 5.83% and 6.11%, respectively.

In addition, the Tax-Free Income, Pennsylvania and New York Funds may quote
tax-equivalent yield in advertisements. The calculation of tax-equivalent yield
is done by multiplying the tax-exempt part of the Fund's yield by an amount
which is one minus a stated tax rate, and adding the result to that part, if
any, of the Fund's yield that is taxable. As of November 30, 1998, the
tax-equivalent yield of the Tax-Free Income Fund was 6.75 %, the tax-equivalent
yield of the Pennsylvania Fund was 7.08%, and the tax-equivalent yield of the
New York Fund was 8.02%. For purposes of the above tax-equivalent yield
calculations the assumed federal tax rate is 39.6%. In the case of the New York
and Pennsylvania Funds, the assumed combined federal and state tax rates are
43.75% and 41.27%, respectively.

The Money Market Fund normally computes its annualized yield by
determining the net income for a seven-day base period for a hypothetical
pre-existing account having a balance of one share at the beginning of the base
period, dividing the net income by the net asset value of the account at the
beginning of the base period to obtain the base period return, multiplying the
result by 365 and then dividing by seven. In accordance with regulations
adopted by the SEC, the Money Market Fund is required to disclose its
annualized yield for certain seven-day base periods in a standardized manner
which does not take into consideration any realized or unrealized gains or
losses on portfolio securities. The SEC also permits the calculation of a
standardized effective or compounded yield. This is computed by compounding the
unannualized base period return which is done by adding one to the base period
return, raising the sum to a power equal to 365 divided by seven and
subtracting one from the result.

The yield quoted should not be considered a representation of the yield
of the Money Market Fund in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Fund and changes in interest rates on such
investments, but also on changes in the Money Market Fund's expenses during the
period.

Yield information may be useful in reviewing the performance of the
Money Market Fund and for providing a basis for comparison with other
investment alternatives. However, the Money Market Fund's yield fluctuates,
unlike bank deposits or other investments which typically pay a fixed yield for
a stated period of time.

GENERAL INFORMATION

Copies of the Amended and Restated Articles of Incorporation and the
By-Laws of the Company, each as amended and supplemented, the Amended and
Restated Declaration of Trust and the Code of Regulations of the Pennsylvania
Fund, and various agreements referred to in the Prospectus and this Statement
of Additional Information are filed with the registration statement at the SEC
to which reference is made for their full terms. Such documents and other
information filed with the SEC may be obtained from the SEC upon payment of the
fees prescribed by the Rules of the SEC and are also now available at the SEC's
Internet Web site at http://www.sec.gov. All cash and securities of the Funds,
except for U.S. Government Securities which are represented only in book entry
form at the Federal Reserve Bank, are held by IFTC or in a central depository
system in the name of Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, Missouri 64105 as the Funds' Custodian. IFTC is also Dividend
Disbursing Agent for the Funds' shares. Sentinel Service is Transfer Agent and
Registrar for the Funds' shares. All correspondence regarding the Funds should
be mailed to Sentinel Administrative Service Company, P.O. Box 1499,
Montpelier, Vermont 05601-1499.

The independent accountants for the Funds are PricewaterhouseCoopers
LLP, located at 1177 Avenue of the Americas, New York, New York 10036. The
independent accountants are responsible for auditing the annual financial
statements of the Company and the Pennsylvania Fund.

Counsel for the Funds is Brown & Wood LLP, One World Trade Center, New
York, New York 10048-0557.

FINANCIAL STATEMENTS

Audited financial statements for the Company and for the Pennsylvania
Fund at November 30, 1998 and for the year then ended are incorporated by
reference to the Funds' 1998 Annual Report to Shareholders. Unaudited financial
statements for the Company and for the Pennsylvania Fund at May 31, 1999 and
for the six months then ended are incorporated by reference to the Fund's 1999
Semi-Annual Report to Shareholders.

<PAGE>

APPENDIX A

RATINGS OF MUNICIPAL BONDS

Description of Moody's Investors Service, Inc.'s ("Moody's") Municipal
Bond Ratings

Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.

Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Note: These bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
Al, Baal, Bal and B1. Short-term Notes: The three ratings of Moody's for
short-term notes are MIG 1/VMIG 1, MIG 2/VMIG 2, and MIG 3/VMIG 3; MIG 1/VMIG
1 denotes "best quality, enjoying strong protection from established cash
flows"; MIG 2/VMIG 2 denotes "high quality" with "ample margins of
protection"; MIG 3/VMIG 3 instruments are of "favorable quality. . . but . . .
lacking the undeniable strength of the preceding grades."

Description of Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of short-term promissory obligations. Prime-l repayment capacity will
often be evidenced by the following characteristics: leading market positions
in well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and with established access to a range of
financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of short-term promissory obligations. The effects of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes to the level of debt
protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating categories.
Description of Standard & Poor's, a Division of The McGraw-Hill Companies, Inc.
("Standard & Poor's"), Municipal Debt Ratings

A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations or a specific program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.

The debt rating is not a recommendation to purchase, sell or hold a financial
obligation, inasmuch as it does not comment as to market price or suitability
for a particular investor. The ratings are based on current information
furnished by the issuer or obtained by Standard & Poor's from other sources
Standard & Poor's considers reliable. Standard & Poor's does not perform an
audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;

II Nature of and provisions of the obligation;

III Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.

AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity of the obligor to meet its financial commitment on the
obligation is extremely strong.

AA Debt rated "AA" differs from the highest-rated issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.

BBB Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

BB Debt rated "BB," "B," "CCC," "CC" and "C" are regarded as having B
significant speculative characteristics. "BB" indicates the least CCC
degree of speculation and "C" the highest degree of speculation. While
CC such debt will likely have some quality and protective
characteristics, C these may be outweighed by large uncertainties or
major risk exposures to adverse conditions.

D Debt rated "D" is in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition
or the taking of similar action if payments on an obligation are
jeopardized.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.

Description of Standard & Poor's Commercial Paper Ratings

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from "A-l"
for the highest quality obligations to "D" for the lowest.

These categories are as follows:

A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.

B Issues rated "B" are regarded as having only speculative capacity for timely
payment.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired unless
Standard & Poor's believes that such payments will be made during such
grace period.

A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information. A Standard &
Poor's note rating reflects the liquidity factors and market access risks
unique to such notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment.

- --Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note. --Source of
payment--the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note.

Note rating symbols are as follows:

SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.

SP-3 Speculative capacity to pay principal and interest.

<PAGE>

APPENDIX B

ECONOMIC AND OTHER CONDITIONS IN NEW YORK

The following information is a brief summary of factors affecting the economy
of New York City (the "City") or New York State (the "State" or "New York").
Other factors will affect issuers. The summary is based primarily upon one or
more of the most recent publicly available offering statements relating to debt
offerings of State issuers, however, it has not been updated. The Fund has not
independently verified this information. The State, some of its agencies,
instrumentalities and public authorities and certain of its municipalities have
sometimes faced serious financial difficulties that could have an adverse
effect on the sources of payment for or the market value of the New York
Municipal Obligations in which the Fund invests.

New York City

General. More than any other municipality, the fiscal health of the City has a
significant effect on the fiscal health of the State. The City's current
financial plan assumes that , after strong growth in 1998-1999, moderate
economic growth will exist through calendar year 2003, with moderating job
growth and wage increases.

For each of the 1981 through 1999 fiscal years, the City had an operating
surplus, before discretionary and other transfers, and achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"), after discretionary and other transfers. The City has been
required to close substantial gaps between forecast revenues and forecast
expenditures in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results as
required by State law without tax or other revenue increases or reductions in
City services or entitlement programs , which could adversely affect the City's
economic base.

The Mayor is responsible for preparing the City's financial plan, including the
City's current financial plan for the 2000 through 2003 fiscal years (the
"2000-2003 Financial Plan", "Financial Plan" or "City Financial Plan"). The
City's projections set forth in the City Financial Plan are based on various
assumptions and contingencies that are uncertain and may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow
and financing requirements. As required by law, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City's
current financial plan projects a surplus in the 2000 fiscal year, before
discretionary transfers, and budget gaps for each of the 2001, 2002 and 2003
fiscal years. This pattern of current year surplus operating results and
projected subsequent year budget gaps has been consistent through the entire
period since 1982, during which the City has achieved surplus operating
results, before discretionary transfers, for each fiscal year.

City's Financing Program. Implementation of the City Financial Plan is
dependent upon the City's ability to market its securities successfully. The
City's program for financing capital projects for fiscal years 2000 through
2003 contemplates the issuance of $7.449 billion of general obligation bonds
and $3.35 billion of bonds to be issued by the New York City Transitional
Finance Authority (the "Transitional Finance Authority"). In addition, the
Financial Plan anticipates access to approximately $2.4 billion in financing
capacity of the TSASC, Inc. ("TSASC"), the debt of which is secured by revenues
derived from the settlement of litigation with tobacco companies selling
cigarettes in the United States. The Transitional Finance Authority and TSASC
were created to assist the City in financing its capital program while keeping
City indebtedness within the forecast level of the constitutional restrictions
on the amount of debt the City is authorized to incur.

Without additional borrowing capacity, under projections (current as of
November 3, 1999) the City would reach the limit of its capacity to enter into
new contractual commitments in fiscal year 2000. In order to provide financing
for the City's current capital plan during and after fiscal year 2000, the
Transitional Finance Authority's debt-incurring capacity will need to be
increased, some other financing mechanism will need to be established or the
City's general obligation debt limit will need to be increased. An amendment to
the State Constitution would be necessary to change the methodology used to
calculate the debt limit to increase the City's general obligation debt limit.
A proposed amendment to the State Constitution may be considered by the State
Legislature and, if approved in two consecutive legislative sessions and by
voter referendum, could have an effective date in the year 2002. Even if the
Constitution were so amended, legislative action to increase the financing
capacity of the Transitional Finance Authority or creation of some other
financing mechanism would be necessary to permit the City to continue its
capital program until the constitutional amendment took effect in 2002.
Accordingly, the Financial Plan anticipates access to approximately $2.4
billion in financing capacity of TSASC. Even with TSASC's ability to provide
approximately $2.4 billion of financing capacity, the City expects that it will
be required to postpone a substantial part of its capital program from the
latter part of fiscal year 2001 to fiscal year 2002. In addition, the City
issues revenue notes and tax anticipation notes to finance its seasonal working
capital requirements (See "Seasonal Financing Requirements" within). The
success of projected public sales of City bonds and notes, New York City
Municipal Water Finance Authority (the "Water Authority") bonds and
Transitional Finance Authority and other bonds will be subject to prevailing
market conditions. The City's planned capital and operating expenditures are
dependent upon the sale of its general obligation bonds and notes, as well as
Water Authority , Transitional Finance Authority and TSASC bonds.

1999 Fiscal Year. For the 1999 fiscal year (July 1, 1998-June 30, 1999), the
City had an operating surplus, before discretionary and other transfers, and
achieved balanced operating results, after discretionary and other transfers,
in accordance with GAAP. The 1999 fiscal year is the nineteenth year that the
City has achieved an operating surplus, before discretionary and other
transfers, and balanced operating results, after discretionary and other
transfers.

2000-2003 Financial Plan. On June 14, 1999, the City released the Financial
Plan for the 2000 through 2003 fiscal years, which relates to the City and
certain entities which receive funds from the City. The Financial Plan projects
revenues and expenditures for the 2000 fiscal year balanced in accordance with
GAAP, and project gaps of $1.8 billion, $1.9 billion and $1.8 billion for
fiscal years 2001 through 2003, respectively.

The Financial Plan includes a discretionary transfer in the 1999 fiscal year of
$2.6 billion to pay debt service due in fiscal year 2000, for budget
stabilization purposes, a proposed discretionary transfer in fiscal year 2000
to pay debt service due in fiscal year 2001 totaling $429 million, and a
proposed discretionary transfer in fiscal year 2001 to pay debt service due in
fiscal year 2002 totaling $345 million.

In addition, the Financial Plan sets forth gap-closing actions to eliminate a
previously projected gap for the 2000 fiscal year and to reduce projected gaps
for fiscal years 2001 through 2003. The gap-closing actions for the 2000
through 2003 fiscal years include: (i) additional City agency actions totaling
$502 million, $371 million, $293 million and $283 million for fiscal years 2000
through 2003, respectively; (ii) additional Federal aid of $75 million in each
of fiscal years 2000 through 2003, which include the proposed restoration of
$25 million of Federal revenue sharing and $50 million of increased Federal
Medicaid aid; and (iii) additional State actions totaling approximately $125
million in each of fiscal years 2000 through 2003. The Financial Plan also
reflects a tax reduction program, which includes the elimination of the City's
non-residents earning tax, the extension of current tax reductions for owners
of cooperative and condominium apartments and a proposed income tax credit for
low income wage earners.

Assumptions. The 2000-2003 Financial Plan is based on numerous assumptions,
including the condition of the City's and the region's economies and modest
employment growth and the concomitant receipt of economically sensitive tax
revenues in the amounts projected. The 2000-2003 Financial Plan is subject to
various other uncertainties and contingencies relating to, among other factors,
the extent, if any, to which wage increases for City employees exceed the
annual wage costs assumed for the 1999 through 2003 fiscal years; continuation
of projected interest earnings assumptions for pension fund assets and current
assumptions with respect to wages for City employees affecting the City's
required pension fund contributions; the willingness and ability of the State
to provide the aid contemplated by the Financial Plan and to take various other
actions to assist the City; the ability of Health and Hospitals Corporation
(the "HHC"), the Board of Education (the "BOE") and other such agencies to
maintain balanced budgets; the willingness of the Federal government to provide
the amount of Federal aid contemplated in the Financial Plan; the impact on
City revenues and expenditures of Federal and State welfare reform and any
future legislation affecting Medicare or other entitlement programs; adoption
of the City's budgets by the City Council in substantially the forms submitted
by the Mayor; the ability of the City to implement cost reduction initiatives,
and the success with which the City controls expenditures; the impact of
conditions in the real estate market on real estate tax revenues; and
unanticipated expenditures that may be incurred as a result of the need to
maintain the City's infrastructure. Certain of these assumptions have been
questioned by the City Comptroller and other public officials.

The Financial Plan assumes: (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which
has subsequently been extended to December 31, 2001 through enacted
legislation, and which is projected to provide revenue of $572 million, $585
million, $600 million and $638 million in the 2000 through 2003 fiscal years,
respectively; (ii) collection of projected rent payments for the City's
airports, totaling $365 million, $185 million and $155 million in the 2001
through 2003 fiscal years, respectively, a substantial portion of which may
depend on the successful completion of negotiations with The Port Authority of
New York and New Jersey (the "Port Authority") or the enforcement of the City's
rights under the existing leases through pending legal action; (iii) State and
Federal approval of the State and Federal gap-closing actions proposed by the
City in the Financial Plan; and (iv) receipt of the tobacco settlement funds
providing revenues or expenditure offsets in annual amounts ranging between
$250 million and $300 million. In addition, the economic and financial
condition of the City may be affected by various financial, social, economic
and political factors which could have a material effect on the City.

Municipal Unions. The Financial Plan reflects the costs of the settlements and
arbitration awards with certain municipal unions and other bargaining units,
which together represent approximately 98% of the City's workforce, and assumes
that the City will reach agreement with its remaining municipal unions under
terms which are generally consistent with such settlements and arbitration
awards. These contracts are approximately five years in length and have a total
cumulative net increase of 13%. Assuming the City reaches similar settlements
with its remaining municipal unions, the cost of all settlements for all
City-funded employees would exceed $2 billion annually, during fiscal years
2000 through 2003. The Financial Plan provides no additional wage increases for
City employees after their contracts expire in fiscal years 2000 and 2001.

Intergovernmental Aid. The City depends on aid from the State both to enable
the City to balance its budget and to meet its cash requirements. There can be
no assurance that there will not be reductions in State aid to the City from
amounts projected; that State budgets will be adopted by the April 1 statutory
deadline, or interim appropriations enacted; or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
In addition, the Federal budget negotiation process could result in reductions
or delays in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues. Year 2000 Computer Matters (as of
November 3, 1999). The year 2000 presents potential operational problems for
computerized data files and computer programs which may recognize the year 2000
as the year 1900, resulting in possible system failures or miscalculations. In
November 1996, the City's Year 2000 Project Office was established to develop a
project methodology, coordinate the efforts of City agencies, review plans and
oversee implementation of year 2000 projects. At that time, the City also
evaluated the capabilities of the City's Integrated Financial Management System
and Capital Projects Information System, which are the City's central
accounting, budgeting and payroll systems, identified the potential impact of
the year 2000 on these systems, and developed a plan to replace these systems
with a new system which is expected to be year 2000 compliant prior to December
31, 1999. The City has also performed an assessment of its other
mission-critical and high priority computer systems in connection with making
them year 2000 compliant, and the City's agencies have developed and are
implementing both strategic and operational plans for non-compliant application
systems. In addition, the City Comptroller is conducting audits of the progress
of City agencies in achieving year 2000 compliance. While these efforts may
involve additional costs beyond those assumed in the Financial Plan, the City
believes, based on currently available information, that such additional costs
will not be material.

The Mayor's Office of Operations has stated that work has been completed, and
all or part of the necessary testing has been performed, on approximately 99%
of the mission-critical and high priority systems of Mayoral agencies. The
City's computer systems may not all be year 2000 compliant in a timely manner
and there could be an adverse impact on City operations or revenues as a
result. The City is developing contingency plans for all mission-critical and
high priority systems of Mayoral agencies to be used if such systems are not
year 2000 compliant. During the months of November and December, the Mayor's
Office of Emergency Management will coordinate drills to test the contingency
plans. The City is also in the process of contacting its significant third
party vendors regarding the status of their compliance. Such compliance is not
within the City's control, and therefore the City cannot assure that there will
not be any adverse effects on the City resulting from any failure of these
third parties.

Certain Reports. The City's financial plans have been the subject of extensive
public comment and criticism. From time to time, the staff of the New York
State Financial Control Board (the "Control Board"), the Office of the State
Deputy Comptroller (the "OSDC"), the City Comptroller, the City's Independent
Budget Office (the "IBO") and others issue reports and make public statements
regarding the City's financial condition, commenting on, among other matters,
the City's financial plans, projected revenues and expenditures and actions by
the City to eliminate projected operating deficits. Some of these reports and
statements have warned that the City may have underestimated certain
expenditures and overestimated certain revenues and have suggested that the
City may not have adequately provided for future contingencies. Certain of
these reports have analyzed the City's future economic and social conditions
and have questioned whether the City has the capacity to generate sufficient
revenues in the future to meet the costs of its expenditure increases and to
provide necessary services.

On July 14, 1999, the City Comptroller issued a report on the adopted budget
for fiscal year 2000 and the Financial Plan. Taking into account the risks and
additional resources identified in the report, the report projected a surplus
for fiscal year 2000 of between $223 million and $891 million, including the
$429 million surplus allocated to the Budget Stabilization Account. In
addition, taking into account the risks and additional resources identified in
the report and the budget gaps projected in the Financial Plan, the report
projected budget gaps of between $1.8 billion and $3.5 billion, $1.7 billion
and $3.6 billion, and $1.7 billion and $4.1 billion in fiscal years 2001
through 2003, respectively.

With respect to fiscal years 2000 through 2003, the report identified baseline
risks of between $338 million and $998 million, $654 million and $2.4 billion,
$600 million and $2.4 billion and $719 million and $2.9 billion, respectively,
depending upon whether (i) the State approves the extension of the 14% personal
income tax surcharge ; (ii) the City incurs additional labor costs as a result
of the expiration of labor contracts starting in fiscal year 2001 which, if
settled at the current forecast level of inflation, would result in additional
costs totaling $345 million in fiscal year 2001 , $713 million in fiscal year
2002 and $1.1 billion in fiscal year 2003; (iii) the State approves the
continuation in fiscal years 2000 through 2003 of temporary State Medicaid cost
containment; and (iv) the City receives $300 million, $250 million, $300
million and $300 million in fiscal years 2000 through 2003, respectively, from
the tobacco settlement. Additional risks identified in the report for fiscal
years 2000 through 2003 include payments from the Port Authority relating to
the City's claim for back rentals, which are the subject of arbitration; State
and Federal gap-closing actions proposed in the Financial Plan; possible
increased overtime expenditures ; the sale of the New York City Coliseum in
fiscal year 2001; the writedown of outstanding education aid receivables of
approximately $100 million in each of fiscal years 2002 and 2003; and a
possible $149 million shortfall in tax revenues in fiscal year 2003. The report
noted that these risks may be offset by additional resources of between $659
million and $873 million in fiscal years 2000 through 2003 due to the potential
for higher than forecast tax revenues, lower than forecast payables for prior
years, possible debt service savings, additional State education aid, the
possible failure to spend funds for the construction of three sports facilities
and lower pension costs resulting from excess earnings on pension assets in the
1999 fiscal year.

In his report, the City Comptroller also noted that possible changes to the
assumptions and methods used to compute actuarial liabilities, including
changes in the mortality, disability, investment return and wage assumptions,
could increase the City's pension expenditures by up to $600 million annually,
and that the Financial Plan has provided reserves of $65 million, $250 million,
$300 million and $260 million in fiscal years 2000 through 2003 to absorb some
of the anticipated cost increases. The report further noted that the City
Comptroller's forecast is contingent on the continued growth of the City
economy and that the fear of renewed inflationary pressures has created
uncertainty in the bond market which may dampen economic growth in the future.
The report also indicated that a possible negotiated settlement of a class
action, filed on behalf of approximately 65,000 persons challenging the
Department of Corrections policy of strip searching detainees arrested for
nonfelony offenses, may expose the City to substantial costs from the
settlement of litigation. The report noted that, while settlement negotiations
with representatives of the class are being conducted and, therefore, estimates
of the potential cost of this litigation cannot be determined, the City has
recently settled four cases for $25,000 each.

On August 25, 1998, the City Comptroller issued a report reviewing the current
condition of the City's major physical assets and the capital expenditures
required to bring them to a state of good repair. The report's findings relate
only to current infrastructure and do not address future capacity or technology
needs. The report estimated that the expenditure of approximately $91.83
billion would be required over the next decade to bring the City's
infrastructure to a systematic state of good repair and address new capital
needs already identified. The report stated that the City's current Ten-Year
Capital Strategy, together with funding received from other sources, is
projected to provide approximately $52.08 billion. The report noted that the
City's ability to meet all capital obligations is limited by law, as well as
funding capacity, and that the issue for the City is how best to set priorities
and manage limited resources.

On July 15, 1999, the staff of the OSDC issued a report on the Financial Plan.
With respect to fiscal year 2000, the report identified a possible gap of $13
million, reflecting revenues which could exceed projections in the Financial
Plan by $290 million, a $200 million shortfall in anticipated Federal and State
assistance, a possible $70 million increase in overtime costs and the writedown
of approximately $33 million of outstanding education aid receivables. With
respect to fiscal years 2001 through 2003, the report identified net risks of
$530 million, $447 million and $266 million which, when added to gaps projected
in the Financial Plan, would result in gaps of $2.4 billion, $2.3 billion and
$2.1 billion in fiscal years 2001 through 2003, respectively. The risks
identified in the report included a $200 million shortfall in anticipated
Federal and State assistance in each of fiscal years 2001 through 2003, the
potential for increased overtime costs, the writedown of outstanding State
education aid receivables of approximately $100 million in each of fiscal years
2002 and 2003, $100 million of unspecified asset sales in fiscal year 2002 and
delays in the receipt of Port Authority lease payments assumed in the Financial
Plan. However, the report noted that tax revenues could be greater than
forecast by the City by $155 million, $210 million and $255 million in fiscal
years 2001 through 2003, respectively. The report also identified a number of
other issues, including a possible delay in the receipt of the City's share of
the proceeds under the settlement with the nation's tobacco companies; the
extension of the 14% personal income tax surcharge; the possibility of pension
costs being $250 million greater than assumed in the Financial Plan in each of
fiscal years 2001 through 2003, as a result of changed actuarial assumptions;
and the potential for wage increases which, at the projected inflation rate,
would increase gaps by $285 million, $635 million and $1.0 billion in fiscal
years 2001 through 2003, respectively. The report also noted the possibility
that the Federal Reserve will raise interest rates and slow the economy, which
could depress Wall Street profits below the levels projected by the City and
have the potential to seriously impact the City's nonproperty tax revenue
forecasts.

On July 15, 1999, the staff of the Control Board issued a report reviewing the
Financial Plan. The report noted that the City is likely to end fiscal year
2000 in balance. However, the report identified risks of $562 million, $293
million, $640 million and $499 million for fiscal years 2000 through 2003,
respectively, which, when combined with the City's projected gaps, results in
estimated gaps of $562 million, $2.1 billion, $2.5 billion and $2.3 billion for
fiscal years 2000 through 2003, respectively, before making provision for any
increased labor costs which may occur when the current contracts with City
employees expire in calendar year 2000. The report noted the possibility that
non-property taxes in fiscal year 2000 could be $250 million greater than
forecast in the Financial Plan. However, the report also identified risks for
fiscal years 2000 through 2003, which include (i) the possibility that the City
may decide to fund the $63 million annual cost of teachers' salary
supplementation for fiscal years 2000 through 2003, which the State failed to
fund in the 1999 fiscal year, and an additional risk of approximately $100
million in each of fiscal years 2002 and 2003 for BOE resulting from the
write-down of funds owed to BOE by the State which have been outstanding for
ten or more years; (ii) the receipt of assumed rental payments from the Port
Authority relating to the City's claim for back rents, which are the subject of
arbitration; (iii) a possible delay in the receipt of $300 million from the
tobacco settlement in fiscal years 2000 and 2001; (iv) $200 million of Federal
and State gap-closing actions assumed in the Financial Plan for each of fiscal
years 2000 through 2003; and (v) $177 million in fiscal year 2000 from the
lapse of State Medicaid cost containment, which has been extended subsequent to
the report.

In its report, the staff of the Control Board noted that total debt service is
expected to increase from 9.2% of total revenues and 15.8% of tax revenues in
the 1999 fiscal year to 11.6% of total revenues and 19% of tax revenues in
fiscal year 2003, and that the City's capital plant will require additional
resources at the same time that a rising debt service burden must be contained.
With respect to HHC, the report noted that HHC revenues are expected to fall
during the Financial Plan period, primarily due to falling Medicaid receipts,
that HHC will face increasing financial pressure when the State implements
mandatory Medicaid managed care beginning in fiscal year 2000 and that the
eventual size of the projected gaps for HHC in fiscal years 2002 and 2003 may
change substantially from current projections, as the revenue impact of
proposed State and Federal reforms, growth in managed care and shifting
utilization patterns remain largely uncertain. Finally, the report noted that,
given the length of the current expansion, there is an increasing probability
that a recession related to the end of the long bull market will occur by the
end of the Financial Plan period, and it is likely that the next downturn, if
and when it occurs, will have a disproportionately great impact on the City
because of its dependence on income flows from financial services.

Seasonal Financing Requirements. The City since 1981 has fully satisfied its
seasonal financing needs in the public credit markets, repaying all short-term
obligations within their fiscal year of issuance. The City has issued $750
million of short-term obligations in the 2000 fiscal year to finance the City's
cash flow needs for the 2000 fiscal year. The City issued $500 million of
short-term obligations in the 1999 fiscal year to finance the City's cash flow
needs for the 1999 fiscal year. The City issued $1.075 billion in short-term
obligations in fiscal year 1998 to finance the City's projected cash flow needs
for the 1998 fiscal year. The City issued $2.4 billion of short-term
obligations in fiscal year 1997. Seasonal financing requirements for the 1996
fiscal year increased to $2.4 billion from $2.2 billion and $1.75 billion in
the 1995 and 1994 fiscal years, respectively. The delay in the adoption of the
State's budget in certain past fiscal years has required the City to issue
short-term notes in amounts exceeding those expected early in such fiscal
years.

Ratings. As of November 3, 1999, Moody's rated the City's outstanding general
obligation bonds A3, Standard & Poor's rated such bonds A- and Fitch rated such
bonds A. In July 1995, Standard & Poor's revised downward its ratings on
outstanding general obligation bonds of the City from A- to BBB+. In July 1998,
Standard & Poor's revised its rating of City bonds upward to A-. Moody's rating
of City bonds was revised in February 1998 to A3 from Baa1. On March 8, 1999,
Fitch revised its rating of City bonds upward to A. Such ratings reflect only
the view of Moody's, Standard & Poor's and Fitch, from which an explanation of
the significance of such ratings may be obtained. There is no assurance that
such ratings will continue for any given period of time or that they will not
be revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on the market prices of City bonds.

Outstanding Indebtedness. As of September 30, 1999, the City and the Municipal
Assistance Corporation for the City of New York had respectively approximately
$26.3 and $2.8 billion of outstanding net long-term debt. As of May 19, 1999,
the Water Authority had approximately $8.7 billion aggregate principal amount
of outstanding bonds, inclusive of subordinate second resolution bonds, and a
$600 million commercial paper program.

Water, Sewer and Waste. Debt service on Water Authority obligations is secured
by fees and charges collected from the users of the City's water and sewer
system. State and Federal regulations require the City's water supply to meet
certain standards to avoid filtration. The City's water supply now meets all
technical standards and the City has taken the position that increased
regulatory, enforcement and other efforts to protect its water supply, will
prevent the need for filtration. On May 6, 1997, the U.S. Environmental
Protection Agency granted the City a filtration avoidance waiver through April
15, 2002 in response to the City's adoption of certain watershed regulations.
The estimated incremental cost to the City of implementing this Watershed
Memorandum of Agreement, beyond investments in the watershed which were planned
independently, is approximately $400 million. The City has estimated that if
filtration of the upstate water supply system is ultimately required, the
construction expenditures required could be between $4 billion and $5 billion.

Legislation has been passed by the State which prohibits the disposal of solid
waste in any landfill located within the City after December 31, 2001. The
Financial Plan includes the estimated costs of phasing out the use of landfills
located within the City. A suit has been commenced against the City by private
individuals under the Resource Conservation and Recovery Act seeking to compel
the City to take certain measures or, alternatively, to close the Fresh Kills
landfill. If as a result of such litigation, the City is required to close the
landfill earlier than required by State legislation, the City could incur
additional costs during the Financial Plan period. Pursuant to court order, the
City is currently required to recycle 3,400 tons per day of solid waste and is
required to recycle 4,250 tons per day by July 2001. The City as of November 3,
1999 was recycling slightly over 2,600 tons per day of solid waste. The City
may seek to obtain amendments to Local Law No. 19 to modify this requirement.
If the City is unable to obtain such amendments and is required to fully
implement Local Law No. 19, the City may incur substantial costs.

Litigation. The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, routine litigation incidental to
the performance of its governmental and other functions, actions commenced and
claims asserted against the City arising out of alleged constitutional
violations, alleged torts, alleged breaches of contracts and other alleged
violations of law and condemnation proceedings and other tax and miscellaneous
actions. While the ultimate outcome and fiscal impact, if any, on the City of
the proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon the
City's ability to carry out the City Financial Plan. The City has estimated
that its potential future liability on account of outstanding claims against it
as of June 30, 1999 amounted to approximately $3.5 billion.

New York State

Current Economic Outlook. The information in this section, obtained from the
State's Annual Information Statement, updated as of the middle of the State's
1999-2000 fiscal year, summarizes the national and State economic situation and
outlook upon which projections of receipts and certain disbursements were made
for the State's 1999-2000 Financial Plan updated as of the middle of the
State's 1999-2000 fiscal year. Growth in domestic consumption, which has been a
major driving force behind the nation's strong economic performance in recent
years, is expected to slow in 2000 as consumer confidence retreats from
historic highs and the stock market ceases to provide large amounts of extra
discretionary income. Real Gross Domestic Product ("GDP") growth is projected
to be 3.8 percent in 1999, below the 1998 growth rate of 3.9 percent. In 2000,
real GDP growth is expected to be 3.1 percent.

The forecast of the State's economy shows continued growth projected in the
1999 and 2000 calendar years for employment, wages and personal income,
although for 2000, a slowdown in the growth rate of employment is expected. The
financial and business service sectors are expected to continue to do well,
while employment in the manufacturing sector is expected to post a modest
decline. On an average annual basis, the employment growth rate in the State is
expected to be somewhat lower than in 1998 and the unemployment rate is
expected to drop further to 5.0 percent in 2000. Personal income is expected to
record moderate gains in 1999. Wage growth in 1999 is expected to be slower
than in the previous year as the recent robust growth rate in bonus payments
moderates.

Overall employment growth in the State was 2.1 percent in 1998, but is expected
to drop to 2.0 percent in 1999 and to 1.7 percent in 2000. On the national
level, employment growth was 2.6 percent for 1998 and is projected to be 2.2
percent and 2.0 percent for 1999 and 2000, respectively.

On an average annual basis, the State unemployment rate was 5.6 percent in 1998
and is projected to be 5.1 percent and 5.0 percent for 1999 and 2000,
respectively. For the nation as a whole, the unemployment rate was 4.5 percent
for 1998, and is projected to be 4.2 percent in 1999 and 4.0 percent in 2000.

Personal income in the State grew by 5.2 percent in 1998, and is projected to
grow by 4.8 percent in 1999 and 4.9 percent in 2000. For the nation, personal
income grew by 5.0 percent in 1998, and is projected to grow by 5.1 percent and
5.2 percent, respectively, for 1999 and 2000.

The forecast for continued growth, and any resultant impact on the State's
1999-2000 Financial Plan, contains some uncertainties. Stronger-than-expected
gains in employment and wages or in stock market prices could lead to
unanticipated strong growth in consumer spending. Inventory investment dues to
year 2000 computer matters may be significantly stronger than expected towards
the end of 1999 possibly followed by significant weakness early in 2000. Also,
improvements in foreign economies may be weaker-than-expected and therefore may
have unanticipated effects on the domestic economy. The inflation rate may
differ significantly from expectations due to the conflicting impacts of a
tight labor market and improved productivity growth as well as to the direction
and magnitude of fluctuations in oil prices. In addition, the State economic
forecast could over- or underestimate the level of future bonus payments,
financial sector profits or inflation growth, resulting in unexpected economic
impacts. Similarly, the State forecast could fail to correctly estimate the
amount of employment change in the banking, financial and other business
service sectors as well as the direction of employment change that is likely to
accompany telecommunications and energy deregulation.

The New York Economy. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse, with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The services sector accounts for
more than three of every ten nonagricultural jobs in New York and has a
noticeably higher proportion of total jobs than does the rest of the nation.
Manufacturing employment continues to decline in importance in New York, as in
most other states, and New York's economy is less reliant on this sector than
is the nation. Wholesale and retail trade is the second largest sector in terms
of nonagricultural jobs in New York but is considerably smaller when measured
by income share. The finance, insurance and real estate sector is far more
important in the State than in the nation as a whole. Although this sector
accounts for under one-tenth of all nonagricultural jobs in the State, it
contributes about one-fifth of all nonfarm labor and proprietors' income.
Farming is an important part of large regions of the State, although it
constitutes a very minor part of total State output. Federal, State and local
government together are the third largest sector in terms of nonagricultural
jobs, with the bulk of the employment accounted for by local governments. The
State is likely to be less affected than the nation as a whole during an
economic recession that is concentrated in manufacturing and construction, but
likely to be more affected during a recession that is concentrated in the
service-producing sector.

The 1999-2000 Fiscal Year. The State's 1999-2000 fiscal year began on April 1,
1999 and ends on March 31, 2000. On March 31, 1999, the State adopted the debt
service portion of the State budget for the 1999-2000 fiscal year; four months
later, on August 4, 1999, it enacted the remainder of the budget. The Governor
approved the budget as passed by the Legislature. Prior to passing the budget
in its entirety for the 1999-2000 fiscal year, the State enacted appropriations
that permitted the State to continue its operations. Following the enactment of
the budget, the State prepared a Financial Plan for the 1999-2000 fiscal year
(the "1999-2000 Financial Plan" or the "State Financial Plan") that sets forth
projected receipts and disbursements based on the actions taken by the
Legislature.

General Fund receipts, including transfers from other funds, are projected to
be $39.32 billion, an increase of $2.58 billion or approximately 7.0 percent
over the 1998-1999 fiscal year. General Fund disbursements, including transfers
to other funds, are estimated at $37.35 billion, an increase of $858 million or
approximately 2.4 percent over the 1998-1999 fiscal year. The 1999-2000
Financial Plan projects the State to close the 1999-2000 fiscal year with a
closing balance of $2.87 billion in the General Fund.

Receipts. The $39.32 billion in total General Fund receipts includes $35.94
billion in tax receipts, $1.36 billion in miscellaneous receipts and $2.02
billion in transfers from other funds. The transfer of the $1.82 billion
surplus recorded in the 1998-1999 fiscal year to the 1999-2000 fiscal period
has the effect of exaggerating the growth in State receipts from year to year
by depressing reported 1998-1999 figures and inflating 1999-2000 figures.

Personal income taxes are imposed on the income of individuals, estates and
trusts and are based, with certain modifications, on Federal definitions of
income and deductions. Potential changes to Federal tax law could alter the
Federal definitions of income on which certain State taxes rely. Such changes
could have a significant impact on State revenues in the future. Net General
Fund personal income tax collections are projected to reach $22.99 billion in
the 1999-2000 fiscal year, well over half of all General Fund receipts and
nearly $2.92 billion above the reported 1998-1999 fiscal year collection total.
Much of this growth is associated with the $1.82 billion net impact of the
transfer of the surplus from 1998-1999 to 1999-2000 as partially offset by the
diversion of an additional $661 million in income tax receipts to the School
Tax Relief (STAR) Fund. The STAR program was created in 1997 as a State-funded
local property tax relief program funded through the use of personal income tax
receipts. Adjusted for these transactions, the growth in net income tax
receipts is roughly $1.8 billion, an increase of almost 9 percent.

User taxes and fees are comprised of three-quarters of the State's four percent
sales and use tax, cigarette, alcoholic beverage, container, and auto rental
taxes, and a portion of the motor fuel excise levies. This category also
includes receipts from the motor vehicle registration fees and alcoholic
beverage license fees. Dedicated transportation funds outside of the General
Fund receive a portion of motor fuel tax and motor vehicle registration fees
and all of the highway use taxes. User taxes and fees are projected to total
$7.35 billion in 1999-2000, an increase of $105 million from reported
collection in the 1998-1999 fiscal year. The sales tax component of this
category accounts for virtually all of the 1999-2000 fiscal year growth.

Business taxes include franchise taxes based generally on net income of general
business, bank and insurance corporations, as well as gross-receipts-based
taxes on utilities and gallonage-based petroleum business taxes. Business tax
receipts are expected to total approximately $4.60 billion in 1999-2000, $260
million below 1998-1999 results. The year-over-year decline in projected
receipts in this category is largely attributable to statutory changes.

Transfers from other funds to the General Fund consists primarily of tax
revenues in excess of debt service requirements, including the one percent
sales tax used to support payments to Local Government Assistance Corporation
(see Local Government Assistance Corporation within). Transfers from other
funds are expected to total approximately $2.02 billion, or $99 million more
than total receipts from this category during 1998-1999. Total transfers of
sale taxes in excess of LGAC debt service requirements are expected to increase
by approximately $93 million, while transfers from all other funds are expected
to increase by $6 million.

Miscellaneous receipts include investment income, abandoned property receipts,
medical provider assessments, minor federal grants, receipts from public
authorities, and certain other license and fee revenues. Miscellaneous receipts
are expected to total $1.36 billion in the 1999-2000 fiscal year, down $142
million from the prior year amount. This reflects the loss of non-recurring
receipts received in the 1998-1999 fiscal year and the growing effects of the
phase-out of the medical provider assessments, scheduled to be eliminated in
January 2000.

Other taxes include the estate and gift tax, the real property gains tax and
pari-mutuel taxes. Taxes in this category are projected to total $1 billion for
1999-2000, $137 million below the 1998-1999 level. The primary factors
accounting for most of the expected decline include: an adverse tax tribunal
decision resulting in significant refunds of the now repealed real property
gains tax; pari-mutuel tax reductions enacted with the 1999-2000 budget; and
the effects of already enacted reductions in the estate and gift taxes.

Non-recurring Resources. The State Division of the Budget estimates that the
1999-2000 State Financial Plan contains actions that provide non-recurring
resources or savings totaling approximately $500 million, or 1.3 percent of
General Fund resources, the largest of which is the first phase of the
privatization of the Medical Malpractice Insurance Association. To the greatest
extent possible, one-time resources are expected to be utilized to finance
one-time costs, including Year 2000 compliance costs and certain capital
spending.

Disbursements. Grants to Local Governments is projected to constitute
approximately 68.5 percent of all 1999-2000 fiscal year General Fund
disbursements, and include payments to local governments, non-profit providers
and entitlement benefits to individuals. It is projected to be approximately
$25.62 billion for the 1999-2000 fiscal year, an increase of $926 million or
3.68 percent from the level for the 1998-1999 fiscal year. Under the 1999-2000
enacted budget, General Fund spending on school aid is projected at $10.52
billion on a State fiscal year basis, an increase of $831 million from the
prior year. Spending for Medicaid in 1999-2000 is projected to total $5.53
billion, essentially unchanged from the 1998-1999 fiscal year. Disbursements
for all other health and social welfare programs are projected to total
approximately $2.68 billion, a decrease of $252 million. Lower welfare
spending, driven by State and federal reforms and a robust economy, accounts
for most of the decline.

State Operations is projected to constitute approximately 18.4 percent of all
1999-2000 fiscal year General Fund disbursements. State Operations reflects the
costs of running the Executive, Legislative and Judicial branches of
government, including the prison system, mental hygiene institutions, and the
State University system (SUNY). It is projected to be approximately $6.85
billion for the 1999-2000 fiscal year. Personal service costs account for
approximately 73 percent of spending in this category. Spending in this
category is projected to increase by $181 million or 2.7 percent above
1998-1999. The growth reflects $100 million reserved to fund new collective
bargaining agreements, including the contract ratified by the United University
Professionals. The annualized costs of current collective bargaining
agreements, growth in the Legislative and Judiciary budgets, and staffing costs
for the State's Year 2000 compliance programs also contribute to the
year-to-year growth in spending. The State's overall workforce is projected to
remain stable at approximately 191,300 persons.

General State Charges is projected to constitute approximately 5.5 percent of
all 1999-2000 fiscal year General Fund disbursements. This category accounts
primarily for the costs of providing fringe benefits to State employees and
retirees of the Executive, Legislature and Judiciary. It includes employer
contributions for pensions, social security, health insurance, workers'
compensation and unemployment insurance. This category also covers State
payments-in-lieu of-taxes to local governments for certain State-owned lands,
and the costs of defending lawsuits against the State and its public officers.
Disbursements in this category are estimated at $2.04 billion for the 1999-2000
fiscal year, a decrease of $222 million from the 1998-1999 fiscal year.
Transfers to Other Funds from the General Fund are made primarily to finance
certain portions of State capital projects spending and debt service on
long-term bonds where these costs are not funded from other sources. State Debt
Service is projected to constitute approximately 6.1 percent of all 1999-2000
fiscal year General Fund disbursements. Capital/Other is projected to
constitute approximately 1.5 percent of all such General Fund disbursements.
Long-term debt service transfers are projected at $2.27 billion in the
1999-2000 fiscal year, an increase of $183 million from 1998-1999. Transfers
for capital projects are projected to total $168 million in 1999-2000, a
decline of $78 million from the 1998-1999 fiscal year which is primarily due to
the delay of the receipt of payment of certain reimbursements in the 1998-1999
fiscal year.

Future Fiscal Years. State law requires the Governor to propose a balanced
budget each year. Preliminary analysis by the State Division of the Budget
indicates that the State will have a 2000-2001 fiscal year budget gap of
approximately $1.9 billion, or about $300 million above the 1999-2000 Executive
Budget estimate (after adjusting for the projected costs of collective
bargaining). This estimate includes an assumption of the projected costs of new
collective bargaining agreements, $500 million in assumed operating
efficiencies, as well as the planned application of approximately $615 million
of the $1.82 billion tax reduction reserve. In recent years, the State has
closed projected budget gaps which the State Division of the Budget estimates
at $5.0 billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and
less than $1 billion (1998-99).

The 1999-2000 Financial Plan has reserved $100 million for collective
bargaining agreements, and reserves are contained in the preliminary outyear
projection for 2000-2001 to cover the recurring costs of new agreements. To the
extent these reserves are inadequate to finance such agreements, the costs of
new labor contracts could increase the size of future budget gaps. Sustained
growth in the State's economy could contribute to closing projected budget gaps
over the next several years, both in terms of higher-than-projected tax
receipts and in lower-than-expected entitlement spending. The State assumes
that the 2000-2001 Financial Plan will achieve $500 million in savings from
initiatives by state agencies to deliver services more efficiently, workforce
management efforts, maximization of federal and non-General Fund spending
offsets, and other actions necessary to help bring projected disbursements and
receipts into balance. The projections do not assume any gap-closing benefit
from the settlement of State claims against the tobacco industry.

Special Considerations. Many complex political, social and economic forces
influence the State's economy and finances, which may in turn affect the
State's Financial Plan. These forces may affect the State unpredictably from
fiscal year to fiscal year and are influenced by governments, institutions, and
events that are not subject to the State's control. The Financial Plan is also
necessarily based upon forecasts of national and State economic activity.
Economic forecasts have frequently failed to predict accurately the timing and
magnitude of changes in the national and State economies.

Many uncertainties exist in forecasts of both the national and the State
economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, the condition of the financial
sector, Federal fiscal and monetary policies, the level of interest rates, and
the condition of the world economy, which could have an adverse effect on the
State. There can be no assurance that the State economy will not experience
results in the current or any future fiscal year that are worse than predicted,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.

Projections of total State receipts in the State Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, potential collective bargaining
agreements, levels of disbursements for various services provided by local
governments (where the cost is partially reimbursed by the State), and the
results of various administrative and statutory mechanisms in controlling
disbursements for State operations.

An additional risk to the State Financial Plan arises from the potential impact
of certain litigation and of federal disallowances now pending against the
State, which could adversely affect the State's projections of receipts and
disbursements. The State Financial Plan assumes no significant litigation or
federal disallowance or other federal actions that could affect State finances,
but has significant reserves in the event of such an action.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996
created a new Temporary Assistance to Needy Families program (TANF) partially
funded with a fixed federal block grant to states. States are required to meet
work activity participation targets for their TANF caseload and conform with
certain other federal standards or face potential sanctions in the form of a
reduced federal block grant and increased State/local funding requirements. Any
future reduction could have an adverse impact on the State's Financial Plan.
However, the State has been able to demonstrate compliance with TANF work
requirements to mid-year 1999-2000 and did not at such time expect to be
subject to associated federal fiscal penalties.

Despite recent budgetary surpluses recorded by the State, actions affecting the
level of receipts and disbursements, the relative strength of the State and
regional economy, and actions by the Federal Government could impact projected
budget gaps for the State. To address a potential imbalance in any given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the State Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in any given fiscal year or to align recurring receipts and
disbursements in any given fiscal year.

To help guard against these risks, the State has projected reserves of $2.4
billion in the 1999-2000 fiscal year.

Effective January 1, 1997, the Health Care Reform Act (HCRA) moved the hospital
industry into a competitive market system by allowing most non-governmental
payors to negotiate reimbursement directly with hospitals. HCRA continued the
New York Prospective Hospital Reimbursement Methodology (NYPHRM) rate setting
system for Medicaid.

HCRA legislation is scheduled to expire on December 31, 1999. It is anticipated
that the State Legislature will convene a special session prior to that date to
enact successor HCRA legislation. Since successor legislation has yet to be
adopted, its impact on the State Financial Plan, if any, is unknown at the time
of the State's mid-year 1999-2000 update. Year 2000 Computer Matters (as of
November 5, 1999). New York State is currently addressing "Year 2000" ("Y2K")
data processing compliance issues. Since its inception, the computer industry
has used a two-digit date convention to represent the year. In the year 2000,
the date field will contain "00" and, as a result, many computer systems and
equipment may not be able to process dates properly or may fail since they may
not be able to distinguish between the years 1900 and 2000. The Y2K issue not
only affects computer programs, but also the hardware, software and networks on
which they operate. In addition, any system or equipment that is dependent on
an embedded chip, such as telecommunication equipment and security systems, may
also be adversely affected.

In April 1999 the State Comptroller released an audit on the State's Y2K
compliance. The audit, which reviewed the State's Y2K compliance activities
through October 1998, found that the State had made progress in achieving Y2K
compliance, but needed to improve its activities in several areas, including
data interchanges and contingency planning.

The Office for Technology ("OFT") will continue to monitor compliance progress
for the State's mission-critical and high-priority systems. OFT submitted a
final quarterly compliance progress report to the Governor's Office for the
quarter ending September 30, 1999. Monthly exception reporting for the
remainder of 1999 will replace the quarterly reports. Mission-critical systems
are those that may impact the public health, safety and welfare of the State
and its citizens, and for which failure could have a material and adverse
impact on State operations. High-priority systems are critical for a State
agency to fulfill its mission or deliver services. OFT reported that as of
September 1999, the State's mission-critical systems were 100 percent
compliant; 93 percent of the overall compliance effort on the high-priority
systems was completed; and 269 systems were Y2K compliant. The State has also
procured independent validation and verification services from a qualified
vendor to perform an automated review of code that has been fixed and a testing
review process for all mission-critical systems was completed in October 1999.
Overall the vendor noted that New York State agencies had followed and
implemented several best practices and therefore the vendor made very few
process recommendations and only a few significant code check issues (.01% of
the code), were remaining after agency reviews of the independent validation
and verification services.

The State is also addressing a number of issues related to Y2K compliance,
including: testing all data exchange interfaces with Federal, State, local and
private data partners for critical systems (as of September 1999, 98% of data
exchanges were done); completing compliance work of priority equipment and
systems that may depend on embedded chips (as of September 1999, 82% of these
systems were compliant); and contacting critical vendors and supply partners to
obtain and monitor Y2K compliance status information and assurances. Since
problems could be identified during the compliance testing phase that could
produce compliance delays, the State agencies were required to complete
contingency plans for priority systems and business processes by the first
quarter of calendar year 1999. These plans have been completed and tested as of
June 1999 and are being integrated into the State Emergency Response Plan under
the direction of the State Emergency Management Office. As of September 1999,
46 agencies have filed their contingency plans with the State Emergency
Management Office. The Public Service Commission reported that as of September
1999, all State-regulated utilities, with the exception of a few small water
and cable companies, were ready for the Year 2000, including the existence of
comprehensive contingency plans. The State has also been working with local
governments since December 1996 to raise awareness, promote action and provide
assistance with Y2K compliance.

While the State is taking what it believes to be appropriate action to address
Y2K compliance, there can be no guarantee that all of the State's systems and
equipment will be Y2K compliant and that there will not be an adverse impact
upon State operations or finances as a result. Since Y2K compliance by outside
parties is beyond the State's control to remediate, the failure of outside
parties to achieve Y2K compliance could have an adverse impact on State
operations or finances as well.

Prior Fiscal Years (GAAP-Basis). GAAP requires fund accounting for all
government resources and the modified accrual basis of accounting for measuring
the financial position and changes therein of governmental funds. The modified
accrual basis of accounting recognizes revenues when they become measurable and
available to finance expenditures, and expenditures when a liability to pay for
goods or services is incurred or a commitment to make aid payments is made,
regardless of when actually paid. There are four GAAP-defined Governmental Fund
types. The General Fund is the major operating fund of the State and receives
all receipts that are not required by law to be deposited in another fund. Debt
Service Funds account for the accumulation of resources for the payment of
general long-term debt service and related costs and payments under
lease-purchase and contractual-obligation financing arrangements. Capital
Project Funds account for financial resources of the State to be used for the
acquisition or construction of major capital facilities (other than those
financed by Special Revenue Funds, Proprietary Funds and Fiduciary Funds).
Special Revenue Funds account for the proceeds of specific revenue sources
(other than expendable trusts or major capital projects), such as Federal
grants, that are legally restricted to specified purposes.

The State completed its 1998-1999 fiscal year with a combined governmental
funds operating surplus of $1.32 billion, which included operating surpluses in
the General Fund ($1.078 billion), in the Debt Service Funds ($209 million) and
in the Capital Projects Funds ($154 million) offset, in part, by an operating
deficit in Special Revenue Funds ($117 million). The State reported an
accumulated surplus of $1.645 billion in the General Fund.

The State completed its 1997-1998 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus
in the General Fund of $1.56 billion, in Capital Projects Funds of $232 million
and in Special Revenue Funds of $49 million, offset in part by an operating
deficit of $43 million in Debt Service Funds. The State reported an accumulated
surplus of $567 million in the General Fund for the first time since it began
reporting its operations on a GAAP-basis.

The State completed its 1996-1997 fiscal year with a combined Governmental
Funds operating surplus of $2.1 billion, which included an operating surplus in
the General Fund of $1.9 billion, in the Capital Projects Funds of $98 million
and in the Special Revenue Funds of $65 million, offset in part by an operating
deficit of $37 million in the Debt Service Funds. The State reported an
accumulated deficit of $995 million in the General Fund.

Prior Fiscal Years (Cash Basis). Cash basis accounting results in the recording
of receipts at the time money or checks are deposited in the State Treasury and
the recording of disbursements at the time a check is drawn, regardless of the
fiscal period to which the receipts or disbursements relate.

The State ended its 1998-1999 fiscal year on March 31, 1999 in balance on a
cash basis, with a General Fund cash surplus as reported by the State Division
of the Budget of $1.82 billion. The cash surplus was derived primarily from
higher-than-projected tax collections as a result of continued economic growth,
particularly in the financial markets and the securities industries. General
Fund receipts and transfers from other funds (net of tax refund reserve account
activity) for the 1998-1999 fiscal year totaled $36.74 billion, an increase of
6.34 percent from the 1997-1998 fiscal year levels. General Fund disbursements
and transfers to other funds totaled $36.49 billion for the 1998-1999 fiscal
year, an increase of 6.23 percent from the 1997-1998 fiscal year levels.

The State reported a General Fund closing cash balance of $892 million. The
closing fund balance excludes $2.31 billion that the State deposited into the
tax refund reserve account at the close of the 1998-1999 fiscal year to pay for
tax refunds in the 1999-2000 fiscal year. The tax refund reserve account
transaction has the effect of decreasing reported personal income tax receipts
in the 1998-1999 fiscal year, while increasing reported receipts in the
1999-2000 fiscal year.

The State ended its 1997-1998 fiscal year balanced on a cash basis, with a
reported General Fund cash surplus of $2.04 billion resulting from revenue
growth and lower spending on welfare, Medicaid, and other entitlement programs.
General Fund receipts and transfers from other funds for the 1997-1998 fiscal
year (including net tax refund reserve account activity) totaled $34.55
billion, an annual increase of $1.51 billion, or 4.57 percent over the
1996-1997 fiscal year. General Fund disbursements and transfers to other funds
were $34.35 billion, an annual increase of $1.45 billion or 4.41 percent. The
State closed a budget gap of approximately $2.3 billion for the 1997-1998
fiscal year. Gap-closing actions included cost containment in State Medicaid,
the use of the $1.4 billion 1996-1997 fiscal year budget surplus to finance
1997-1998 fiscal year spending, control on State agency spending and other
actions.

The State ended its 1996-1997 fiscal year balanced on a cash basis, with a
1996-1997 General Fund cash surplus as reported by the State Division of the
Budget of approximately $1.4 billion that was used to finance the 1997-1998
Financial Plan. The surplus resulted primarily from higher-than-expected
revenues and lower-than-expected spending for social service programs. General
Fund receipts and transfers from other funds for the 1996-1997 fiscal year
totaled $33.04 billion, an increase of 0.7 percent from the 1995-1996 fiscal
year (excluding deposits into the tax refund reserve account). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-1997 fiscal year, an increase of 0.7 percent from the 1995-1996 fiscal
year.

Local Government Assistance Corporation. In 1990, as part of a State fiscal
reform program, legislation was enacted creating the Local Government
Assistance Corporation (the "LGAC"), a public benefit corporation empowered to
issue long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation imposed a cap on the annual seasonal borrowing of the State at $4.7
billion, except in cases where the Governor and the legislative leaders have
certified the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth
fiscal year after the limit was first exceeded. This provision capping the
seasonal borrowing was included as a covenant with LGAC's bondholders in the
resolutions authorizing such bonds. As of June 1995, LGAC had issued bonds to
provide net proceeds of $4.7 billion, completing the program. The impact of
LGAC's borrowing, as well as other changes in revenue and spending patterns, is
that the State has been able to meet its cash flow needs throughout the fiscal
year without relying on short-term seasonal borrowing.

Financing Activities. State financing activities include general obligation
debt of the State and State-guaranteed debt, to which the full faith and credit
of the State has been pledged, as well as lease-purchase and
contractual-obligation financings, moral obligation financings and other
financings through public authorities and municipalities, where the State's
obligation to make payments for debt service is generally subject to annual
appropriation by the State Legislature. As of March 31, 1999, the total amount
of outstanding general obligation debt was approximately $4.825 billion,
including $185 million in bond anticipation notes. The total amount of moral
obligation debt was $629 million (down from $1.39 billion as of March 31,
1998). $25.902 billion of bonds issued primarily in connection with
lease-purchase and contractual-obligation financing of State capital programs
were outstanding.

For purposes of analyzing the financial condition of the State, debt of the
State and of certain public authorities may be classified as State-supported
debt, which includes general obligation debt of the State, LGAC debt and lease
purchase and contractual obligations of public authorities (and municipalities)
where debt service is paid from State appropriations (including dedicated tax
sources, and other revenues such as patient charges and dormitory facilities
rentals). In addition, a broader classification, referred to as State-related
debt, includes State-supported debt, as well as certain types of contingent
obligations, including moral obligation financing, certain contingent
contractual-obligation financing arrangements, and State-guaranteed debt, where
debt service is expected to be paid from other sources and State appropriations
are contingent in that they may be made and used only under certain
circumstances.

The total amount of State-supported debt outstanding grew from 3.48 percent of
personal income in the State in the 1989-1990 fiscal year to 6.21 percent for
the 1998-1999 fiscal year while State-related debt outstanding remained
relatively stable at 6.53 percent of personal income for the same period. Thus,
State-supported debt grew at a faster rate than personal income while
State-related obligations grew at approximately the same rate. At the end of
the 1998-1999 fiscal year, there was $37.74 billion of outstanding
State-related debt and $35.84 billion of outstanding State-supported debt.

During the prior ten years, State-supported long-term debt service increased on
an average annual basis by 8.8 percent to $3.39 billion by the 1998-1999 fiscal
year while all governmental funds receipts increased on an average annual basis
of 5.3 percent. This resulted in a general trend of increases in the ratio of
debt service to receipts from fiscal year 1989-1990 to fiscal year 1998-1999.

Public Authorities. The fiscal stability of the State is related, in part, to
the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurring of debt which apply
to the State itself, and may issue bonds and notes within the amounts of, and
as otherwise restricted by, their legislative authorization. As of December 31,
1998, there were 17 public authorities that had outstanding debt of $100
million or more, and the aggregate outstanding debt, including refunding bonds,
of all State public authorities was $94 billion, up from $84 billion as of
December 31, 1997. The State's access to the public credit markets could be
impaired and the market price of its outstanding debt may be adversely affected
if any of its public authorities were to default on their respective
obligations.

Ratings. As of June 15, 1999, Moody's and Standard & Poor's rated the State's
outstanding general obligation bonds A2 and A, respectively. Standard & Poor's
revised its ratings upward from A- to A on August 28, 1997. Ratings reflect
only the respective views of such organizations, and explanation of the
significance of such ratings must be obtained from the rating agency furnishing
the same. There is no assurance that a particular rating will continue for any
given period of time or that any such rating will not be revised downward or
withdrawn entirely if, in the judgment of the agency originally establishing
the rating, circumstances so warrant. A downward revision or withdrawal of such
ratings may have an effect on the market price of the New York Municipal
Obligations in which the Fund invests.

Litigation. The State is a defendant in numerous legal proceedings including,
but not limited to, claims asserted against the State arising from alleged
torts, alleged breaches of contracts, condemnation proceedings and other
alleged violations of State and Federal laws. State programs are frequently
challenged on State and Federal constitutional grounds. Adverse developments in
legal proceedings or the initiation of new proceedings could affect the ability
of the State to maintain a balanced State Financial Plan in any given fiscal
year. There can be no assurance that an adverse decision in one or more legal
proceedings would not exceed the amount the State reserves for the payment of
judgments or materially impair the State's financial operations. In its audited
financial statements for the fiscal year ended March 31, 1999, the State
reported its estimated liability for awarded and anticipated unfavorable
judgments at $895 million.

Other Localities. Certain localities outside the City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State
of such actions by localities is not included in the projections of the State
receipts and disbursements for the State's 1999-2000 fiscal year.

In 1997, the total indebtedness of all localities in the State, other than the
City, was approximately $21.0 billion. A small portion (approximately $80
million) of that indebtedness represented borrowing to finance budgetary
deficits and was issued pursuant to enabling State legislation.

<PAGE>

APPENDIX C
ECONOMIC AND FINANCIAL CONDITIONS IN PENNSYLVANIA

The following information is a brief summary of factors affecting the economy
of the Commonwealth of Pennsylvania and does not purport to be a complete
description of such factors. Other factors will affect issuers. The summary is
based upon one or more of the most recent publicly available offering
statements relating to debt offerings of Pennsylvania issuers. The Trust has
not independently verified the information.

Many factors affect the financial condition of the Commonwealth of Pennsylvania
(also referred to herein as the "Commonwealth") and its political subdivisions,
such as social, environmental and economic conditions, many of which are not
within the control of such entities. Pennsylvania and certain of its counties,
cities and school districts and public bodies (most notably the City of
Philadelphia, sometimes referred to herein as the "City") have from time to
time in the past encountered financial difficulties which have adversely
affected their respective credit standings. Such difficulties could affect
outstanding obligations of such entities, including obligations held by the
Fund.

The General Fund, the Commonwealth's largest fund, receives all tax revenues,
non-tax revenues and Federal grants and entitlements that are not specified by
law to be deposited elsewhere. The majority of the Commonwealth's operating and
administrative expenses are payable from the General Fund. Debt service on all
bonded indebtedness of the Commonwealth, except that issued for highway
purposes or for the benefit of other special revenue funds, is payable from the
General Fund.

The five-year period ending with fiscal year 1998 was a time of economic growth
with modest growth rates at the beginning of the period and faster increases
during the most recent years. Throughout the period, inflation has remained
relatively low, helping to restrain expenditure growth. Favorable economic
conditions have helped total revenues and other sources rise at an annual
average 4.2% rate during the five-year period. The annual growth rate for taxes
of 4.3% almost matched the total revenue rate. Expenditures and other uses
during the fiscal 1994 through fiscal 1998 period rose at a 3.8% average rate,
led by a 10.2% average increase for protection of person and property costs.

On a generally accepted accounting principles ("GAAP") basis, revenues and
other sources from fiscal 1994 through fiscal 1998 increased by an average of
5% annually. Expenditures and other uses during this period rose at an average
annual rate of 5%.

The fund balance at June 30, 1998 (determined on a "GAAP" basis) totaled
$1,958.9 million, a $594 million increase over the $1,364.9 million balance at
June 30, 1997.

The unappropriated balance of Commonwealth revenues increased during the 1997
fiscal year by $432.9 million to $591.4 million (prior to reserves for transfer
to the Tax Stabilization Reserve Fund) at the close of the fiscal year. Higher
than estimated revenues and slightly lower expenditures than budgeted caused
the increase. Transfers to the Tax Stabilization Reserve Fund for fiscal 1997
operations were $188.7 million representing the normal 15% of the ending
unappropriated balance, plus an additional $100 million authorized by the
General Assembly when it enacted the fiscal 1998 budget.

Commonwealth revenues (prior to tax refunds) during the fiscal year totaled
$17,320.6 million, $576.1 million (3.4%) above the estimate made at the time
the budget was enacted. Revenue from taxes was the largest contributor to
higher than estimated receipts. Tax revenue in fiscal 1997 grew 6.1% over tax
revenues in fiscal 1996. This rate of increase is not adjusted for legislated
tax reductions that affected receipts during both of those fiscal years and
therefore understates the actual underlying rate of growth of tax revenue
during fiscal 1997. Non-tax revenues were $19.8 million (5.8%) over estimate
mostly due to higher than anticipated interest earnings.

Expenditures from Commonwealth revenues (excluding pooled financing
expenditures) during fiscal 1997 totaled $16,347.7 million. Total expenditures
represent an increase over fiscal 1996 expenditures of 1.7%. Lapses of
appropriation authority during the fiscal year totaled $200.6 million compared
to an estimate of $100 million. The higher amount of appropriation lapses was
used to support $79.8 million in fiscal 1997 supplemental appropriations over
those proposed in February. Supplemental appropriations for fiscal 1997
totaled $169.3 million.

For GAAP purposes, assets increased $563.4 million and liabilities declined
$166.3 million to produce a $729.7 million increase in the fund balance at June
30, 1997. Total revenues and other sources rose 3.5% for fiscal 1997. An
increase of 5.5% in tax revenue aided by an improving state economy was
partially offset by a $175.2 million decline in intergovernmental revenues.
Expenditures and other uses increased by 1% for the fiscal year.

Operations during the 1998 fiscal year increased the unappropriated balance of
Commonwealth revenues during that period by $86.4 million to $488.7 million at
June 30, 1998 (prior to reserves for transfer to the Tax Stabilization Reserve
Fund). Higher than estimated revenues, offset in part by increased reserves for
tax refunds, and by slightly lower expenditures than budgeted were responsible
for the increase. Transfers to the Tax Stabilization Reserve Fund for fiscal
1998 operations total $223.3 million consisting of $73.3 million representing
the required transfer of fifteen percent of the ending unappropriated surplus
balance, plus an additional $150 million authorized by the General Assembly
when it enacted the fiscal 1999 budget. With these transfers, the balance in
the Tax Stabilization Reserve Fund exceeds $668 million and represents 3.7% of
fiscal 1998 revenues.

Commonwealth revenues (prior to tax refunds) during the fiscal year totaled
$18,123.2 million, $676.1 million (3.9%) above the estimate made at the time
the budget was enacted. Tax revenue received in fiscal 1998 grew 4.8% over tax
revenues received during fiscal 1997. This rate of increase includes the effect
of legislated tax reductions that affected receipts during both fiscal years
and therefore understates the actual underlying rate of growth of tax revenue
during fiscal 1998. Receipts from the personal income tax produced the largest
single component of higher revenues during fiscal 1998.

Expenditures from all fiscal 1998 appropriations of Commonwealth revenues
totaled $17,229.8 million (excluding pooled financing expenditures and net of
current year lapses). This amount represents an increase of 4.5% over fiscal
1997 appropriation expenditures. Lapses of appropriation authority during the
fiscal year totaled $161.8 million including $58.8 million from fiscal 1998
appropriations. These appropriation lapses were used to fund $120.5 million of
supplemental fiscal 1998 appropriations.

Reserves established during fiscal 1998 for tax refunds totaled $910 million.
This amount is a $370 million increase over tax refund reserves for fiscal 1997
representing an increase of 68.5%. The fiscal 1998 amount includes a one-time
addition intended to fund all fiscal 1998 tax refund liabilities, including
that portion to be paid during fiscal 1999. In prior fiscal years, tax refunds
generally were budgeted for the year in which the disbursement was anticipated
to occur. This change in the recognition of tax refund liabilities on a
budgetary basis helped eliminate the negative difference between the budgetary
basis unappropriated balance and the GAAP basis unreserved -undesignated
balance (when computed) for the 1998 fiscal year.

For GAAP purposes, assets increased $705.1 million and liabilities rose by
$111.1 million during the fiscal year. These changes contributed to a $310.3
million dollar rise in the undesignated-unreserved balance for June 30, 1998 to
$497.6 million, the highest level achieved since audited GAAP reporting was
instituted in 1994. Fiscal 1998 total revenues and other sources rose 4.3%.
Expenditures and other uses during fiscal 1998 rose by 4.5%

The 1999 fiscal year ended with an unappropriated surplus (prior to the
transfer to the Tax Stabilization Reserve Fund) of $702.9 million, an increase
of $214.2 million from June 30, 1998. Transfers to the Tax Stabilization
Reserve Fund total $255.4 million for fiscal year 1999 consisting of $105.4
million representing the statutory 15% of the fiscal year-end unappropriated
surplus and an additional $150 million from the unappropriated surplus
authorized by the General Assembly. The $447.5 million balance of the
unappropriated surplus was carried over to fiscal year 2000. The higher
unappropriated surplus was generated by tax revenues that were $712.0 million
(3.9%) above estimate (after tax reductions enacted with the 1999 fiscal year
budget that were estimated to be $241.0 million) and $61.0 million of non-tax
revenue (18.4%) above estimate. Higher than anticipated appropriation lapses
also contributed to the higher surplus. A portion of the higher revenues and
appropriation lapses were used for supplemental fiscal 1999 appropriations
totaling $357.8 million. These supplemental appropriations represent expected
one-time obligations. Including the supplemental appropriations and net of
appropriation lapses, expenditures for fiscal 1999 totaled $18,144.9 million, a
5.9% increase over expenditures during fiscal 1998. Appropriations enacted for
fiscal 1999 when the budget was originally adopted were 4.1% ($713.2 million)
above the appropriations enacted for fiscal 1998 (including supplemental
appropriations).

Reserves for tax refunds for fiscal 1999 were raised during the fiscal year to
$644.0 million, a $39.2 million increase over the budget as enacted. Reserves
for tax refunds for fiscal 1999 are $266.0 million below the reserve
established for fiscal 1998. The fiscal 1998 amount includes a one-time
addition intended to fund all fiscal 1998 tax refund liabilities, including
that portion to be paid during fiscal 1999.

The General Fund budget for the 2000 fiscal year was approved by the General
Assembly in May 1999. The adopted budget includes estimated spending of
$19,061.5 million and estimated revenues (net of estimated tax refunds and
enacted tax changes) of $18,699.9 million. Funds to cover the $361.6 million
difference between estimated revenues and projected spending will be obtained
from a draw down of the projected fiscal 1999 year-end balance. The level of
proposed spending represents an increase of 3.8% over revised spending
authorized for fiscal 1999 of $18,367.5 million. Enacted tax changes effective
for fiscal 2000 total a net reduction of $380.2 million for the General Fund.

The estimate of Commonwealth revenues for fiscal year 1999 is based on an
economic forecast for real gross domestic product to grow at a 1.4% rate from
the second quarter of 1999 to the second quarter of 2000. Growth of real gross
domestic product is expected to be restrained by a slowing of the rate of
consumer spending to a level consistent with personal income gains and by
smaller gains in business investment in response to falling capacity
utilization and profits. Slowing economic growth is expected to cause the
unemployment rate to rise through the fiscal year but inflation is expected to
remain moderate. Trends for the Pennsylvania economy are expected to maintain
their close association with national economic trends. Personal income growth
is anticipated to remain slightly below that of the U.S. while the Pennsylvania
unemployment rate is anticipated to be very close to the national rate.

Commonwealth revenues (excluding the estimated cost of the enacted tax
reductions) are projected to increase by 2.8% over fiscal 1999 receipts.
Appropriations from Commonwealth funds are budgeted to increase by 3.8% over
revised fiscal 1999 appropriations.

According to a Pennsylvania Department of Revenue News Release dated September
30, 1999, the state collected $1.8 billion in General Fund revenues in
September 1999, $55.2 million (3.2%) more than anticipated. Fiscal year-to-date
General Fund collections total $4.3 billion, which is $76 million (2.1%) more
than anticipated. Pennsylvania has historically been identified as a heavy
industry state although that reputation has changed over the last thirty years
as the coal, steel and railroad industries declined and the Commonwealth's
business environment readjusted to reflect a more diversified industrial base.
This economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation. Currently,
the major sources of growth in Pennsylvania are in the service sector,
including trade, medical and the health services, education and financial
institutions.

Nonagricultural employment in Pennsylvania over the ten year period that ended
in 1998 increased at an annual rate of 0.75%. This compares to a 0.29% rate for
the Middle Atlantic region and a 1.72% rate for the United States as a whole
during the period 1989 through 1998. For the five years ended with 1998,
employment in the Commonwealth has increased 7.0%. The growth in employment
during this period is higher than the 2.7% growth in the Middle Atlantic
region. The unemployment rate in Pennsylvania for August 1999 stood at a
seasonably adjusted rate of 4.5%. The seasonably adjusted national unemployment
rate for August 1999 was 4.2%.

The current Constitutional provisions pertaining to Commonwealth debt permit
the issuance of the following types of debt: (i) debt to suppress insurrection
or rehabilitate areas affected by disaster, (ii) electorate-approved debt,
(iii) debt for capital projects subject to an aggregate debt limit of 1.75
times the annual average tax revenues of the preceding five fiscal years and
(iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.

Debt service on all bonded indebtedness of Pennsylvania, except that issued for
highway purposes or the benefit of other special revenue funds, is payable from
Pennsylvania's General Fund, which receives all Commonwealth revenues that are
not specified by law to be deposited elsewhere. As of June 30, 1999, the
Commonwealth had $4,924.5 million of general obligation debt outstanding.

Other state-related obligations include "moral obligations." Moral obligation
indebtedness may be issued by the Pennsylvania Housing Finance Agency (the
"PHFA"), a state-created agency which provides financing for housing for lower
and moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally retarded. PHFA's bonds, but
not its notes, are partially secured by a capital reserve fund required to be
maintained by PHFA in an amount equal to the maximum annual debt service on its
outstanding bonds in any succeeding calendar year. PHFA is not permitted to
borrow additional funds as long as any deficiency exists in the capital reserve
fund.

The Commonwealth, through several of its departments and agencies, leases real
property and equipment. Some of those leases and their respective lease
payments are, with the Commonwealth's approval, pledged as security for debt
obligations issued by certain public authorities or other entities within the
state. All lease payments payable by Commonwealth departments and agencies are
subject to and dependent upon an annual spending authorization approved through
the Commonwealth's annual budget process. The Commonwealth is not required by
law to appropriate or otherwise provide monies from which the lease payments
are to be made. The obligations to be paid from such lease payments are not
bonded debt of the Commonwealth.

Certain Commonwealth-created organizations have statutory authorization to
issue debt for which Commonwealth appropriations to pay debt service thereon
are not required. The debt of these organizations is funded by assets of, or
revenues derived from, the various projects financed and is not a statutory or
moral obligation of the Commonwealth. Some of these agencies, however, are
indirectly dependent on Commonwealth operating appropriations. In addition, the
Commonwealth may choose to take action to financially assist these
organizations. The Commonwealth also maintains pension plans covering all state
employees, public school employees and employees of certain state-related
organizations.

The Pennsylvania Intergovernmental Cooperation Authority (the "PICA") was
created by Commonwealth legislation in 1991 to assist Philadelphia in remedying
fiscal emergencies, was enacted by the Pennsylvania General Assembly and
approved by the Governor in June 1991. PICA is designed to provide assistance
through the issuance of funding debt and to make factual findings and
recommendations to Philadelphia concerning its budgetary and fiscal affairs. At
this time, Philadelphia is operating under a five year fiscal plan approved by
PICA on June 9, 1998. No further bonds are to be issued by PICA for the purpose
of financing a capital project or deficit as the authority for such bond sales
expired on December 31, 1994. PICA's authority to issue debt for the purpose of
financing a cash flow deficit expired on December 31, 1996. Its ability to
refund existing outstanding debt is unrestricted. PICA had $1,014.1 million in
Special Revenue bonds outstanding as of June 30, 1999.

There is various litigation pending against the Commonwealth, its officers and
employees. In 1978, the Pennsylvania General Assembly approved a limited waiver
of sovereign immunity. Damages for any loss are limited to $250,000 for each
person and $1 million for each accident. The Supreme Court held that this
limitation is constitutional. Approximately 3,500 suits against the
Commonwealth remain open.

The following are among the cases with respect to which the Office of Attorney
General and the Office of General Counsel have determined that an adverse
decision may have a material effect on government operations of the
Commonwealth:

Dom Giordano v. Tom Ridge, Governor, et al.
In February 1999, Dom Giordano, filed a petition for review requesting the
Commonwealth Court declare that Chapter 5 (relating to sports facilities
financing) of the Capital Facilities Debt Enabling Act ("the Act") violates the
Pennsylvania Constitution. The Commonwealth Court dismissed the petitioner's
action with prejudice. The petitioner has appealed the Commonwealth Court's
ruling to the Supreme Court.

County of Allegheny v. Commonwealth of Pennsylvania

In December 1987, the Supreme Court of Pennsylvania held in County of Allegheny
v. Commonwealth of Pennsylvania, that the statutory scheme for county funding
of the judicial system is in conflict with the Pennsylvania Constitution.
However , the Supreme Court of Pennsylvania stayed its judgment to afford the
General Assembly an opportunity to enact appropriate funding legislation
consistent with its opinion and ordered that the prior system of county funding
shall remain in place until this is done.

The Court appointed a special master to devise and submit a plan for
implementation. The Interim Report of the Master recommended a four phase
transition to state funding of a unified judicial system, during each of which
specified court employees would transfer into the state payroll system. On
April 22, 1998, the General Assembly enacted the General Appropriation Act of
1998, including an appropriation to the Supreme Court of approximately $12
million for funding county court administrators. This appropriation was
designed to enable the Commonwealth to implement Phase I. Release of the
funding was delayed until substantive legislation could be enacted to
facilitate the employees' transfer to State employment. A similar appropriation
was made by the General Appropriation Act of 1999. Thereafter, on June 22,
1999, the Governor approved Act 1999-12 under which approximately 165
county-level court administrators are to become employees of the Commonwealth.
Act 12 also triggered the release of the appropriations that had been made for
this purpose in 1998 and 1999.

Bank Shares Tax Litigation

In November 1989, Fidelity Bank, N.A. ("Fidelity") filed a declaratory judgment
action in the Commonwealth Court of Pennsylvania in which Fidelity raised
various challenges to the constitutional validity of the Amended Bank Shares
Act (Act No. 1989-21) and related legislation. In 1995, Fidelity and the
Commonwealth agreed to a settlement of the issues raised by Fidelity. Under a
separate Settlement Agreement the Commonwealth settled with the intervening
banks, referred to as "New Banks," in connection with issues concerning the New
Bank Tax Credit law which were raised in an appeal to the Pennsylvania Supreme
Court.

Other banks have also filed petitions that are currently pending with the
Commonwealth Court. One of these banks, Royal Bank of Pennsylvania, filed a
Stipulation of Facts with the Court and in effect proceeded forward on behalf
of all the other banks. These appeals raise the issues that were advanced by
Fidelity, although not brought to final resolution by the Pennsylvania Supreme
Court. In January 1998, a panel of the Commonwealth Court ruled in favor of the
Commonwealth, finding no constitutional violation. Royal Bank filed exceptions
. On July 30, 1998, the Commonwealth Court , en banc, denied those exceptions.
On May 25, 1999, the Pennsylvania Supreme Court affirmed per curium the
Commonwealth Court's decision and order. No petition for certiorari was filed.
Therefore, the Royal Bank litigation has ended. However, the vast majority of
the remaining banks have exceptions pending before the Commonwealth Court or
appeals pending before the Pennsylvania Supreme Court.

Pennsylvania Association of Rural and Small Schools (PARSS) v. Ridge
In 1991, an association of rural and small schools and several parties filed a
lawsuit against the Governor and Secretary of Education, challenging the
constitutionality of the Commonwealth system for funding local school
districts. The litigation consists of two parallel cases, one in the
Commonwealth Court of Pennsylvania and one in the United States District Court
for the Middle District of Pennsylvania. The federal court case has been
indefinitely stayed pending resolution of the state court case.

Commonwealth Court held that Pennsylvania's system for funding public schools
is constitutional under both the education clause and the equal protection
clause of the Pennsylvania Constitution.

The plaintiffs appealed and asked the Supreme Court to rule as to whether the
petitioners' constitutional claims are justiciable in the courts of the
Commonwealth. The petitioners have asked the court to consider the issue in
conjunction with a separate appeal pending in another case, Marrerro v.
Commonwealth of Pennsylvania, involving the same provisions of the Constitution
and a similar issue of justiciability. On October 1, 1999, the Pennsylvania
Supreme Court affirmed the Commonwealth court decision.

Pennsylvania Human Relations Commission v. School District of Philadelphia, et
al. v. Commonwealth of Pennsylvania, et al.

In November 1995, the Commonwealth of Pennsylvania and the Governor of
Pennsylvania, along with the City of Philadelphia and the Mayor of
Philadelphia, were joined as additional respondents in an enforcement action
commenced in Commonwealth Court in 1973 by the Pennsylvania Human Relations
Commission against the School District of Philadelphia pursuant to the
Pennsylvania Human Relations Act. The enforcement action was pursued to remedy
unintentional conditions of segregation in the public schools of Philadelphia.
The Commonwealth and the City were joined in the "remedial phase" of the
proceeding "to determine their liability, if any, to pay additional costs
necessary to remedy the unlawful conditions found to exist in the Philadelphia
public schools."

In February 1996, the School District of Philadelphia filed a third-party
complaint against the Commonwealth of Pennsylvania asking the Commonwealth
Court to require the Commonwealth to supply such funding as is necessary for
full compliance with the remedial orders of the Commonwealth Court. In
addition, a group of intervenors filed a third-party complaint against the
Commonwealth of Pennsylvania and the City of Philadelphia requesting the
Commonwealth Court to require the Commonwealth and the City to supply such
additional funding as is necessary for the District to comply with the orders.

On April 30, 1996, Commonwealth Court Judge Doris A. Smith overruled the
Commonwealth's and City's preliminary objections seeking dismissal of the
claims against them. The Commonwealth and the City thereafter filed answers to
the complaints, asserting numerous defenses. The Commonwealth also asserted a
cross-claim against the City of Philadelphia claiming that if any party is
liable, sole liability rests with the City; in the alternative, the
Commonwealth argued that if it is held to be liable, it has a right of
indemnity of contribution against the City.

The Supreme Court of Pennsylvania assumed extraordinary plenary jurisdiction.
In May 1999, the Supreme Court of Pennsylvania directed that the Commonwealth,
the Governor, the City of Philadelphia and the Mayor of Philadelphia be
dismissed from the case. The Court then remanded the original matter -- an
enforcement action by the Pennsylvania Human Relations Commission against the
School District of Philadelphia to eliminate racial de facto segregation in the
public school system -- to Commonwealth Court for further proceedings. No
appeal has been filed or is expected. Thus, the Commonwealth and the Governor
are no longer parties to this case.

Ridge v. State Employees' Retirement Board

On December 29, 1993, Joseph H. Ridge, a former judge of the Allegheny Court of
Common Pleas, filed in the Commonwealth Court a Petition for Review in the
Nature of Complaint in Mandamus and for a Declaratory Judgment against the
State Employees' Retirement Board alleging that the use of gender distinct
actuarial factors for benefits based upon his pre-August 1, 1983 service
violates the equal protection and equal rights clauses of the Pennsylvania
Constitution. The lawsuit requests that the petitioner's benefits be "topped
up" to equal those that a similarly situated female would be receiving. Due to
the constitutional nature of the claim, it is possible that a decision adverse
to the Retirement Board would be applicable to other members of the State
Employees' Retirement System and Public School Employees' Retirement System.
The Commonwealth Court granted the Retirement Board's preliminary objection to
Judge Ridge's claims for punitive damages, attorney's fees and compensatory
damages (other than a recalculation of his pension benefits should he prevail).
In 1996, the Commonwealth Court heard oral arguments en banc on Judge Ridge's
motion for judgment on the pleadings. On February 13, 1997, the Commonwealth
Court denied Judge Ridge's motion for judgment on the pleadings. The case is
currently in discovery.

Yesenia Marrerro, et al. v. Commonwealth, et al.

In February 1997, five residents of the City of Philadelphia, on their own
behalf, and on behalf of their school-age children, joined by the City of
Philadelphia, the School District of Philadelphia, and two non-profit
organizations, filed in the Commonwealth Court a civil action for declaratory
judgment against the Commonwealth of Pennsylvania, the General Assembly of
Pennsylvania, the presiding officers of the General Assembly, the Governor of
Pennsylvania, the State Board of Education, the Department of Education, and
the Secretary of Education, claiming, among other things, that the statutory
education financing system is unconstitutional as applied to the School
District of Philadelphia and the system of funding public education violates
the constitutional mandate to provide a thorough and efficient system of
education in the City of Philadelphia. The lawsuit also alleges that the scheme
for financing public education precludes the Commonwealth from providing the
constitutionally required "thorough and efficient system of public education"
in the circumstances faced by the School District of Philadelphia, and that the
defendants have failed to provide the School District of Philadelphia with
resources and other assistance necessary to provide all of its students with
the quality of education to which they are constitutionally entitled. In March
1998, Commonwealth Court sustained the respondents' preliminary objections and
dismissed the case on the grounds that the issues presented are not
justiciable. An appeal to the Supreme Court of Pennsylvania is pending and
briefing is complete. The Court has indicated that it will decide the case
based on the briefs and that there will be no oral argument.

Powell v. Ridge

In March 1998, several residents of the City of Philadelphia on behalf of
themselves and their school-aged children, along with the School District of
Philadelphia, the Philadelphia Superintendent of Schools, the Chairman of the
Philadelphia Board of Education, the City of Philadelphia, the Mayor of
Philadelphia, and several membership organizations interested in the
Philadelphia public schools, brought suit in the United States District Court
for the Eastern District of Pennsylvania against the Governor, the Secretary of
Education, the chairman of the State Board of Education, and the State
Treasurer. The plaintiffs claim that the Commonwealth's system for funding
public schools has the effect of discriminating on the basis of race and
violates Title VI of the Civil Rights Act of 1964. The plaintiffs asked the
court to declare the funding system to be illegal, to enjoin the defendants
from violating the regulation in the future and to award counsel fees and
costs.

The Philadelphia Federation of Teachers intervened on the side of the
plaintiffs, while several leaders of the Pennsylvania General Assembly
intervened on the side of the defendants. In addition, the U.S. Department of
Justice intervened to defend against a claim made by the legislator intervenors
that a statute waiving states' immunity under the Eleventh Amendment to the
U.S. Constitution for Title VI claims is unconstitutional.

The District Court found that the plaintiffs had failed to state a claim under
the Title VI regulation at issue or under 42 U.S.C. sec.1983 and dismissed the
action in its entirety with prejudice. The plaintiffs appealed. In August 1999,
the U.S. Court of Appeals for the Third Circuit reversed the District Court's
dismissal of the action and remanded the case for further proceedings including
the filing of an answer. The defendants and legislator intervenors have filed
petitions for writ of certiorari with the U.S. Supreme Court.

Rite Aid of Pennsylvania, Inc. v. Houston

In March 1997, Rite Aid of Pennsylvania, Inc. (Rite Aid) filed in the U.S.
District Court for the Eastern District of Pennsylvania a civil action against
the Secretary of Public Welfare (Secretary). In its complaint, Rite Aid alleged
that in promulgating regulations on October 1, 1995 governing payment rates for
prescription drugs and related services provided to recipients of benefits
under the Pennsylvania Medical Assistance Program (Medicaid), the Secretary
violated various provisions of Title XIX of the Social Security Act (commonly
known as the Medicaid Act) and regulations of the U.S. Department of Health and
Human Services, as well as provisions of state law and federal constitutional
due process.

In August 1998, the District Court declared that the pharmacy reimbursement
rates made effective after October 1, 1995, were adopted by the Secretary in
violation of section 1396(a)(30)(A) of the Medicaid Act and enjoined the
Secretary from using those rates to reimburse for any prescription drugs and
related services provided to Medicaid recipients on and after October 1, 1998.
The Court held that the Secretary acted arbitrarily and capriciously by failing
to consider whether the revised rates were consistent with the statutory
standards of efficiency, economy, and quality of care.

The Secretary appealed the district court's orders. On March 22, 1999, the U.S.
Court of Appeals for the Third Circuit reversed the district courts' order and
remanded the case for further proceedings. The Court of Appeals held that the
Secretary had not violated the Medicaid Act in adopting rates in 1995, but the
court remanded the case to allow the plaintiffs to pursue any claim which they
might have that the rates substantially do not satisfy the statutory standard
prescribed by 42 U.S.C. sec.1396(a)(30)(A).

The case is pending in the District Court. No substantial proceedings have
occurred since the remand. In addition, a case raising analogous state law
issues is pending in Commonwealth Court.

Pennsylvania general obligation bonds are currently rate AA by Standard &
Poor's, AA by Fitch and Aa3 by Moody's. There can be no assurance that the
economic conditions on which these ratings are based will continue or that
particular bond issues will not be adversely affected by changes in economic or
political conditions.

<PAGE>

Part C

Other Information

Item 23. Exhibits

1. (a) Amended and Restated Articles of Incorporation of the
Registrant.(1)
1. (b) Articles of Amendment reclassifying capital stock as Class A
shares.(1)
1. (c) Articles Supplementary creating Class B shares of capital
stock.(1)
1. (d) Articles of Amendment relating to name change of Sentinel Short
Maturity Government Fund.(1)
1. (e) Articles of Amendment relating to name change of Sentinel Small
Company Fund.(1)
1. (f) Articles of Amendment relating to name change of Sentinel
Emerging Growth Fund.(1)
1. (g) Articles Supplementary creating Class C shares of capital
stock.(1)
1. (h) Articles Supplementary creating Class D shares of Sentinel
Balanced Fund.(1)
1. (i) Articles of Amendment relating to name change of Sentinel Mid
Cap Growth.(5)
1. (j) Articles Supplementary creating Class A shares and Class B
shares of Sentinel Growth Index Fund.(7)
1. (k) Form of Articles Supplementary creating Class A shares, Class B
shares and Class C shares of Sentinel Flex Cap Opportunity Fund.
2. By-Laws of the Registrant, as amended.(1)
3. Portion of the Articles of Incorporation and the By-Laws of the
Registrant defining the rights of holders of Class A shares of each
Fund as series of the Registrant.(2)
4. (a) Investment Advisory Agreement between the Registrant and
Sentinel Advisors Company (the "Advisor"), dated as of March 1,
1993.(3)
4. (b) Investment Subadvisory Agreement between the Advisor and INVESCO
Capital Management, Inc.(5)
4. (c) Investment Subadvisory Agreement between the Advisor and
Evergreen Investment Management Company.(5)
4. (d) Investment Advisory Agreement between the Registrant and the
Advisor relating to Sentinel Growth Index Fund.(7)
4. (e) Sub-Investment Advisory Agreement between the Advisor and
INVESCO Global Asset Management (N.A.), Inc. relating to Sentinel
Growth Index Fund.(7)
4. (f) Form of Investment Advisory Agreement between the Registrant and
the Advisor relating to Sentinel Flex Cap Opportunity Fund.
4. (g) Form of Sub-Investment Advisory Agreement between the Advisor
and Fred Alger Management, Inc. relating to Sentinel Flex Cap
Opportunity Fund.
5. Distribution Agreement between the Registrant and Sentinel Financial
Services Company ("SFSC"), dated as of March 1, 1993.(3)
6. None.
7. Custody Agreement between the Registrant and Investors Fiduciary
Trust Company ("IFTC"), dated December 1, 1989.(1)
8. (a) Dividend Paying Agent Agreement between the Registrant and IFTC,
dated December 1, 1989.(1)
8. (b) Service Agreement between Sentinel Administrative Service
Corporation and IFTC, dated December 1, 1989.(1)
8. (c) Administrative Services Agreement between Sentinel
Administrative Service Corporation and IFTC, dated December 1, 1989.(1)
8. (d) Fund Services Agreement between the Registrant and Sentinel
Administrative Services Company ("SASC"), dated as of March 1, 1993.(3)
9. (a) Opinion of Brown & Wood LLP, counsel to the Registrant.(6)
10. Consent of PricewaterhouseCoopers LLP, independent accountants for
the Registrant.
11.(a) Financial Statements included in Part A:
- Selected Per Share Data and Ratios for the five years ended
November 30, 1998*
11.(b) Financial Statements incorporated by reference in Part B:
- Selected Per Share Data and Ratios for the five years
ended November 30, 1998*
- Statement of Assets and Liabilities at November 30,
1998*
- Statement of Operations for the year ended November 30,
1998*
- Statement of Changes in Net Assets for the years ended
November 30, 1998 and 1997*
- Notes to Financial Statements*
- Report of Independent Accountants*
- Unaudited Statement of Assets and Liabilities at May 31,
1999**
- Unaudited Statement of Operations for the six months
ended May 31, 1999**
- Unaudited Statement of Changes in Net Assets for the six
months ended May 31, 1999.**
- Notes to Financial Statements.**
12.(a) None.
13.(a) Class A Distribution Plan pursuant to Rule 12b-1 under the 1940
Act.(7)
13.(b) Amended Class B Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act.(7)
13.(c) Class C Distribution Plan pursuant to Rule 12b-1 under the 1940
Act.(1)
13.(d) Class D Distribution Plan pursuant to Rule 12b-1 under the 1940
Act.(1)
14. Financial Data Schedules for Class A, B, C, D.(5)
15. Amended Plan pursuant to Rule 18f-3 under the 1940 Act.

- ------------------------
(1) Previously filed as an Exhibit to Post-Effective Amendments No. 54,
55, 56, 57 and 58 of the Registrant on Form N-1 and Post-Effective
Amendments No. 61, 62, 63, 64, 67, 68, 71, 72, 76, 77, 80, 83, 84 and
85 of the Registrant on Form N-1A.
(2) Reference is made to Articles Fifth, Sixth, Seventh and Eighth of the
Registrant's Articles of Incorporation, previously filed as Exhibit 1 to
the Registration Statement; and to Paragraphs 4 through 12, 35 through
39, 43 through 45, 50 and 52 through 54 of the Registrant's By-Laws,
previously filed as Exhibit 2 to the Registration Statement.
(3) Incorporated by reference to Exhibits 4, 6(b), 7(b), 13(b) and 13(g) to
the Registration Statement of the Registrant on Form N-14, File No.
33-55000.
(4) Previously filed as an Exhibit to Post-Effective Amendment 85 of the
Registrant on Form N-1.
(5) Previously filed as an Exhibit to Post-Effective Amendment 86 of the
Registrant on Form N-1.
(6) Filed on March 28, 1997 as an Exhibit to Post-Effective Amendment No. 77
to the Registration Statement.
(7) Filed on June 30, 1999 as an Exhibit to Post-Effective Amendment No. 87
to the Registration Statement.

* Incorporated by reference to the Registrant's 1998 Annual Report to
shareholders filed with the Securities and Exchange Commission for
the year ended November 30, 1998 pursuant to Rule 30b2-1 under the
Investment Company Act of 1940, as amended ("1940 Act").

** [Incorporated by reference to the Registrant's 1999 Semi-Annual
Report to shareholders filed with the Securities and Exchange
Commission for the six months then ended May 31, 1999.]

Item 24. Persons Controlled by or under Common Control
With The Registrant

None.

Item 25. Indemnification

See paragraphs 3, 4, 5 and 6 of Article SEVENTH of the
Amended and Restated Articles of Amendment of the
Registrant, incorporated by reference to Exhibit 1(a) to
this Registration Statement.

The existing Advisory Agreements (Exhibit 4 hereof) provides
that in the absence of willful malfeasance, bad faith, gross
negligence or reckless disregard of the obligations or
duties thereunder on the part of the Advisor, the Advisor
shall not be liable to the Registrant or to any shareholder
of the Registrant for any act or omission in the course of,
or connected with rendering services thereunder or for any
losses that may be sustained in the purchase, holding or
selling of any security.

In addition, the Registrant maintains a directors and
officers liability insurance policy with maximum coverage of
$15 million under which the directors and officers of the
Registrant are named insureds.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be
permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
1933 Act and therefore is unenforceable. In the event that a
claim for indemnification against such liabilities (other
than for expenses paid by a director, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the Registrant, unless the
matter has been settled by controlling precedent in the
opinion of its counsel, will submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed
in the 1933 Act and will be governed by the final
adjudication of such issue.

Item 26. Business and Other Connections of the Investment Adviser

Information on the Advisor is incorporated by reference to
the Prospectus included in this Registration Statement.

Partners of the Advisor
Sentinel Management Co. - Managing General Partner
Sentinel Advisors, Inc. - General Partner
Provident Mutual Management Co., Inc. - General Partner
HTK of Delaware, Inc. - General Partner

Officers of the Advisor

Rodney A. Buck, Chief Executive Officer

Richard D. Temple, Vice President

David M. Brownlee, Senior Vice President

Van Harissis, Senior Vice President

Robert L. Lee, Senior Vice President

Kenneth J. Hart, Vice President

Bruce R. Bottamini, Vice President

Thomas H. Brownell, Vice President

William C. Kane, Vice President

Kay L. Edson, Vice President

Henry J. Restaino, Vice President

Dean R. Howe, Vice President and Treasurer

Scott T. Brayman, Vice President

Daniel J. Manion, Vice President

Steven P. Flynn, Vice President

Daniel e. Gass, Vice President

Stephen S. Rauh, Vice President

Lisa M. Pettrey, Secretary

Each of the above officers is also an officer or employee of
National Life Insurance Company or its subsidiary, National
Life Investment Management Company, Inc. The principal
business address of each such company is National Life
Drive, Montpelier, Vermont 05604.

Item 27. Principal Underwriters

(a) The Registrant's principal underwriter, SFSC, also serves as
principal underwriter for Sentinel Pennsylvania Tax-Free Trust.

(b) As to each officer of SFSC:

Positions and
Name and Principal Positions and Offices Offices with
Business Address with SFSC the Registrant
- ------------------ --------------------- --------------

Joseph M. Rob Chief Executive Officer President

Julie A. Hendrickson President and Chief None
Operating Officer

John M. Grab, Jr. Senior Vice President, Vice President
Chief Financial Officer,
and Treasurer

The principal business address of all such persons is National Life
Drive, Montpelier, Vermont 05604.

Item 28. Location of Accounts and Records

The following maintain physical possession of each account book or other
documents required by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder.

(a) Sentinel Administrative Service Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(a)
Rule 31a-1(b)(1)(2)(3)(4)(5)(6)(7)(8)
Rule 31a-2(a)(b)(c)(f)

(b) Sentinel Advisors Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(a)(9)(10)(11)
Rule 31a-1(d)(f)
Rule 31a-2(a)(c)(f)

Rule 31a-1(d)
Rule 31a-2(c)

Item 30. Management Services

Not applicable.

Item 32. Undertakings

Not applicable.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Montpelier and State of Vermont, on the 16th day of December, 1999.

SENTINEL GROUP FUNDS, INC.
(Registrant)

By: /s/ Patrick E. Welch
-----------------------
Patrick E. Welch
Chairman

As required by the Securities Act of 1933, this post-effective amendment
to the Registration Statement has been signed by the following persons in the
capacities on the date indicated. Signature Title Date

/s/ Patrick E. Welch Chairman December 16, 1999
- ------------------------- (Chief Executive
Patrick E. Welch Officer)

Richard J. Borda* Director
- -------------------------
Richard J. Borda

Kalman J. Cohen* Director
- -------------------------
Kalman J. Cohen

John D. Feerick* Director
- -------------------------
John D. Feerick

Richard J. Johannesen, Jr.* Director
- ----------------------------
Richard J. Johannesen, Jr.

Robert B. Mathias* Director
- -------------------------
Robert B. Mathias

Keniston P. Merrill Director
- -------------------------

Deborah G. Miller* Director
- -------------------------
Deborah G. Miller

John Raisian* Director
- -------------------------
John Raisian

/s/ Joseph M. Rob Director December 16, 1999
- -------------------------
Joseph M. Rob

Susan M. Sterne* Director
- -------------------------
Susan M. Sterne

Angela E. Vallot* Director
- -------------------------
Angela E. Vallot

/s/ John M. Grab, Jr. Vice President and December 16, 1999
- ------------------------- Principal Financial
John M. Grab, Jr. and Accounting Officer

*By /s/ Joseph M. Rob December 16, 1999
--------------------
Joseph M. Rob
Attorney-in-Fact

</TABLE>

<PAGE>

Exhibit Index

Exhibit Number

1. (k) Form of Articles Supplementary creating Class A,
Class B shares and Class C shares of Sentinel Flex Cap
Opportunity Fund.
4. (f) Form of Amended Investment Advisory Agreement.
4. (g) Form of Sub-Investment Advisory Agreement.
10. Consent of Independent Accountants.
15. Form of Amended Plan pursuant to Rule 18f-3.

SENTINEL GROUP FUNDS, INC.
ARTICLES SUPPLEMENTARY
CREATING ADDITIONAL SERIES OF COMMON STOCK

SENTINEL GROUP FUNDS, INC., a Maryland corporation having its
principal Maryland office c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202 (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:

FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation (the "Board of Directors") by its Amended and
Restated Articles of Incorporation, as amended (the "Charter"), the Board of
Directors, at a meeting duly convened and held on December 9, 1999, adopted
resolutions reclassifying and designating twenty million (20,000,000) of the
authorized but unissued shares of common stock as Class A shares of Sentinel
Flex Cap Opportunity Fund, par value $0.01 per share (the "Class A Shares")
with the preferences, designations, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption as follows, which upon any restatement of the Charter
shall be made part of Article SIXTH, with any necessary or appropriate changes
to the enumeration or lettering of sections or subsections hereof:

The Class A Shares shall represent the same interest in the
Corporation and have identical preferences, designations, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as
the shares of common stock as of the date of these Articles
Supplementary, except as otherwise set forth in the Charter and
further except that:

(i) Expenses related to the distribution of the Class A
Shares shall be borne solely by such class and such class shall have
exclusive voting rights with respect to matters relating to the
expenses being borne solely by such class; and

(ii) Such distribution expenses borne solely by Class A
Shares shall be appropriately reflected (in the manner determined by
the Board of Directors) in the net asset value, dividends,
distribution and liquidation rights of the shares of such class.

SECOND: Pursuant to authority expressly vested in the Board of
Directors by the Charter, the Board of Directors, at a meeting duly convened
and held on December 9, 1999, adopted resolutions reclassifying and
designating twenty million (20,000,000) authorized but unissued shares of
common stock as Class B shares of Sentinel Flex Cap Opportunity Fund, par value
$0.01 per share (the "Class B Shares") with the preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption as follows,
which upon any restatement of the Charter shall be made part of Article SIXTH,
with any necessary or appropriate changes to the enumeration or lettering of
sections or subsections hereof:

The Class B Shares shall represent the same interest in the
Corporation and have identical preferences, designations, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as
the shares of common stock as of the date of these Articles
Supplementary, except as otherwise set forth in the Charter and
further except that:

(i) Expenses related to the distribution of the Class B
Shares shall be borne solely by such class and such class shall have
exclusive voting rights with respect to matters relating to the
expenses being borne solely by such class; and

(ii) Such distribution expenses borne solely by Class B
Shares shall be appropriately reflected (in the manner determined by
the Board of Directors) in the net asset value, dividends,
distribution and liquidation rights of the shares of such class.

THIRD: Pursuant to authority expressly vested in the Board of
Directors by the Charter, the Board of Directors, at a meeting duly convened
and held on December 9, 1999, adopted resolutions reclassifying and
designating twenty million (20,000,000) authorized but unissued shares of
common stock as Class C shares of Sentinel Flex Cap Opportunity Fund, par value
$0.01 per share (the "Class C Shares") with the preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption as follows,
which upon any restatement of the Charter shall be made part of Article SIXTH,
with any necessary or appropriate changes to the enumeration or lettering of
sections or subsections hereof:

The Class C Shares shall represent the same interest in the
Corporation and have identical preferences, designations, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as
the shares of common stock as of the date of these Articles
Supplementary, except as otherwise set forth in the Charter and
further except that:

(i) Expenses related to the distribution of the Class C
Shares shall be borne solely by such class and such class shall have
exclusive voting rights with respect to matters relating to the
expenses being borne solely by such class; and

(ii) Such distribution expenses borne solely by Class C
Shares shall be appropriately reflected (in the manner determined by
the Board of Directors) in the net asset value, dividends,
distribution and liquidation rights of the shares of such class.

FOURTH: These Articles Supplementary have been approved by the Board
of Directors in the manner and by the vote required by law.

<PAGE>

IN WITNESS WHEREOF, SENTINEL GROUP FUNDS, INC. has caused these
Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on the day of December, 1999.

SENTINEL GROUP FUNDS, INC.

By
----------------------------
Patrick E. Welch
Chairman

Attest:

- --------------------------
D. Russell Morgan
Secretary

THE UNDERSIGNED, President of SENTINEL GROUP FUNDS, INC. (the
"Corporation"), who executed on behalf of the Corporation the foregoing
Articles Supplementary, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of the Corporation, the foregoing
Articles Supplementary to be the corporate act of the Corporation and, as to
all matters or facts required to be verified under oath, further certifies
that, to the best of his knowledge, information and belief, these matters and
facts contained are true in all material respects and that this statement is
made under the penalties for perjury.

---------------------------
Patrick E. Welch
Chairman

INVESTMENT ADVISORY AGREEMENT

AGREEMENT made as of this day of December, 1999, by and between
Sentinel Group Funds, Inc., a Maryland corporation and a registered series
investment company under the Investment Company Act of 1940, one series of
which is the Sentinel Flex Cap Opportunity Fund (hereinafter called the
"Fund"), and Sentinel Advisors Company, a Vermont general partnership, and a
registered investment adviser under the Investment Advisers Act of 1940
(hereinafter called "Advisor").

WITNESSETH:

In consideration of the mutual promises and agreements herein contained and
other good and valuable considerations, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as
follows:

1. Management of Flex Cap Opportunity Fund Portfolio

Advisor agrees to act as investment adviser to the Fund with respect
to the investment of its assets and in general to supervise the investments of
the portfolio of the Fund, subject at all times to the direction and control
of the Board of Directors of Sentinel Group Funds, Inc. all as more fully set
forth herein. In connection therewith, Advisor shall regularly provide
investment advice to the Fund, and shall, subject to the succeeding provisions
of this section, continuously supervise the investment and reinvestment of
cash, securities or other property comprising the assets of the investment
portfolio of the Fund, and Advisor shall accordingly:

(a) provide continuously an investment program for the Fund
consistent, in its opinion, with its investment policy and objectives; and

(b) determine what securities shall be purchased or sold by the Fund,
and regularly report thereon to the Board of Directors of Sentinel Group
Funds, Inc.; and

(c) take, on behalf of the Fund, all actions which appear to Advisor
necessary to carry into effect such investment programs and supervisory
functions as aforesaid including the placing of purchase and sale orders.

It is contemplated that Advisor will meet its obligations hereunder
by engaging a subadvisor to provide a complete investment program for the Fund
and to place all purchase and sale orders for the Fund, although Advisor is
not obligated to do so at all times in the future.

The investment program provided by Advisor under this section, or any
supervisory functions taken hereunder by it shall at all times conform to, and
be in accordance with, any requirements imposed by: the provisions of the
Investment Company Act of 1940 (the "1940 Act"), and any rules or regulations
in force thereunder, any other applicable provision of law, the provisions of
the Articles of Incorporation of Sentinel Group Funds, Inc. as amended from
time to time, the provisions of the By-Laws of Sentinel Group Funds, Inc. as
amended from time to time, resolutions as adopted and/or amended from time to
time by the Board of Directors of Sentinel Group Funds, Inc., and the terms of
the registration statements of Sentinel Group Funds, Inc., as amended from
time to time, under the Securities Act of 1933 and the 1940 Act.

2. The Fund to Bear Other Expenses

It is understood and agreed that the Fund, in addition to the
advisory fee paid to Advisor set forth in Article 3 below, will bear and pay
for its expenses of operation including its (i) rent and office equipment, if
any; (ii) salaries and employee benefits including applicable employment and
payroll taxes of its own administrative and executive personnel who are not
affiliated with Advisor, if any; (iii) brokerage commissions and other costs
in connection with the purchase or sale of securities; (iv) all taxes and
corporate fees payable by the Fund to federal, state or other governmental
agencies; (v) fees and costs of its transfer agent, fund accounting and
financial administration service provider, custodian, registrar, independent
legal counsel and auditors; (vi) expenses of printing and mailing stock
certificates, dividends, reports, notices and proxy materials to its
shareholders; (vii) fees and expenses incident to the registration and
maintenance of registration under the Securities Act of 1933 of shares of the
Fund for public sale (other than costs of printing prospectuses for
prospective new shareholders) and the qualification of its shares for offering
and sale under state or other securities laws; (viii) fees and expenses
imposed on the Fund under the 1940 Act; (ix) insurance premiums for fidelity
bonds and other coverage to its operations; (x) all expenses incident to
holding of meetings of its shareholders; (xi) fees and expenses of directors
who are not affiliated with Advisor; (xii) its pro rata share of fees and dues
of the Investment Company Institute; and (xiii) such non-recurring expenses as
may arise, including actions, suits or proceedings, affecting the Fund and the
legal obligation which the Fund may have to indemnify its officers and
directors with respect thereto.

3. Compensation of Advisor

As compensation in full for services rendered under this Agreement,
the Fund will pay to Advisor a monthly fee, in arrears, equal to 0.90% per
annum of aggregate daily average net assets of the Fund.

4. Guarantee of Expense Limitation

If, for any fiscal year of the Fund, expenses (including management
fee and costs incident to its regular and executive personnel, but excluding
interest, taxes, brokerage fees and, where permitted, extraordinary expense)
borne by the Fund exceed expense limitations applicable to each class of
shares of the Fund which are imposed by state securities regulators as such
limitations may be lowered or raised from time to time, Advisor guarantees
that it will reimburse the Fund for any excess. The portion of any such
reduction to be borne by Advisor shall be deducted from the monthly investment
advisory fee otherwise payable to Advisor and, if such amount should exceed
such monthly investment advisory fees, Advisor agrees to repay to the Fund
annually before publication of Sentinel Group Funds, Inc.'s annual report to
shareholders such sum as may be required to make up the deficiency. For the
purpose of this article, the term "fiscal year" shall include the portion of
the then current fiscal year which shall have elapsed at the date of
termination of this Investment Advisory Agreement.

5. Placing of Purchase and Sale Orders

Advisor shall not deal as principal with the Fund in the purchase and
sale of portfolio securities nor shall it receive any commissions or other
remuneration on the purchase or sale of portfolio securities by the Fund.

Advisor is authorized and directed to place the orders for the
purchase and sale of portfolio securities by the Fund and to supervise the
executions thereof. Advisor is specifically authorized to delegate this duty
and power to a subadvisor which it may engage to provide a complete program of
investment management to the Fund. With respect to such transactions, whether
through a broker as agent or with a dealer as principal, Advisor's primary
objective is to both obtain the best price and execution of each transaction.
Such orders may be placed with qualified brokers and/or dealers who also
provide investment information or other services to the Fund. It is
contemplated that while Fred Alger Management, Inc., acts as subadvisor to the
Fund, the subadvisor may execute its commission brokerage trades through a
broker dealer with which it is affiliated. Management shall report to the
Directors of Sentinel Group Funds, Inc. at least quarterly on said allocations
of order and on the brokerage commissions and/or dealer concessions involved,
indicating to whom such allocations are made and the basis thereof.

6. Nonexclusivity

Advisor's services to the Fund hereunder are not to be deemed
exclusive and Advisor shall be free to render similar services to others, so
long as its services hereunder are not impaired thereby.

7. National Life Services

National Life Insurance Company and its subsidiaries may furnish
to Advisor, in order to better enable it to fulfill its obligations hereunder,
office space, personnel and other services as are requested by Advisor, in all
cases for a reasonable charge. Advisor will present the details of any such
arrangements to the Board of Directors of Sentinel Group Funds, Inc.

8. Affiliations of Advisor

It is understood that the directors and officers of Sentinel Group
Funds, Inc. may be directors or officers of Advisor or an entity under common
control, including National Life Insurance Company, Provident Mutual Life
Insurance Company of Philadelphia, or any affiliate of either, or otherwise be
interested in Advisor, and that the existence of such dual interest shall not
affect the validity of this Agreement or any transactions hereunder.

9. Liability of Advisor

In the absence of willful misfeasance or bad faith on the part of
Advisor, it shall not be subject to liability to the Fund or Sentinel Group
Funds, Inc., or to any stockholder of the Fund or Sentinel Group Funds, Inc.
for any act or omission in the course of, or in connection with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.

10. Duration of this Agreement

This Agreement shall become effective upon the date set forth above
and shall continue in force and effect, unless terminated as hereinafter
provided, until November 30, 2000, and from year to year thereafter, provided
such continuance is specifically approved at least annually by the Board of
Directors of Sentinel Group Funds, Inc., including specific approval (i) by a
majority of the Directors who are not interested persons of a party to this
Agreement (other than as Directors of Sentinel Group Funds, Inc.) by votes
cast in person at a meeting specifically called for such purpose (Director
vote) or (ii) as to the Fund by a vote of a majority of each class of shares
of the Fund and a Director vote.

11. Termination

This Agreement may be terminated by Advisor at any time without
penalty upon giving Sentinel Group Funds, Inc. sixty (60) days' written notice
(which notice may be waived by Sentinel Group Funds, Inc.) and may be
terminated by Sentinel Group Funds, Inc. at any time without penalty upon
giving Advisors sixty (60) days' written notice (which notice may be waived by
Advisor), provided that such termination by Sentinel Group Funds, Inc. shall
be approved by the vote of a majority of the Board of Directors of Sentinel
Group Funds, Inc. in office at the time or by the vote of a majority of the
outstanding voting securities of the Fund. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for this
purpose having the meaning defined in Section 2(a)(4) of the 1940 Act.

12. Notification of Changes in Advisor

Advisor will notify Sentinel Group Funds, Inc. of any change in the
identities of the partners of Advisor within a reasonable time after such
change.

IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their
corporate seals to be hereunder affixed, all as of the day and year first
above written.

Attest: SENTINEL GROUP FUNDS, INC.

BY:
- ---------------------------- -----------------------------------
D. Russell Morgan Patrick E. Welch,
Secretary Chairman

Attest: SENTINEL ADVISORS COMPANY

BY:
- ---------------------------- -----------------------------------
Lisa A. Pettrey Rodney A. Buck,
Secretary Chief Executive Officer

Sub-Investment Advisory Agreement

AGREEMENT made as of this day of December, 1999 by and between Sentinel
Advisors Company (herein called "SAC"), a Vermont general partnership, having
its principal office at National Life Drive, Montpelier, Vermont 05604, and
Fred Alger Management, Inc. (herein called "Alger"), a New York corporation,
having its principal office at 1 World Trade Center, Suite 9333, New York, New
York 10048.

Witnesseth:

WHEREAS, SAC is a party to an Investment Advisory Agreement dated as of
December 9, 1999, a copy of which is attached hereto as Exhibit "A" between it
and Sentinel Group Funds, Inc., a corporation organized under the laws of the
State of Maryland, a series of which is Sentinel Flex Cap Opportunity Fund
(herein called the "Fund"), pursuant to which SAC provides, inter alia,
investment research and advice to the Fund; and

WHEREAS, SAC wishes to employ Alger as a sub-investment adviser to
provide SAC with investment management services; and

WHEREAS, Alger is prepared to provide such services on the terms and
conditions hereinafter contained;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, SAC and Alger agree as follows:

1. Alger, employing its best efforts and complete facilities, shall act
as sub-investment adviser to the Fund. As such, it shall, subject to SAC's
supervision, provide a complete program for the investment and reinvestment of
the cash, securities, and other properties comprising the investment portfolio
of the Fund in accordance with the investment policies and objectives of the
Fund as reflected in the current Prospectus and Statement of Additional
Information of the Sentinel Funds and as may be adopted from time to time by
the Board of Directors of the Fund and communicated to Alger in writing. Alger
shall furnish to SAC such reports regarding Alger's investment program for the
Fund as SAC may reasonably request, which reports may be distributed by SAC to
the Board of Directors of the Fund at periodic meetings of the Board and at
such other times as may be reasonably be requested by the Board.

2. Alger shall select industries and companies to be represented in the
investment portfolio of the Fund and shall carry out programs for the purchase
and sale of the securities included or to be included in the investment
portfolio. Alger is authorized and directed to place the orders for the
purchase and sale of portfolio securities by the Fund, including with Alger's
affiliate, Fred Alger & Company, Incorporated, and to supervise the executions
thereof. With respect to such transactions, whether through a broker as agent
or with a dealer as principal, Alger's primary objective is to both obtain the
best price and execution of each transaction. To the extent consistent with
applicable law, and subject to review by the Board of Directors of the Fund,
Alger may pay a broker or dealer an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if Alger determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research products and/or the services provided by
such broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities that Alger has
with respect to the Fund or its other clients, and may include services or
products that Alger does not use in managing the Fund.

It is understood that certain other clients of Alger may have investment
objectives and policies similar to those of the Fund, and that Alger may, from
time to time, make recommendations that result in the purchase or sale of a
particular security by its other clients simultaneously with the Fund. If
transactions on behalf of more than one client during the same period increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. In such event,
Alger shall allocate advisory recommendations and the placing of orders in a
manner that is deemed equitable by Alger to the accounts involved, including
the Fund. When two or more clients of Alger (including the Fund) are
purchasing or selling the same security on a given day from the same broker or
dealer, such transactions may be averaged as to price.

Alger shall provide to SAC and the Board of Directors of the Fund such
reports regarding the placement of portfolio transactions for the Fund as SAC
or the Board may reasonably request.

3. Alger will pay all expenses incurred by it in connection with the
performance of its obligations under this Agreement (other than the cost of
securities and other investments, including any brokerage commissions or other
transaction costs), including, but not limited to, all salaries of personnel
and costs of facilities required for it to perform such obligations. Alger
will not be responsible for any other expenses of the Fund or SAC.

4. Nothing in this Agreement shall limit or restrict the right of Alger
or any director, officer, or employee of Alger to engage in any other business
or to render services of any kind to any other corporation, firm, individual,
or association.

5. SAC, for its part, shall at all times keep Alger fully informed with
regard to the funds available or to become available for investment, and, in
general, the condition of the Fund's affairs. SAC shall furnish Alger with a
certified copy of all financial statements and a signed copy of each report
prepared by independent public accountants and with such other information
with regard to the Fund's affairs as Alger may from time to time reasonably
request.

6. Neither Alger nor any of its affiliates shall deal as principal with
the Fund in the purchase and sale of portfolio securities. Neither Alger nor
any of its affiliates shall receive any commissions or other remuneration on
the purchase or sale of portfolio securities by the Fund, except in
transactions which are in full compliance with Sentinel Group Funds, Inc.'s
Rule 17e-1 Procedures as adopted by the Board of Directors of Sentinel Group
Funds, Inc.

7. For the services to be rendered by Alger hereunder, SAC shall pay to
Alger a monthly fee, equal to 0.50% per annum of the average daily net asset
value of the Fund, as determined in accordance with the provisions of the
Prospectus then constituting part of the Registration Statement then in effect
under the Securities Act of 1933, at the end of each month of the Fund's
fiscal year in arrears. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month during which this Agreement is in
effect shall be prorated in a manner consistent with the calculation of fees
as set forth above.

8. This Agreement shall become effective upon approval by a vote of a
majority of the outstanding voting securities, as such term is defined in the
Investment Company Act of 1940, as amended (the "Act"), of the Fund, and shall
remain in full force and effect until November 30, 2000, and shall continue
thereafter only so long as its continuance is specifically approved at least
annually by (1) the Board of Directors of the Fund, or by vote of a majority
of the outstanding voting securities, as such term is defined in the Act, of
the Fund, and (2) a majority of the Directors of the Fund who are not
interested persons, as such term is defined in the Act, of any party to this
Agreement, at a meeting called for the purpose of voting on such approval;
provided, however, that (1) this Agreement may at any time be terminated
without the payment of any penalty, either by vote of the Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities of
the Fund, on 60 days' written notice to Alger, (2) this Agreement shall
immediately terminate in the event of its assignment (within the meaning of
the Act), and (3) this Agreement may at any time be terminated without payment
of any penalty by Alger or SAC on 60 days' written notice to the other party
to this Agreement. Any notice under this Agreement shall be given in writing,
addressed and delivered or mailed postpaid, to the other party at any office
of such party.

9. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of its obligations hereunder, Alger shall not be subject to
liability for any act or omission in the course or in connection with the
rendition of services hereunder.

10. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.

11. To the extent that state law is not preempted by the provisions of
any law of the United States heretofore or hereafter enacted, as the same may
be amended from time to time, this Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

12. SAC acknowledges receipt of Alger's most recent Form ADV.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.

Sentinel Advisors Company

By: ___________________________________________________
Rodney A. Buck
Chief Executive Officer

Fred Alger Management, Inc.

By: ___________________________________________________
Name: Gregory S. Duch
Title: Executive Vice President

<PAGE>

[OBJECT OMITTED]

Exhibit 10

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 88 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated December 18, 1998, relating to the financial
statements and financial highlights appearing in the November 30, 1998 Annual
Report to Shareholders of Sentinel Group Funds, Inc. and Sentinel Pennsylvania
Tax-Free Trust, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the heading
"Financial Highlights" in the Prospectus and under the heading "General
Information" in the Statement of Additional Information.

PricewaterhouseCoopers LLP
New York, New York 10036
December 15, 1999

Exhibit 15

SENTINEL GROUP FUNDS, INC.
AMENDED RULE 18f-3 PLAN

Rule 18f-3 under the Investment Company Act of 1940 (the "Investment
Company Act") permits mutual funds to issue multiple classes of shares. Under
Rule 18f-3(d), each mutual fund that seeks to rely upon Rule 18f-3 is required
to (i) create a plan (the "Plan") setting forth the differences among each
class of shares, (ii) receive the approval of a majority of the Board of
Directors of the fund (including a majority of the non-interested directors)
that the Plan, including the expense allocation between each class of shares,
is in the best interests of each class individually and the fund as a whole,
and (iii) file a copy of the Plan with the Securities and Exchange Commission
(the "Commission") as an exhibit to the fund's registration statement. The
following Plan describes the differences among the classes of shares for
certain (each a "Fund," and collectively, the "Funds") series of Sentinel
Group Funds, Inc. (the "Company") as set forth in Appendix A hereto.

Each Fund is advised by Sentinel Advisors Company (the "Advisor") and
offers shares as follows:

- ------------------------------- ---------------------------- ----------------------------- ----------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
- ------------------------------- ---------------------------- ----------------------------- ----------------------------
- ------------------------------- ---------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C>
Balanced Fund Balanced Fund Balanced Fund Balanced Fund
Bond Fund Bond Fund Common Stock Fund
Common Stock Fund Common Stock Fund Flex Cap Opportunity Fund
Flex Cap Opportunity Fund Flex Cap Opportunity Fund High Yield Bond Fun
Government Securities Fund Growth Fund World Fund
Growth Fund Growth Index Fund
Growth Index Fund High Yield Bond Fund
High Yield Bond Fund Small Company Fund
Short Maturity Government Fund U.S. Treasury Money Market
Small Company Fund Fund
Tax-Free Income Fund World Fund
U.S. Treasury Money Market
Fund
World Fund
- ------------------------------- ---------------------------- ----------------------------- ----------------------------
</TABLE>

The shares of each class may be purchased at a price equal to the next
determined net asset value per share subject to the sales charges and ongoing
fee arrangements described below, except that Class B shares of Sentinel U.S.
Treasury Money Market Fund (the "Money Market Fund") may be acquired only
through exchanges and may not be purchased directly, as described below. Class
A shares are sold to investors choosing the initial sales charge alternative,
and Class B, Class C and Class D shares are sold to investors choosing the
deferred sales charge alternative. Initial sales charges, contingent deferred
sales charges ("CDSCs"), fees ("Rule 12b-1 fees") payable under the Company's
distribution plans pursuant to Rule 12b-1 under the Investment Company Act
(each a "Rule 12b-1 Plan"), conversion periods and rights of accumulation for
each of the Funds are as set forth in the current prospectus and statement of
additional information for the Company.

Each Class A, Class B, Class C and Class D share of a Fund represents
an identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
higher ongoing Rule 12b-1 fees and the additional incremental transfer agency
costs resulting from the additional recordkeeping required by the deferred
sales charge arrangement, although Class C shares are subject to a shorter
CDSC period at a lower rate and they forgo the Class B and Class D conversion
feature. Each class of shares has exclusive voting rights with respect to the
Rule 12b-1 Plan applicable to that class. The Rule 12b-1 fees that are imposed
on the Class A, Class B, Class C and Class D shares of a Fund and the deferred
sales charges that are imposed on the Class B, Class C and Class D shares of
that Fund are imposed directly against that class and not against all assets
of the Fund and, accordingly, such charges will not affect the net asset value
of any other class or have any impact on investors choosing another sales
charge option. Dividends paid by a Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that Rule 12b-1 fees and any incremental transfer agency costs relating
to a particular class are borne exclusively by that class.

Class A: Class A shares incur an initial sales charge when they
are purchased and bear ongoing Rule 12b-1 fees. Class A
shares will be issued upon reinvestment of dividends of
outstanding Class A shares. Investors purchasing in the
aggregate shares in the amount $1 million or more will be
offered Class A shares only.

Class A investors may qualify for reduced initial sales
charges through the purchase of certain minimum amounts of
Class A shares of a Fund, as described in Appendix B hereto.
In cases in which no initial sales charge is imposed, a CDSC
of up to 1% will be imposed on redemptions of Class A shares
within two years of purchase, as described in Appendix B
hereto.

Class B: Class B shares are sold on a deferred sales charge basis. Class B
shares do not incur a sales charge when they are purchased, but
they are subject to ongoing Rule 12b-1 fees that are higher than
the Rule 12b-1 fees imposed on Class A shares and a CDSC for
periods of up to six years as described in Appendix B hereto.
Once the applicable Class B CDSC period has expired, Class B
shares will convert automatically to Class A shares at a
specified time as described below. Class B shares are available
only to investors whose share holdings aggregate less than $1
million.

Class C: Class C shares are sold on a deferred sales charge basis. Class C
shares do not incur a sales charge when they are purchased, but
they are subject to ongoing Rule 12b-1 fees that are higher than
the Rule 12b-1 fees imposed on Class A shares and a CDSC for only
one year. Class C shares have no conversion feature.

Class D: Class D shares are sold on a deferred sales charge basis. Class D
shares do not incur a sales charge when they are purchased, but
they are subject to ongoing Rule 12b-1 fees that are higher than
the Rule 12b-1 fees imposed on Class A shares but lower than the
Rule 12b-1 fees imposed on Class B and Class C shares and a CDSC
for seven years as described in Appendix C hereto. Once the Class
D conversion period has expired, Class D shares will convert
automatically to Class A shares at a specified time as described
below. Class D shares may only be purchased in increments of
$249,999 or less.

Exchange Privilege. Holders of Class A, Class B and Class C shares of
a Fund have an exchange privilege with the other Funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission. Holders of Class D shares have an exchange
privilege with Class A shares of the Money Market Fund only.

Class A and Class B shares of each Fund are exchangeable with shares
of the same class of the other Funds. Class C shares of Balanced Fund, Common
Stock Fund, High Yield Bond Fund and World Fund (each a "Class C Fund") are
exchangeable with Class C shares of the other Class C Funds. Class A shares
are also exchangeable for shares of Government Securities Fund, Growth Fund,
New York Tax-Free Income Fund and Short-Intermediate Government Fund, each a
series of the Company, and for shares of Sentinel Pennsylvania Tax-Free Trust
(the "Single Class Funds").

Shares of a Fund are exchangeable on the basis of relative net asset
value per share without the payment of any CDSC that might otherwise be due
upon redemption of the shares of such Fund. Except with respect to exchanges
into the Money Market Fund, for purposes of computing the CDSC that may be
payable upon a disposition of the shares acquired in the exchange, the holding
period for the previously owned shares of a Fund is "tacked" to the holding
period of the newly acquired shares of the second Fund.

Class A shares of the Money Market Fund may be acquired either
through a purchase or through an exchange of Class A, Class C or Class D
shares of another Fund; Class B shares of the Money Market Fund may not be
purchased and may be acquired only in exchange for Class B shares of another
Fund. The holding period for shares of the Money Market Fund acquired through
an exchange of Class B, Class C or Class D shares, however, will not count
toward satisfaction of the holding period requirement for the previously owned
Class B, Class C or Class D shares for reduction of any CDSC imposed on such
shares.

Right of Accumulation. The right of accumulation for each class of
shares for each of the Funds is as set forth in the current prospectus and
statement of additional information for the Company.

Allocation of Income, Gains, Losses and Expenses. Allocation of
income, gains and losses of each Fund shall be allocated pro rata according to
the net assets of each class. Allocation of expenses not allocated to a
specific class of each Fund other than the Money Market Fund shall be
allocated according to the net assets or number of shareholder accounts, each
on a pro rata basis, of each class. Allocations in the case of the Money
Market Fund shall be made (i) to each share without regard to class, provided
that the Fund has received undertakings from the Advisor or any other provider
of services to the Fund, agreeing to waive or reimburse the Fund for payments
to such service provider by one or more classes, as allocated as described
above, to the extent necessary to assure that all classes of the Funds
maintain the same net asset value per share, or (ii) on the basis of relative
net asset value.

Amending Rule 12b-1 Plans. No Fund will implement any amendment to
the Company's Class A, Class B, Class C or Class D Rule 12b-1 Plan that would
materially increase the amount that may be borne by each class of shares
unless the holders of such class of shares, voting separately as a class,
approve the proposal.

Conversion of Class B Shares to Class A Shares. After the applicable
CDSC period has expired, Class B shares and shares purchased through
reinvestment of dividends on those converting Class B shares of a Fund will
automatically convert into Class A shares of the same Fund on the basis of
relative net asset value per share of the two classes without the imposition
of any sales load, fee or other charge. For purposes of computing the period
for conversion of Class B shares to Class A shares, the holding period for the
previously owned shares of a Fund is "tacked" to the holding period of the
newly acquired shares of the second Fund. The period of time that shares are
held in the Money Market Fund, however, will not count toward satisfaction of
the holding period necessary to convert Class B shares to Class A shares.
Shareholders holding Class B shares in certificate form will not receive Class
A share certificates until the shareholder tenders the Class B share
certificate(s) to the Fund's Transfer Agent. Until Class B share certificates
are exchanged for Class A share certificates, the Class B share certificates
will represent the shareholder's interest in the Class A shares received upon
conversion.

Conversion of Class D Shares to Class A Shares. Approximately ten
years from the date of purchase, Class D shares and shares purchased through
reinvestment of dividends on those converting Class D shares of a Fund will
automatically convert into Class A shares of the same Fund on the basis of
relative net asset value per share of the two classes without the imposition
of any sales load, fee or other charge. The period of time that shares are
held in the Money Market Fund, however, will not count toward satisfaction of
the holding period necessary to convert Class D shares to Class A shares.
Shareholders holding Class D shares in certificate form will not receive Class
A share certificates until the shareholder tenders the Class D share
certificate(s) to the Fund's Transfer Agent. Until Class D share certificates
are exchanged for Class A share certificates, the Class D share certificates
will represent the shareholder's interest in the Class A shares received upon
conversion.

<PAGE>

Appendix A

Series participating in the Rule 18f-3 Plan
of
Sentinel Group Funds, Inc.

Sentinel Balanced Fund

Sentinel Bond Fund

Sentinel Common Stock Fund

Sentinel Flex Cap Opportunity Fund

Sentinel Growth Fund

Sentinel Growth Index Fund

Sentinel High Yield Bond Fund

Sentinel Small Company Fund

Sentinel Tax-Free Income Fund

Sentinel U.S. Treasury Money Market Fund

Sentinel World Fund

<PAGE>

Appendix B

- --------------------------------------------------------------------------------------------------------------------
Class A Shares (except Money Market Fund, Short Maturity Government Fund
and Growth Index Fund)
====================================================================================================================
Sale Size Initial Sales Charge
<S> <C>
$0 to $99,999 5.0%
$100,000 to $249,999 4.0%
$250,000 to $499,999 2.5%
$500,000 to $999,999 2.0%
$1,000,000 or more 0.0%
- --------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------
Class A Shares of Short Maturity Government Fund
====================================================================================================================
Sale Size Initial Sales Charge
$0 to $999,999 1.0%
$1,000,000 or more 0.0%
- --------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------
Class A Shares of Growth Index Fund
=====================================================================================================================
Sale Size Initial Sales Charge
$0 to $499,999 2.5%
$500,000 to $999,999 2.0%
$1,000,000 or more 0.0%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

There is no initial sales charge for purchases of Class A shares of
the Money Market Fund. Initial sales charges for the Single Class Funds are as
set forth in the current prospectus and statement of additional information
for the Company.

In cases in which there is no sales charge because the sale is in an
amount of $1,000,000 or more, if the Class A shares purchased are redeemed
within one year of the purchase, a CDSC will be imposed in the amount of 1.0%.
If the Class A shares are redeemed during the second year after the purchase,
a CDSC of 0.5% will be imposed. After the second year, no CDSC will apply. The
CDSC is imposed on the lower of the cost or the current net asset value of the
shares redeemed. In determining whether a CDSC is payable, a Fund will first
redeem shares not subject to any sales charge.

Class A shares otherwise subject to a CDSC and owned by certain
tax-exempt qualified retirement plans may be redeemed without charge to pay
benefits. In addition, any shares acquired by reinvestment of dividends will
be redeemable without a CDSC. In determining whether a CDSC is payable, the
Funds and Single Class Funds will first redeem shares not subject to any
charge.

<PAGE>

- --------------------------------------------------------------------------------------------------------------------
Class B Shares (except Money Market Fund and Growth Index Fund)
====================================================================================================================
Sale Size Year CDSC
<S> <C> <C>
$0 to $249,999 1 4.0%
2 4.0%
3 3.0%
4 2.0%
5 2.0%
6 1.0%
- ---------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 1 3.5%
2 3.0%
3 2.0%
4 1.0%
5 1.0%
- ---------------------------------------------------------------------------------------------------------------------
$500,000 to $1,000,000 1 3.0%
2 2.0%
3 1.0%
4 1.0%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

- ---------------------------------------------------------------------------------------------------------------------
Class B Shares of Growth Index Fund
====================================================================================================================
Sale Size Year CDSC
<S> <C> <C>
$0 to $500,000 1 2.50%
2 2.50%
3 2.00%
4 1.50%
5 1.25%
6 0.50%
$500,000 to $1,000,000 1 2.0%
2 2.0%
3 1.0%
4 1.0%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Class C Shares
====================================================================================================================
Sale Size Year CDSC
<S> <C> <C>
all 1 1.0%
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
Class D Shares
====================================================================================================================
Sale Size Year CDSC

$0 to $249,999 1 6.0%
2 6.0%
3 5.0%
4 4.0%
5 4.0%
6 3.0%
7 2.0%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

Waivers of Class A, Class B, Class C and Class D CDSCs

CDSCs payable on redemptions of Class A, Class B, Class C and Class D
shares will be waived in the following circumstances:

< Redemptions of shares issued as a result of reinvestment of dividends
and capital gains

< Redemptions upon the death of the shareholder

< Redemptions to effect distributions required by the Employee
Retirement Income Security Act of 1974, as amended, or regulations
of the Internal Revenue Service

< Redemptions to distribute proceeds of loans made to employees of
not-for-profit organizations (ss.501(c)(3) companies) against shares
held in retirement plan accounts (ss.403(b)(7) accounts)

< Redemptions made pursuant to a systematic withdrawal plan in amounts
up to 10% of the account's then current value annually for Class B
and Class C Shares and in amounts up to 8% of the account's then
current value annually for Class D Shares