<PAGE>
Sentinel Family of Funds
Annual Report
November 30, 1998
[GRAPHIC APPEARS HERE]
<PAGE>
Sentinel Family of Funds
Annual Report
November 30, 1998
[Graphics of Home Appears Here]
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[GRAPHIC Sentinel Group Funds, Inc. (SGF)
APPEARS HERE]
Sentinel Pennsylvania
Tax-Free Trust (PA)
National Life Drive,
Montpelier, Vermont 05604
(800) 282-FUND (3863)
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Table of Contents
2 Message to Shareholders
4 Year 2000 Issues
5 Fund Performance
6 Sentinel Investment Team
7 Sentinel Common Stock Fund
15 Sentinel Balanced Fund
23 Sentinel Growth Fund
29 Sentinel Small Company Fund
35 Sentinel World Fund
41 Sentinel High Yield Bond Fund
49 Sentinel Bond Fund
55 Sentinel Government Securities Fund
61 Sentinel Short Maturity Government Fund
68 Sentinel U.S. Treasury Money Market Fund
73 Sentinel Tax-Free Income Fund
80 Sentinel New York Tax-Free Income Fund
86 Notes to Financial Statements (SGF)
92 Report of Independent Accountants (SGF)
93 Sentinel Pennsylvania Tax-Free Trust
99 Notes to Financial Statements (PA)
101 Report of Independent Accountants (PA)
102 Federal Tax Status of Dividends and Distributions
102 Privileges, Plans and Services for Shareholders
104 Directors/Trustees and Officers
106 A Brief History
Cover: Covered bridge, Tunbridge, Vermont.
Original oil by Douglas Fryer
1
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Message to Shareholders
[PHOTO OF PATRICK E. WELCH APPEARS HERE] [PHOTO OF JOSEPH M. ROB APPEARS HERE]
Patrick E. Welch Joseph M. Rob
Chairman Director and President
Dear Shareholder:
We are pleased to submit our annual report for the twelve months ended November
30, 1998. This past fiscal year contained a number of memorable events that
influenced the world economy and financial markets.
The Economy
One important change from previous years was the pattern of domestic economic
growth. In contrast to 1996 and 1997, which were years of strong, relatively
steady growth, the pattern of economic growth was uneven during 1998. The first
and third quarters experienced strong growth, while second quarter growth,
though still positive, was slower. Inflation remained well under control
throughout the year, with CPI increasing at an annualized rate of 1.5%,
representing an improvement over 1997.
During the first seven months of the fiscal year the stock market was focused on
stronger-than-expected earnings comparisons, which fed investor exuberance, and
was boosted by an ever-increasing stream of investment capital pouring in to the
financial markets from U.S. and foreign investors. In July, financial panic hit
when the Russian government defaulted on its bonds, Japanese banking problems
reached crisis mode, and a major hedge fund nearly failed. Investors fled
overseas markets for the safe haven of the U.S. Treasury market, and bond yields
plummeted.
By the end of the fiscal year, many of the issues that surfaced in July and
August were resolved, or at least had not worsened. The Federal Reserve Board
moved aggressively to lower interest rates and helped to restore investor
confidence. The problems in the Japanese banking system were being addressed by
its government, and while Russia's economic problems had not abated, it became
clear that there would be no immediate defaults by Brazil or other countries. As
financial markets absorbed the news, they resumed their climb upward, though
continuing to exhibit a high degree of volatility.
The Financial Markets
During the fiscal year, stock and bond markets achieved strong returns for the
fourth year in a row.
For the fiscal year ended November 30, 1998, the Lehman Brothers Aggregate Bond
Index, a widely used measure of overall bond market performance, achieved a
total return of 9.5%, moderately above its historical average return. The U.S.
Treasury market continued to serve as the safe haven for investors as events
overseas shook their confidence and they sought the safety of U.S. government
securities. The Federal Reserve Board aggressively reduced key interest rates
late in the fiscal year, including an unusual "between meetings" rate cut in
November.
While the returns for large capitalization stocks were strong once again during
the fiscal year, smaller company stocks failed to keep pace. For the 12 months
ended November 30, 1998, the Standard & Poor's 500 Index achieved a total return
of 23.7%. The Russell 2000, a widely used measure of returns for smaller
capitalization
2
<PAGE>
stocks, had a total return of -6.3% during the period. Strong economic growth
combined with low inflation allowed corporate earnings to advance, interest
rates to decline and price-earnings multiples to expand. The stock market
reached its all time high in November, and closed near that high at the end of
the fiscal year.
Corporate earnings growth was relatively flat during the year, reflecting a
continuing worldwide economic slowdown. A strong U.S. dollar made foreign
imports cheaper, and helped to slow both U.S. exports and corporate earnings
gains. Asian markets, which had been battered last year, saw some recovery, and
most were up significantly in the fourth quarter of 1998. Japan's recent steps
to resolve its economic problems during the latter part of the fiscal year were
received positively by the financial markets. European monetary authorities
acted in concert to ease their monetary conditions, increasing liquidity and
encouraging more investment capital to flow into financial assets worldwide.
Russia, however, continued to remain mired in its economic and political
problems.
Consensus estimates for S&P 500 profits for 1999 now appear to be about $45 per
share. Based on those estimates, the current price-earnings multiple on 1998
earnings is 26 times. With the outlook that corporate profits will be relatively
flat - the most optimistic growth estimate is in the 5-7% range - the potential
for the stock market's future return will be dependent upon further reductions
in interest rates. After four years of strong returns from the stock market, the
current price-earnings multiple has again risen to the high end of its
historical range, a level which can only be justified with further declines in
interest rates. If, however, earnings growth expectations are reduced, these
price-earnings levels may not be sustainable. We continue to believe that our
investment approach, which emphasizes a long-term, value-oriented discipline, is
particularly timely in this environment, and should hold our investors in good
stead in the coming year.
As always, we appreciate your support and look forward to continuing to help you
achieve your investment goals.
Sincerely,
/s/ PATRICK WELCH /s/ JOSEPH M. ROB
Patrick Welch Joseph M. Rob
Chairman Director & President
December 15, 1998
3
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- --------------------------------------------------------------------------------
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 it uses do not properly address this problem prior to
January 1, 2000. Sentinel and its affiliated companies are currently analyzing
these issues and are in the process of implementing the systems modifications
necessary to prepare for the year 2000. Currently, Sentinel does not expect the
transition to the 21st century to have any material impact on its ability to
continue to service the Funds at current levels. In addition, Sentinel has
sought assurances from its other service providers that they are taking all
necessary steps to ensure that their computer systems will accurately reflect
the year 2000. 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. Sentinel
will, of course, continue to monitor the situation and take every precaution at
its disposal to effect a smooth transition into the year 2000.
4
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- --------------------------------------------------------------------------------
Fund Performance
Performance data for each Sentinel Fund is provided in this table. Financial
data is contained in the following pages.
<TABLE>
<CAPTION>
11/30/97 - 11/30/98
-------------------------------------------------------------------
11/30/98
Net Asset Capital
Sentinel Value Per Income Gain Total Lipper
Fund Share Dividends Distributions Return* Average**
<S> <C> <C> <C> <C> <C> <C>
Common Stock "A" Shares $44.56 $.45 $4.69 14.3% 12.4%
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares 44.47 .13 4.69 13.4 -
- -------------------------------------------------------------------------------------------------------------------------
"C" Shares **** 44.55 .03 - -1.4 -
- -------------------------------------------------------------------------------------------------------------------------
Balanced "A" Shares 20.88 .55 1.16 12.2 11.3
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares 20.91 .40 1.16 11.3 -
- -------------------------------------------------------------------------------------------------------------------------
"C" Shares **** 20.90 .16 - 0.9 -
- -------------------------------------------------------------------------------------------------------------------------
Growth "A" Shares 14.65 - 5.13 8.3 14.3
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares *** 14.52 - - 11.0 -
- -------------------------------------------------------------------------------------------------------------------------
Small Company "A" Shares 5.67 .02 .75 2.7 -6.7
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares 5.51 - .75 1.7 -
- -------------------------------------------------------------------------------------------------------------------------
World "A" Shares 18.19 .12 .64 10.3 10.4
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares 17.92 - .64 9.2 -
- -------------------------------------------------------------------------------------------------------------------------
"C" Shares **** 18.05 - - -7.8 -
- -------------------------------------------------------------------------------------------------------------------------
High Yield Bond "A" Shares 9.75 .86 .09 2.7 0.9
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares 9.74 .84 .09 2.4 -
- -------------------------------------------------------------------------------------------------------------------------
"C" Shares **** 9.75 .45 - -4.7 -
- -------------------------------------------------------------------------------------------------------------------------
Bond "A" Shares 6.45 .40 - 8.0 8.2
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares 6.46 .34 - 6.8 -
- -------------------------------------------------------------------------------------------------------------------------
Government Securities 10.46 .61 - 10.0 8.9
- -------------------------------------------------------------------------------------------------------------------------
Short Maturity Government 9.88 .57 - 6.6 4.8
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Market "A" Shares 1.00 .04 - 4.6 4.8
- -------------------------------------------------------------------------------------------------------------------------
"B" Shares 1.00 .04 - 4.5 -
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free Income 13.78 .65 .19 7.4 6.8
- -------------------------------------------------------------------------------------------------------------------------
New York Tax-Free Income 12.19 .62 .03 8.3 7.1
- -------------------------------------------------------------------------------------------------------------------------
Pennsylvania Tax-Free Trust 13.48 .63 .12 6.9 6.5
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500+ - - - 23.7 -
- -------------------------------------------------------------------------------------------------------------------------
Lehman Aggregate Bond Index++ - - - 9.5 -
- -------------------------------------------------------------------------------------------------------------------------
Lehman Municipal Bond Index+++ - - - 7.8 -
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return is computed assuming the reinvestment of dividends and capital
gain distributions using net asset values. Past performance is no guarantee
of future results.
** Average performance of category of funds with similar investment objectives
as tracked by Lipper Analytical Services.
*** 1/12/98 Inception.
**** 5/4/98 Inception.
+ An unmanaged index of stocks reflecting average prices in the stock market.
++ An unmanaged index of bonds reflecting average prices in the bond market.
+++ An unmanaged index of bonds reflecting average prices in the municipal bond
market.
5
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The Sentinel Investment Team
[PHOTO APPEARS HERE]
"The Sentinel Investment Team is highly experienced, averaging more than 16
years of investment experience apiece. Our investment approach is a disciplined
one focusing on in-depth research and skilled portfolio management. Teamwork and
utilization of the best technology play a key role in Sentinel's investment
management. But the most important factor is our commitment to the ongoing hard
work that seeks to produce consistent long-term growth of capital for
shareholders in up markets, and stubbornly strives to preserve shareholder gains
in times of turmoil. It is an approach which has withstood the test of time."
Rodney A. Buck
Standing, left to right: Daniel J. Manion, CFA, Vice President & Co-Portfolio
Manager - Sentinel Common Stock Fund; Scott T. Brayman, CFA, Vice President &
Lead Portfolio Manager - Sentinel Small Company Fund; Kenneth J. Hart, Vice
President & Portfolio Manager - Sentinel Tax-Free Income Fund, New York Tax-Free
Income Fund and Pennsylvania Tax-Free Trust; William C. Kane, CFA, Vice
President & Co-Portfolio Manager - Sentinel Bond Fund; Charles C. Schwartz,
Assistant Equity Analyst; Bruce R. Bottamini, CFA, Vice President, Director of
Fixed Income Research; Gary M. Reich, CPA, CFA, Assistant Vice President &
Equity Analyst; Robert L. Lee, CFA, Senior Vice President & Lead Portfolio
Manager - Sentinel Growth Fund, Co-Manager - Sentinel Small Company Fund;
Richard D. Temple, Vice President & Lead Portfolio Manager - Sentinel Bond Fund,
Co-Manager - Sentinel Balanced Fund.
Seated, left to right: David M. Brownlee, CFA, Senior Vice President & Lead
Portfolio Manager - Sentinel Government Securities Fund and Sentinel Short
Maturity Government Fund; Rodney A. Buck, CFA, Chief Executive Officer -
Sentinel Advisors Company; Darlene A. Coppola, Money Market Trader - Sentinel
U.S. Treasury Money Market Fund; Richard A. Pender, CFA, Senior Vice President &
Lead Portfolio Manager - Sentinel Common Stock Fund, Co-Manager - Sentinel
Balanced Fund.
Not pictured: Erik B. Granade, CFA, Manager - Sentinel World Fund; Prescott B.
Crocker, CFA, Manager - Sentinel High Yield Bond Fund; Thomas H. Brownell, CFA,
Vice President & Portfolio Manager - Fixed Income Team.
6
<PAGE>
Sentinel Common Stock Fund seeks a combination of current income and long-term
growth of both capital and income through investments in the common stocks of
many well-established dividend paying companies.
Sentinel Common Stock Fund
A short period of wide swings in the broad stock market averages, and the
tremendous concentration in the stocks that drove those averages, presented
significant challenges to the management of your Fund this year. We are pleased
that we were able to produce returns superior to the peer group averages.
The Sentinel Common Stock Fund Class A Shares produced a total return of 14.3%
for the fiscal year ended November 30, 1998. This figure compares favorably to
the 12.4% average return for the universe of Lipper Growth & Income Funds but
was below the 23.7% return for the Standard & Poor's 500.
Although the overall returns achieved by common stocks during the year were
quite strong, the period was again marked by significant volatility, and for the
first time in the 1990's, a market correction exceeding 10%. The stock market
began the year strongly, encouraged by a domestic economy that remained robust
and seemed impervious to the difficulties of the emerging economies of the Asia.
But by the early summer, with the Dow Jones Industrial Average having pushed
through the 9000 level and virtually every measure of valuation for the market
as a whole at historically high levels, a number of cracks began to appear in
the rosy scenario. The financial difficulties in the Far East appeared to be
spreading to other areas, in particular South America. Japan was sinking deeper
into recession, and appeared to lack the will or ability to correct its
problems. Political turmoil in Russia suggested the possibility that the
democratic reforms there might be in jeopardy. Investigations in Washington D.C.
were at the early stages of a process that could ultimately lead to an
impeachment trial of the President of the United States in the U.S. Senate. Some
large players in the little known or understood hedge fund industry were
beginning to have financial difficulties - problems that eventually became so
serious that the Federal Reserve Bank had to step in and force a number of
leading financial institutions to invest billions of dollars in an effort to
avert an international financial crisis.
- ------------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 8.6% 14.3%
- ------------------------------------
5 Years 16.8% 18.0%
- ------------------------------------
10 Years 15.2% 15.8%
- ------------------------------------
+Sales charge applicable to year of initial investment.
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sentinel Common Stock Fund Performance - Class A Shares
Ten Years Ended 11/30/98
Common Stock Fund Common Stock Lipper's Growth & S&P
with/load Income Fund Avg. 500
<S> <C> <C> <C>
0 Nov.'88 10,000 10,000 10,000
1 Nov.'89 11,934 12,422 13,080
2 Nov.'90 11,648 11,687 12,627
3 Nov.'91 14,106 14,134 15,193
4 Nov.'92 16,461 16,675 17,993
5 Nov.'93 17,902 18,486 19,806
6 Nov.'94 17,578 18,594 20,019
7 Nov.'95 23,349 24,284 27,409
8 Nov.'96 29,691 30,506 35,049
9 Nov.'97 35,883 37,620 45,092
10 Nov.'98 41,017 42,266 55,764
14.31% 12.35% 23.67%
310.17% 322.66% 457.64%
</TABLE>
*An unmanaged index of stocks reflecting average prices in the stock market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in share class expenses.
All of these factors led to a growing sense of uncertainty about the
sustainability of the U.S. economic expansion. Investors began to shift out of
common stocks and into the safest type of fixed income investments - U.S.
Treasury securities. The stock market declined nearly 20% before stabilizing in
early October, and the U.S. government bond market rallied throughout the summer
and into the fall. The trend in the stock market completely reversed, however,
when the Federal Reserve Board began to cut interest rates in October in a
pre-emptive effort to keep the
7
<PAGE>
domestic economy from slipping into recession. With a clear signal that the Fed
would make strong efforts to support economic growth (and therefore corporate
profits), investors returned to common stocks with a vengeance, and the market
rallied to new all-time highs as the year drew to a close.
Taking a closer look at the action of the stock market, 1998 was also a year in
which the moves in the broad market indices were influenced tremendously by a
relatively small group of very large capitalization stocks. This is possible
particularly with capitalization-weighted indices like the Standard & Poor's
500, where the 50 largest stocks in the index account for over 50% of the
movement of the index, and the other 450 the remainder. During the fiscal year,
the S&P 500 was up around 24%, but the average stock that comprises the index
was up only about half that amount. In effect, the very strong performance of
that group of 50 largest capitalization stocks pulled the market average up to
register a return about double what the typical stock achieved. This influence
of the largest capitalization stocks was particularly vexing for value
investors, as many of the stocks in this group also happen to be among the most
expensive on a valuation basis, and therefore not typically found in investment
portfolios that seek to reduce risk by purchasing stocks trading at low
valuation levels.
This short period of wide swings in the broad stock market averages, and the
tremendous concentration in the stocks that drove those averages, presented
significant challenges to the management of your Fund this year, and we are
pleased that we were able to produce returns superior to the peer group
averages. Our longstanding focus on investment quality and attractive security
valuation enabled us to ride out the summer swoon in the stock market in better
shape than the market indices and competitive mutual funds. While adherence to
our time-tested value philosophy kept us out of some of those market-leading
higher capitalization stocks, and therefore behind the S&P 500 for the full
fiscal year, the Sentinel Common Stock Fund did achieve returns that were
superior to most of its peers, as its Lipper category comparison shows.
Longstanding commitments to the health care and consumer sectors were very
positive contributors to investment performance during the year. In particular,
pharmaceutical stocks such as Pfizer and Schering-Plough, hospital supply
companies like Abbott Laboratories and Becton Dickinson, and specialty retail
companies Costco and The Gap, all achieved very significant gains during the
year. The overall market was led by the strong performance of the technology
sector during the year, and while the Sentinel Common Stock Fund's performance
was hindered by an underweighting in this group, those that we did own, such as
Compaq Computers, IBM and Intel, all achieved very significant gains. Your Fund
also benefited from the sale earlier in the year of several financial stocks.
This sector, after a number of years of very strong performance, was negatively
impacted by the financial turmoil in the summer, and produced subpar returns.
Our elimination of several large holdings in this area prior to that decline
preserved a significant amount of shareholder capital.
For several years, the Sentinel Common Stock Fund has held a number of stocks in
the energy area: domestic oil producers, international conglomerates, natural
gas pipelines, oilfield equipment and service companies, and the like. The steep
decline in the price of oil in 1998 had a negative impact on these holdings. We
remain committed to these investments. Given the vital nature of this commodity,
we believe that over a reasonable investment horizon, supply and
8
<PAGE>
demand for oil will return to balance, and the investment merits of these
holdings will be more widely acknowledged.
The recently concluded fiscal year was another strong one for the Sentinel
Common Stock Fund. The last four years have been an extraordinary period of
stock market returns. In fact, if the market remains at about current levels
through the end of 1998, this will be the first time in history that common
stocks have achieved returns in excess of 20% for four consecutive years. Given
the duration of the stock market advance, the high valuation levels currently
registered, the concentrated nature of the advance, and the strong probability
that growth in corporate earnings will be slower in 1999 than in recent years,
we are maintaining a cautious investment posture in the management of your Fund.
As we have demonstrated in recent years, we strongly believe that the Sentinel
Common Stock Fund's conservative, value-oriented investment style will continue
to serve our shareholders well both in strong markets and in more difficult
periods. As always, we appreciate your continuing support and confidence.
/s/ Richard A. Pender
Richard A. Pender, CFA
/s/ Daniel J. Manion
Daniel J. Manion, CFA
9
<PAGE>
Sentinel Common Stock Fun
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------------------------------------
Common Stocks 97.0%
Aerospace 3.0%
Goodrich (B.F.) 850,000 $ 32,246,875
Raytheon Co. Class A 353,000 19,304,688
---------------
51,551,563
---------------
Automobiles & Auto Parts 2.2%
Ford Motor 688,300 38,028,575
---------------
Banks 6.9%
BankAmerica Corp. 367,770 23,974,007
Bank of New York 1,100,000 37,675,000
Chase Manhattan Corp. 450,000 28,546,875
First Union Corp. 490,000 29,767,500
---------------
119,963,382
---------------
Beverages 1.7%
Pepsico Inc. 751,100 29,058,181
---------------
Building Materials 1.6%
Sherwin - Williams 1,000,000 28,375,000
---------------
Computer Products & Services 4.3%
Compaq Computer 893,200 29,029,000
International Business
Machines 280,000 46,200,000
---------------
75,229,000
---------------
Consumer & Business Services 3.2%
Automatic Data Processing 310,000 23,870,000
Omnicom Group 615,000 32,864,063
---------------
56,734,063
---------------
Consumer Products 4.4%
Fortune Brands 875,000 29,804,688
Kimberly - Clark 900,000 47,362,500
---------------
77,167,188
---------------
Containers & Packaging 0.8%
Bemis Co. 375,000 14,179,688
---------------
Drugs 4.8%
American Home Products 815,000 43,398,750
Pfizer, Inc. 240,000 26,790,000
Schering Plough Corp. 125,000 13,296,875
---------------
83,485,625
---------------
Electrical Equipment 3.0%
Emerson Electric 500,000 32,500,000
General Electric 215,000 19,457,500
---------------
51,957,500
---------------
Energy 7.0%
Amoco 519,200 30,600,350
Chevron 240,000 20,070,000
Exxon 275,000 20,642,188
Mobil 420,000 36,198,750
Royal Dutch Petroleum 325,000 15,275,000
---------------
122,786,288
---------------
Financial Services 6.1%
American Express 375,000 37,523,436
Associated First Capital 180,393 14,048,105
Citigroup 662,500 33,249,217
Fannie Mae 306,900 22,326,975
---------------
107,147,733
---------------
Foods 7.0%
Bestfoods 650,000 37,781,250
Hershey Foods Corp. 350,000 23,537,500
McCormick & Co. 550,000 18,356,250
Sara Lee 700,000 40,862,500
*Sodexho Marriott Services 68,750 1,890,625
---------------
122,428,125
---------------
Healthcare Providers 0.9%
*HCR Manor Care 500,000 15,875,000
---------------
Industrial-Diversified 1.6%
Parker-Hannifin 825,000 28,668,750
---------------
Insurance 6.8%
Allstate Corp. 770,000 31,377,500
American General 495,000 34,866,563
American Int'l. Group 262,550 24,679,700
Jefferson-Pilot 400,000 27,300,000
---------------
118,223,763
---------------
Lodging 1.9%
Marriott International -
Class A 1,100,000 32,312,500
---------------
Medical - Equipment & Supplies 5.1%
Abbott Laboratories 690,000 33,120,000
Becton, Dickinson & Co. 500,000 21,250,000
Johnson & Johnson 430,000 34,937,500
---------------
89,307,500
---------------
Oil Field Equipment & Services 1.6%
Halliburton Co. 570,000 16,743,750
Schlumberger Ltd. 240,000 10,725,000
---------------
27,468,750
---------------
Publishing 3.4%
Gannett 500,000 32,281,250
McGraw-Hill 300,000 26,850,000
---------------
59,131,250
---------------
Railroads 2.2%
Canadian Pacific 575,000 12,685,936
Union Pacific Corp. 530,000 25,771,250
---------------
38,457,186
---------------
Retail 7.0%
*Costco Cos 600,000 37,650,000
Gap Inc. 375,000 27,585,938
May Department Stores 366,980 22,133,482
Sears, Roebuck 725,000 34,392,188
---------------
121,761,608
---------------
Semiconductors 0.8%
Intel Corp. 125,000 13,453,125
---------------
Tobacco 1.2%
Philip Morris 390,000 21,815,625
---------------
Utilities - Electric 3.9%
Duke Energy 310,000 19,394,375
Florida Progress 450,000 19,237,500
FPL Group Inc. 275,000 16,843,750
Pacificorp 700,000 13,125,000
---------------
68,600,625
---------------
Utilities - Gas 2.4%
Enron Corp. 575,000 30,223,438
Sonat, Inc. 380,000 11,281,250
---------------
41,504,688
---------------
Utilities - Telephone 2.2%
GTE Corp. 625,000 38,750,000
---------------
Total Common Stocks
(Cost $920,156,740) 1,693,422,281
---------------
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
Corporate Short-Term Notes 3.1%
American Express
5.08%, 12/22/98 8000M 7,976,293
Assoc. Corp. of NA
5.15%, 12/09/98 11000M 10,987,411
Avnet Inc.
5.18%, 12/14/98 7500M 7,485,971
Chevron Oil Finance
4.80%,12/28/98 9000M 8,967,600
Commercial Credit
5.10%,12/01/98 5000M 5,000,000
Household Finance
5.10%, 12/01/98 5000M 5,000,000
Household Finance
5.10%, 12/04/98 8000M 7,996,600
---------------
Total Corporate Short-Term Notes
(Cost $53,413,875 ) 53,413,875
---------------
Total Investments
(Cost $973,570,615) ** 1,746,836,156
Excess of Liabilities
Over Other Assets (0.1%) (881,332)
---------------
Net Assets $ 1,745,954,824
===============
- --------------------------------------------------------------------------------
* Non-income producing.
** Also cost for federal income tax purposes. At November 30, 1998, unrealized
appreciation for federal income tax purposes aggregated $773,265,541 of
which $790,550,814 related to appreciated securities and $17,285,273
related to depreciated securities.
See Notes to Financial Statements.
10
<PAGE>
Sentinel Common Stock Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $1,746,836,156
Cash and cash equivalents 135,646
Receivable for fund shares sold 1,012,036
Receivable for dividends and interest 4,098,527
--------------
Total Assets 1,752,082,365
--------------
Liabilities
Payable for securities purchased 3,028,127
Payable for fund shares repurchased 551,274
Accrued expenses 363,792
Management fee payable 782,809
Distribution fee payable (Class A Shares) 1,131,566
Distribution fee payable (Class B Shares) 119,928
Distribution fee payable (Class C Shares) 4,121
Fund service fee payable 145,924
--------------
Total Liabilities 6,127,541
--------------
Net Assets Applicable to Outstanding shares $1,745,954,824
==============
Net Asset Value and Offering Price per Share
Class A Shares
$1,610,630,312 / 36,146,489 shares outstanding $ 44.56
Sales Charge-- 5.00% of offering price 2.35
--------------
Maximum Offering Price $ 46.91
==============
Class B Shares
$129,966,093 / 2,922,349 shares outstanding $ 44.47
==============
Class C Shares
$5,358,419 / 120,277 shares outstanding $ 44.55
==============
Net Assets Represent
Capital stock at par value $ 391,891
Paid-in capital 820,308,966
Accumulated undistributed net investment income 2,583,147
Accumulated undistributed net realized gain
on investments 149,405,279
Unrealized appreciation of investments 773,265,541
--------------
Net Assets $1,745,954,824
==============
Investments at Cost $ 973,570,615
==============
See Notes to Financial Statements.
Sentinel Common Stock Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends $ 29,606,537
Interest 3,845,896
--------------
Total Income 33,452,433
--------------
Expenses:
Management advisory fee 9,269,912
Transfer agent and custodian 1,830,330
Distribution expense (Class A Shares) 4,650,000
Distribution expense (Class B Shares) 1,069,245
Distribution expense (Class C Shares) 13,230
Accounting services 513,885
Auditing fees 98,750
Legal fees 70,550
Reports and notices to shareholders 135,075
Directors' fees and expenses 180,175
Other 71,735
--------------
Total Expenses 17,902,887
Expense Offset (113,705)
--------------
Net Expenses 17,789,182
--------------
Net Investment Income 15,663,251
--------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 149,403,464
Net change in unrealized appreciation 55,634,791
--------------
Net Realized and Unrealized Gain on Investments 205,038,255
--------------
Net Increase in Net Assets from Operations $ 220,701,506
==============
See Notes to Financial Statements.
11
<PAGE>
Sentinel Common Stock Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/98 11/30/97
--------------- ---------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 15,663,251 $ 20,032,196
Net realized gain on sales of investments 149,403,464 169,148,488
Net change in unrealized appreciation 55,634,791 84,198,889
--------------- ---------------
Net increase in net assets from operations 220,701,506 273,379,573
--------------- ---------------
Distributions to Shareholders
From net investment income
Class A Shares (16,362,871) (19,255,324)
Class B Shares (275,957) (313,742)
Class C Shares (1,857) -
From net realized gain on investments
Class A Shares (160,459,928) (113,937,213)
Class B Shares (8,547,448) (2,471,535)
Class C Shares - -
--------------- ---------------
Total distributions to shareholders (185,648,061) (135,977,814)
--------------- ---------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 99,401,414 108,947,565
Class B Shares 53,313,684 44,336,849
Class C Shares 5,462,096 -
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 146,514,487 109,313,469
Class B Shares 8,661,766 2,719,384
Class C Shares 1,668 -
--------------- ---------------
313,355,115 265,317,267
Less: Payments for shares reacquired
Class A Shares (176,666,662) (146,100,510)
Class B Shares (12,751,018) (3,169,265)
Class C Shares (334,825) -
--------------- ---------------
Increase in net assets from capital share transactions 123,602,610 116,047,492
--------------- ---------------
Total Increase in Net Assets for period 158,656,055 253,449,251
Net Assets: Beginning of period 1,587,298,769 1,333,849,518
--------------- ---------------
Net Assets: End of period $ 1,745,954,824 $ 1,587,298,769
=============== ===============
Undistributed Net Investment Income
at End of Period $ 2,583,147 $ 3,560,582
=============== ===============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Sentinel Common Stock Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 44.09 $ 40.60 $ 35.21 $ 28.25 $ 29.63
-------------- -------------- -------------- -------------- --------------
Income from Investment Operations
Net investment income 0.42 0.57 0.59 0.72 0.83
Net realized and unrealized gain (loss) on investments 5.19 7.03 8.18 8.09 (1.35)
-------------- -------------- -------------- -------------- --------------
Total from investment operations 5.61 7.60 8.77 8.81 (0.52)
-------------- -------------- -------------- -------------- --------------
Less Distributions
Dividends from net investment income 0.45 0.57 0.61 0.74 0.80
Distributions from realized gains on investments 4.69 3.54 2.77 1.11 0.06
-------------- -------------- -------------- -------------- --------------
Total Distributions 5.14 4.11 3.38 1.85 0.86
-------------- -------------- -------------- -------------- --------------
Net asset value at end of period $ 44.56 $ 44.09 $ 40.60 $ 35.21 $ 28.25
============== ============== ============== ============== ==============
Total Return (%) * 14.3 20.9 27.2 32.8 (1.8)
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.01 1.04 1.06 1.09 1.02
Ratio of expenses to average net assets before
expense reductions (%)** 1.02 1.05 1.07 1.10 1.02
Ratio of net investment income to average net assets (%) 0.98 1.41 1.64 2.29 2.82
Portfolio turnover rate (%) 28 24 22 22 15
Average commission rate paid per share $ 0.0600 $ 0.0600 $ 0.0600 N/A N/A
Net assets at end of period (000 omitted) $1,610,630 $1,509,999 $1,306,592 $1,057,944 $839,335
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
Sentinel Common Stock Fund
Financial Highlights (cont'd.)
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Eight Months Period
Year Ended Year Ended Ended 5/4/98 to
Class B Shares 11/30/98 11/30/97 11/30/96 (A) Class C Shares 11/30/98 (B)
------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 44.03 $ 40.57 $ 35.43 $ 45.23
------------ ------------ -------------- ---------------
Income (loss) from Investment Operations
Net investment income 0.07 0.27 0.22 0.06
Net realized and unrealized gain (loss) on investments 5.19 6.99 5.05 (0.71)
------------ ------------ -------------- ---------------
Total from investment operations 5.26 7.26 5.27 (0.65)
------------ ------------ -------------- ---------------
Less Distributions
Dividends from net investment income 0.13 0.26 0.13 0.03
Distributions from realized gains on investments 4.69 3.54 -- --
------------ ------------ -------------- ---------------
Total Distributions 4.82 3.80 0.13 0.03
------------ ------------ -------------- ---------------
Net asset value at end of period $ 44.47 $ 44.03 $ 40.57 $ 44.55
============ ============ ============== ===============
Total Return (%) * 13.4 19.9 14.9++ (1.4)++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.81 1.79 1.91+ 1.92 +
Ratio of expenses to average net assets before
expense reductions (%)** 1.81 1.80 1.92+ 1.92 +
Ratio of net investment income to average net assets (%) 0.19 0.66 0.80+ 0.08 +
Portfolio turnover rate (%) 28 24 22 28
Average commission rate paid per share $ 0.0600 $0.0600 $0.0600 $0.0600
Net assets at end of period (000 omitted) $ 129,966 $77,299 $27,257 $ 5,358
</TABLE>
(A) Commenced operations April 1, 1996.
(B) Commenced operations May 4, 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 earning credits as described in Notes (2)
and (1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
14
<PAGE>
Sentinel Balanced Fund seeks a conservative combination of stability, income and
capital growth
through a well diversified portfolio of both stocks and bonds.
At least 25% of the Fund's net assets will always be invested in fixed income
securities.
Sentinel Balanced Fund
As of November 30, 1998, the Sentinel Balanced Fund's asset allocation was 60%
stocks, 36% bonds and 4% cash, little changed from the beginning of the year but
actively managed to maintain that balance. These asset allocation adjustments
had a positive influence on performance during a year of dramatic market shifts.
The Sentinel Balanced Fund Class A Shares produced a total return of 12.2% for
the fiscal year ended November 30, 1998. The Balanced Fund's results compare
favorably to the 11.3% return of the average balanced fund as measured by Lipper
Analytical Services, and fell between the 23.7% return for the Standard & Poor's
500 and the 9.5% return for the Lehman Aggregate Bond Index.
For both the stock and bond markets, the last twelve months can be characterized
as a period of very wide market swings, and one where a relatively concentrated
group of securities dominated the performance of the two sectors. In the case of
common stocks, a strong market rally in the early part of the year abruptly
ended due to a confluence of troubling economic, financial and political events.
The subsequent market correction, the first meaningful decline in stock prices
in the 1990s, likewise came to an abrupt end when the Federal Reserve Board
unexpectedly moved to lower interest rates in the fall. The performance of the
widely followed Standard & Poor's 500 was exceptionally strong, but was in fact
greatly influenced by the gains in the 50 largest capitalization stocks in that
index - the average stock was up only about half as much as the index itself. On
the fixed income side, a flight to quality during the turmoil of the summer led
to a tremendous rally in the U.S. Treasury market, with the yield on the
benchmark 30-year Treasury Bond reaching its lowest level in recent history.
Corporate bond spreads widened during the year, resulting in significant
underperformance relative to Treasuries.
The Sentinel Balanced Fund began the fiscal year with a mix of 62% stocks, 35%
bonds and 3% cash. After the stock market moved significantly higher early in
the year, we trimmed back the stock segment to maintain our planned 60%
allocation. In late summer, after a meaningful decline in the stock market, we
sold some fixed income investments and added to common stocks, this time
building the stock allocation back up to the 60% level. Once again in the fall,
after the stock market had recovered significantly, we trimmed positions. As of
November 30, 1998, the Sentinel Balanced Fund's asset allocation was 60% stocks,
36% bonds and 4% cash, little changed from the beginning of the year but
actively managed to maintain that balance. These asset allocation adjustments
had a positive influence on performance during a year of dramatic market shifts,
as the effect in each
- ----------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 6.6% 12.2%
- ----------------------------------
5 Years 11.5% 12.6%
- ----------------------------------
10 Years 11.6% 12.2%
- ----------------------------------
+Sales charge applicable to year of initial investment.
================================================================================
Sentinel Balanced fund Performance - Class A Shares
Ten Years Ended 11/30/08
[LINE GRAPH APPEARS HERE]
Balanced Fund Balanced Lipper's Bal. S&P Lehman
with/load Fund Avg. 500 Aggregate
0 Nov.'88 9,500 10,000 10,000 10,000
1 Nov.'89 11,215 11,994 13,080 11,435
2 Nov.'90 11,412 11,824 12,627 12,302
3 Nov.'91 13,409 14,079 15,193 14,075
4 Nov.'92 15,065 16,091 17,993 15,322
5 Nov.'93 16,532 17,791 19,806 16,991
6 Nov.'94 15,930 17,625 20,019 16,471
7 Nov.'95 19,818 21,990 27,409 19,376
8 Nov.'96 23,105 25,844 35,049 20,553
9 Nov.'97 26,670 30,115 45,049 22,105
10 Nov.'98 29,922 33,521 55,764 24,194
*An unmanaged index of stocks reflecting average prices in the stock market.
+An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Indices and Average shown above, you should note
that the Fund's performance reflects the maximum 5% sales charge and includes
all expenses and management fees, while that shown for the Indices and Average
does not. Past performance is not predictive of future results. Performance will
vary for each class of shares due to differences in share class expenses.
15
<PAGE>
instance was to be adding to the asset class that was depressed in price and
trimming back the highly appreciated asset class.
Within the equity asset class, the Sentinel Balanced Fund benefited
significantly from its substantial holdings in the healthcare and consumer
areas, particularly in the pharmaceutical, medical supply and specialty retail
industries. Technology stock performance contributed positively, although an
underweighting in this sector relative to the broad market hurt returns. The
Fund also benefited from a timely move out of several large capitalization
financial stocks early in the year, avoiding some of the significant
underperformance of that group during the financial turmoil of the summer
months. Finally, although the stock segment did achieve strong risk-adjusted
returns relative to other portfolios managed with a value oriented investment
approach, our unwillingness to risk investment in certain of the very largest
market capitalization stocks, which in a number of cases are trading at
historically high valuation levels, depressed performance relative to the
Standard & Poor's 500. This particular group of large stocks can at times
dominate the movement of the capitalization-weighted S&P 500, and in 1998 their
influence was so strong that the return on the S&P 500 index was approximately
double the return of the typical stock that comprises that index.
Looking ahead to 1999, we anticipate continued low interest rates and restrained
inflation. It is our expectation, however, that corporate profit growth may be
somewhat slower than has been the case in recent years. In such an environment,
we expect on the common stock side to emphasize companies with a track record
for relatively consistent earnings growth. We will as always be particularly
vigilant with respect to valuation, investing in securities where expectations
are reasonable and valuation levels are low, rather than those where
expectations are unrealistically high, and valuations likewise, making the stock
vulnerable should any disappointment arise. In the fixed income segment, we will
continue to focus on quality investments in the government, corporate and
mortgage-backed sectors. At present, corporate bond spreads in particular remain
at historically wide levels, and appear to offer good relative value.
Financial market returns have been extraordinarily strong over the last four
years, and we do not anticipate a repeat performance in 1999. While it is
reasonable to assume moderate stock and bond market returns moving forward,
shareholders should realize that the returns in recent years have been
historically high, and that 20% plus returns on common stocks and 10% returns on
fixed income investments represent exceptional rather than normal returns. In
the slower growth environment ahead, we continue to believe that a balanced
investment program, with diversified exposure to both the stock and bond
markets, will serve our shareholders well. We appreciate your continuing support
of our efforts.
/s/ Rodney A. Buck
Rodney A. Buck, CFA
/s/ Richard A. Pender
Richard A. Pender, CFA
/s/ Richard D. Temple
Richard D. Temple
16
<PAGE>
Sentinel Balanced Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
U.S. Government Obligations 17.0%
U.S. Treasury Obligations 9.4%
5-Year:
Note 4.25%, '03 2500M $ 2,472,450
---------------
10-Year:
Note 7.25%, '04 500M 562,585
Note 6.875%, '06 750M 846,548
Note 5.625%, '08 16500M 17,550,225
---------------
18,959,358
---------------
30-Year:
Note 7.25%, '16 1000M 1,224,130
Note 6%, '26 10000M 11,001,500
Note 5.5%, '28 1800M 1,903,680
---------------
14,129,310
---------------
Total U.S. Treasury Obligations 35,561,118
---------------
U.S. Government Agency Obligations 7.6%
Federal Home Loan Mortgage Corporation 1.2%
15-Year:
7%, '10 868M 892,074
7.5%, '10 1232M 1,271,657
7.5%, '10 1087M 1,122,819
---------------
3,286,550
---------------
30-Year:
8%, '08 1298M 1,372,281
---------------
Total Federal Home
Loan Mortgage Corporation 4,658,831
---------------
Federal National Mortgage Association 5.1%
Collateralized Mortgage Obligation:
CMO Trust Series
22(Y) 7.95%, '17 1654M 1,702,287
---------------
15-Year:
7.5%, '07 898M 926,161
7.5%, '12 3824M 3,937,609
---------------
4,863,770
---------------
30-Year:
6%, '28 1210M 1,194,952
7%, '28 3674M 3,754,299
7%, '28 1425M 1,455,723
7.5%, '28 6068M 6,242,416
---------------
12,647,390
---------------
Total Federal National
Mortgage Association 19,213,447
---------------
Government National Mortgage Association 1.3%
15-Year:
7%, '09 2357M 2,435,644
7%, '13 2404M 2,475,066
---------------
4,910,710
---------------
30-Year:
9%, '09 27M 29,353
---------------
Total Government
National Mortgage Association 4,940,063
---------------
Total U.S. Government
Agency Obligations 28,812,341
---------------
Total U.S. Government Obligations
(Cost $62,595,636) 64,373,459
---------------
Bonds 19.4%
Beverages 0.1%
Anheuser Busch 8.5%, '17 403M 417,105
---------------
Financial Institutions 4.3%
Bankers Trust 7.25%, '11 1500M 1,606,875
Contifinancial 7.5%, '02 1000M
820,000 First Union Corp.
6.824%, '26 2325M 2,621,438
Household Finance Corp.
5.875%, '04 1000M 1,008,750
Lehman Brothers Holdings
8.5%, '15 2800M 3,087,000
Providian National Bank
6.7%, '03 1500M 1,513,125
Salomon Brothers 7.2%, '04 3500M 3,696,875
Simon Debartolo 6.75%, '05 2000M 1,945,000
---------------
16,299,063
---------------
Foreign Financial Institutions 4.4%
Bank Austria 7.25%, '17 3000M 3,180,000
Banque National de Paris
7.738%, '49 4000M 3,900,000
BCH Cayman Islands Ltd.
7.7%, '06 2500M 2,718,750
Credit Suisse 7.9%, '07 1500M 1,531,875
Midland Bank 7.65%, '25 2250M 2,472,187
Societe Generale 7.64%, '49 3000M 2,801,250
---------------
16,604,062
---------------
Foreign Utility-Electric 0.4%
Korea Electric Power
6.75%, '27 1000M 856,250
Korea Electric Power 7%, '27 1000M 830,000
---------------
1,686,250
---------------
Industrial - Diversified 4.0%
Akzo Nobel Inc. 6%, '03 1000M 1,010,000
Dimon Inc. 8.875%, '06 1800M 1,784,250
Federal-Mogul 7.75%, '06 1000M 1,001,250
General Motors 7.1%, '06 1000M 1,077,500
IMC Global Inc. 7.4%, '02 2000M 2,047,500
Lubrizol Corp. 5.875%, '08 1750M 1,741,250
Marriott Int'l. Inc.
6.625%, '03 1750M 1,758,750
Mirage Resorts 6.625%, '05 1500M 1,464,375
Owens Corning 7.5%, '05 3000M 3,105,000
---------------
14,989,875
---------------
Insurance 1.7%
Farmers Insurance Exchange
8.625%, '24 3000M 3,607,500
Lumbermens Mutual Casualty
8.3%, '37 2500M 2,712,500
---------------
6,320,000
---------------
Telecommunications 2.0%
Comsat 8.05%, '06 2000M 2,321,100
Continental Cablevision
9.5%, '13 2625M 3,107,344
News America Holdings
6.625%, '08 2000M 2,050,000
---------------
7,478,444
---------------
Utilities-Electric 1.6%
Cleveland Electric 9%, '23 2000M 2,220,000
Waterford 3 Funding
8.09%, '17 3500M 3,775,625
---------------
5,995,625
---------------
Utilities-Gas 0.1%
Consolidated Natural Gas
8.625%, '11 309M 309,000
---------------
Utilities-Telephone 0.8%
MCI Worldcom Inc.
6.4%, '05 2000M 2,080,000
US West Capital Funding
6.25%, '05 1000M 1,038,750
---------------
3,118,750
---------------
Total Bonds
(Cost $71,422,203) 73,218,174
---------------
(continued)
17
<PAGE>
Sentinel Balanced Fund
Investment in Securities (cont'd.)
at November 30, 1998
------------------------------------------------------------------------------
Shares Value
(Note 1)
------------------------------------------------------------------------------
Common Stocks 60.0%
Aerospace 1.8%
Goodrich (B. F.) 117,500 $ 4,457,656
Raytheon Co. Class A 47,100 2,575,781
---------------
7,033,437
---------------
Automobiles & Auto Parts 1.3%
Ford Motor 90,000 4,972,500
---------------
Banks 4.4%
BankAmerica Corp. 50,922 3,319,478
Bank of New York 155,000 5,308,750
Chase Manhattan Corp. 63,000 3,996,563
First Union Corp. 65,000 3,948,750
---------------
16,573,541
---------------
Beverages 1.0%
Pepsico Inc 94,100 3,640,494
---------------
Building Materials 1.0%
Sherwin-Williams 134,500 3,816,437
---------------
Computer Products 2.7%
Compaq Computer 117,900 3,831,750
International Business Machines 38,700 6,385,500
---------------
10,217,250
---------------
Consumer & Business Services 2.0%
Automatic Data Processing 42,000 3,234,000
Omnicom Group 80,000 4,275,000
---------------
7,509,000
---------------
Consumer Products 2.6%
Fortune Brands 115,000 3,917,188
Kimberly-Clark 113,000 5,946,625
---------------
9,863,813
---------------
Containers & Packaging 0.6%
Bemis Co. 60,000 2,268,750
---------------
Drugs 3.0%
American Home Products 105,000 5,591,250
Pfizer, Inc. 30,000 3,348,750
Schering Plough Corp. 25,000 2,659,375
---------------
11,599,375
---------------
Electrical Equipment 2.0%
Emerson Electric 75,000 4,875,000
General Electric 28,000 2,534,000
---------------
7,409,000
---------------
Energy 3.3%
Chevron 32,500 2,717,812
Exxon 35,000 2,627,188
Mobil 60,100 5,179,869
Royal Dutch Petroleum 40,000 1,880,000
---------------
12,404,869
---------------
Financial Services 3.7%
American Express 45,000 4,502,813
Associated First Capital 23,587 1,836,838
Citigroup 86,250 4,328,672
Fannie Mae 46,100 3,353,775
---------------
14,022,098
---------------
Foods 4.5%
Bestfoods 90,000 5,231,250
Hershey Foods Corp. 45,000 3,026,250
McCormick & Co. 88,500 2,953,687
Sara Lee 92,000 5,370,500
* Sodexho Marriott Services 10,000 275,000
---------------
16,856,687
---------------
Healthcare Providers 0.6%
* HCR Manor Care 75,000 2,381,250
---------------
Industrial-Diversified 1.5%
Dover 60,000 2,137,500
Parker-Hannifin 105,000 3,648,750
---------------
5,786,250
---------------
Insurance 4.2%
Allstate Corp. 110,000 4,482,500
American General 63,000 4,437,563
American Int'l. Group 33,750 3,172,500
Jefferson-Pilot 57,750 3,941,438
---------------
16,034,001
---------------
Lodging 1.2%
Marriott International -
Class A 157,500 4,626,562
---------------
Medical-Equipment & Supplies 3.2%
Abbott Laboratories 100,000 4,800,000
Becton, Dickinson & Co. 67,600 2,873,000
Johnson & Johnson 56,000 4,550,000
---------------
12,223,000
---------------
Oil Field Equipment & Services 1.1%
Halliburton Co. 91,000 2,673,125
Schlumberger Ltd. 31,500 1,407,656
---------------
4,080,781
---------------
Publishing 2.8%
Gannett 76,000 4,906,750
McGraw-Hill 63,500 5,683,250
---------------
10,590,000
---------------
Railroads 1.0%
Union Pacific Corp. 80,000 3,890,000
---------------
Retail 4.2%
* Costco Cos 87,000 5,459,250
Gap Inc. 33,000 2,427,562
May Department Stores 55,000 3,317,187
Sears, Roebuck 96,700 4,587,206
---------------
15,791,205
---------------
Semiconductors 0.5%
Intel Corp. 16,500 1,775,812
---------------
Tobacco 0.8%
Philip Morris 54,000 3,020,625
---------------
Utilities-Electric 1.9%
Duke Energy 41,000 2,565,063
Florida Progress 55,000 2,351,250
FPL Group 36,000 2,205,000
---------------
7,121,313
---------------
Utilities-Gas 1.7%
Enron Corp. 86,000 4,520,375
Sonat, Inc. 60,000 1,781,250
---------------
6,301,625
---------------
Utilities-Telephone 1.4%
GTE Corp. 86,000 5,332,000
---------------
Total Common Stocks
(Cost $130,930,768) 227,141,675
---------------
Corporate Short-Term Notes 8.8%
American Express
5.1%, 12/31/98 4000M 3,983,000
Avnet Inc.
5.18%, 12/14/98 1500M $ 1,497,194
CIT Group Holdings
5.13%, 12/30/98 14000M 13,942,145
IBM Credit Corp.
4.85%, 12/31/98 2000M 1,991,917
John Deere Capital
4.86%, 12/04/98 7000M 6,997,165
Norwest Financial
5.18%, 12/01/98 5000M 5,000,000
---------------
Total Corporate Short-Term Notes
(Cost $33,411,421) 33,411,421
---------------
Total Investments
(Cost $298,360,028)** 398,144,729
Excess of Liabilities
Over Other Assets (5.2%) (19,609,603)
---------------
Net Assets $ 378,535,126
===============
- --------------------------------------------------------------------------------
* Non-income producing.
** Cost for federal income taxes is substantially similar. At November 30,
1998 net unrealized appreciation for federal income tax purposes aggregated
$99,784,701 of which $102,112,328 related to appreciated securities and
$2,327,627 related to depreciated securities.
See Notes to Financial Statements.
18
<PAGE>
Sentinel Balanced Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $398,144,729
Cash and cash equivalents 571,150
Receivable for securities sold 5,082,137
Receivable for fund shares sold 257,278
Receivable for dividends and interest 2,662,679
-------------
Total Assets 406,717,973
-------------
Liabilities
Payable for securities purchased 27,298,188
Payable for fund shares repurchased 370,964
Accrued expenses 82,057
Management fee payable 187,804
Distribution fee payable (Class A Shares) 161,476
Distribution fee payable (Class B Shares) 43,127
Distribution fee payable (Class C Shares) 1,175
Fund service fee payable 38,056
-------------
Total Liabilities 28,182,847
-------------
Net Assets Applicable to Outstanding Shares $378,535,126
=============
Net Asset Value and Offering Price per Share
Class A Shares
$330,066,783 / 15,808,573 shares outstanding $ 20.88
Sales Charge -- 5.00% of offering price 1.10
-------------
Maximum Offering Price $ 21.98
=============
Class B Shares
$46,945,543 / 2,245,632 shares outstanding $ 20.91
=============
Class C Shares
$1,522,800 / 72,865 shares outstanding $ 20.90
=============
Net Assets Represent
Capital stock at par value $ 181,271
Paid-in capital 250,422,055
Accumulated undistributed net investment income 1,300,366
Accumulated undistributed net realized gain
on investments 26,846,733
Unrealized appreciation of investments 99,784,701
-------------
Net Assets $378,535,126
=============
Investments at Cost $298,360,028
=============
See Notes to Financial Statements.
Sentinel Balanced Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends $ 4,039,182
Interest 9,666,708
-------------
Total Income 13,705,890
-------------
Expenses:
Management advisory fee 2,219,171
Transfer agent and custodian 523,860
Distribution expense (Class A Shares) 973,865
Distribution expense (Class B Shares) 361,064
Distribution expense (Class C Shares) 4,243
Accounting services 110,385
Auditing fees 26,090
Legal fees 10,975
Reports and notices to shareholders 36,515
Directors' fees and expenses 38,499
Other 46,438
-------------
Total Expenses 4,351,105
Expense Offset (45,480)
-------------
Net Expenses 4,305,625
-------------
Net Investment Income 9,400,265
-------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 26,819,535
Net change in unrealized appreciation 4,726,009
-------------
Net Realized and Unrealized Gain on Investments 31,545,544
-------------
Net Increase in Net Assets from Operations $ 40,945,809
=============
See Notes to Financial Statements.
19
<PAGE>
Sentinel Balanced Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
-------------- --------------
Increase in Net Assets from Operations
Net investment income $ 9,400,265 $ 9,300,414
Net realized gain on sales of investments 26,819,535 19,528,942
Net change in unrealized appreciation 4,726,009 17,871,222
-------------- --------------
Net increase in net assets from operations 40,945,809 46,700,578
-------------- --------------
Distributions to Shareholders
From net investment income
Class A Shares (8,757,240) (8,713,721)
Class B Shares (681,123) (386,612)
Class C Shares (6,238) --
From net realized gain on investments
Class A Shares (18,036,497) (7,122,678)
Class B Shares (1,576,559) (285,241)
Class C Shares -- --
-------------- --------------
Total distributions to shareholders (29,057,657) (16,508,252)
-------------- --------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 35,425,569 34,678,474
Class B Shares 20,459,943 14,295,999
Class C Shares 1,476,109 --
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 24,763,831 14,292,974
Class B Shares 2,110,105 615,243
Class C Shares 6,238 --
-------------- --------------
84,241,795 63,882,690
Less: Payments for shares reacquired
Class A Shares (55,473,366) (59,461,675)
Class B Shares (3,659,707) (1,308,672)
Class C Shares (2,229) --
-------------- --------------
Increase in net assets from capital share
transactions 25,106,493 3,112,343
-------------- --------------
Total Increase in Net Assets for period 36,994,645 33,304,669
Net Assets: Beginning of period 341,540,481 308,235,812
============== ==============
Net Assets: End of period $ 378,535,126 $ 341,540,481
============== ==============
Undistributed Net Investment Income
at End of Period $ 1,300,366 $ 1,371,840
============== ==============
See Notes to Financial Statements.
20
<PAGE>
Sentinel Balanced Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 20.29 $ 18.55 $ 16.84 $ 14.08 $ 15.27
------------ ------------ ------------ ------------ ------------
Income (loss) from Investment Operations
Net investment income 0.54 0.56 0.54 0.58 0.58
Net realized and unrealized gain (loss) on investments 1.76 2.18 2.13 2.78 (1.12)
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.30 2.74 2.67 3.36 (0.54)
------------ ------------ ------------ ------------ ------------
Less Distributions
Dividends from net investment income 0.55 0.55 0.54 0.59 0.56
Distributions from realized gains on investments 1.16 0.45 0.42 0.01 0.09
------------ ------------ ------------ ------------ ------------
Total Distributions 1.71 1.00 0.96 0.60 0.65
------------ ------------ ------------ ------------ ------------
Net asset value at end of period $ 20.88 $ 20.29 $ 18.55 $ 16.84 $ 14.08
============ ============ ============ ============ ============
Total Return (%) * 12.2 15.4 16.6 24.4 (3.6)
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.12 1.16 1.20 1.27 1.21
Ratio of expenses to average net assets before
expense reductions (%) ** 1.13 1.17 1.22 1.29 1.21
Ratio of net investment income to average net assets (%) 2.69 2.93 3.13 3.77 3.97
Portfolio turnover rate (%) 81 63 83 110 66
Average commission rate paid per share $ 0.0600 $ 0.0600 $ 0.0600 N/A N/A
Net assets at end of period (000 omitted) $ 330,067 $ 314,948 $ 297,288 $ 267,103 $ 226,328
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
Sentinel Balanced Fund
Financial Highlights (cont'd.)
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months Period
Year Ended Year Ended Ended 5/4/98 to
Class B Shares 11/30/98 11/30/97 11/30/96 (A) Class C Shares 11/30/98 (B)
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 20.32 $ 18.58 $ 17.09 $ 20.87
---------- ---------- ------------ ------------
Income from Investment Operations
Net investment income 0.38 0.42 0.26 0.20
Net realized and unrealized gain (loss) on investments 1.77 2.18 1.37 (0.01)
---------- ---------- ------------ ------------
Total from investment operations 2.15 2.60 1.63 0.19
---------- ---------- ------------ ------------
Less Distributions
Dividends from net investment income 0.40 0.41 0.14 0.16
Distributions from realized gains on investments 1.16 0.45 -- --
---------- ---------- ------------ ------------
Total Distributions 1.56 0.86 0.14 0.16
---------- ---------- ------------ ------------
Net asset value at end of period $ 20.91 $ 20.32 $ 18.58 $ 20.90
========== ========== ============ ============
Total Return (%) * 11.3 14.6 9.6 ++ 0.9 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.89 1.88 2.12 + 2.17 +
Ratio of expenses to average net assets before
expense reductions (%) ** 1.90 1.89 2.13 + 2.18 +
Ratio of net investment income to average net assets (%) 1.91 2.21 2.21 + 1.63 +
Portfolio turnover rate (%) 81 63 83 81
Average commission rate paid per share $ 0.0600 $ 0.0600 $ 0.0600 $ 0.0600
Net assets at end of period (000 omitted) $ 46,946 $ 26,593 $ 10,948 $ 1,523
</TABLE>
(A) Commenced operations April 1, 1996.
(B) Commenced operations May 4, 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 earning credits as described in Notes (2)
and (1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
22
<PAGE>
Sentinel Growth Fund seeks long-term growth of capital through intensively
managed primary investments in companies with seasoned, yet aggressive
managements.
Sentinel Growth Fund
The Sentinel Growth Fund, which is comprised of many medium-size and smaller
stocks, underperformed during the first half of the year but benefited from a
recovery in mid-cap stocks and technology shares during the second half of the
fiscal year.
The Sentinel Growth Fund Class A Shares earned a total return of 8.3% during the
fiscal year ended November 30, 1998. The average fund in the Lipper Growth Fund
universe earned a 14.3% return and the Standard & Poor's 500 produced a 23.7%
return. Over the last three years, the Fund has provided a compounded annual
return to shareholders of 19.1%.
Large capitalization stocks, which dominate the return on the S&P 500,
outperformed medium and small cap stocks by a wide margin during the first half
of the fiscal year. The primary reasons for the strong performance of large cap
stocks were: 1) a preference among U.S. investors for companies with earnings
predictability and trading liquidity, and 2) a preference among foreign
investors for large, well-known companies. The Sentinel Growth Fund, which is
comprised of many medium-size and smaller stocks, underperformed during the
first half of the year but benefited from a recovery in mid-cap stocks and
technology shares during the second half of the fiscal year.
During the first half of the year, the Fund's overweighted position in health
care, along with strong stock selection in that sector, contributed positively
to the portfolio. Stock selection in the consumer sector was hurt by an
underweighting in large capitalization retail companies and an overweighting in
tobacco stocks. An overweighted position in technology, particularly
semiconductor-related stocks, also hurt performance.
Most of these factors reversed themselves in the second half of the year as
performance was helped by our overweighted positions in tobacco and technology
stocks. An overweight position in financial stocks, along with above average
stock selection in that sector, also contributed positively to performance. The
only significant negative impact on the portfolio was the poor performance of
the health care sector, particularly stocks in the long-term care industry.
Looking forward, we envision an environment of relatively slow economic growth,
low inflation, and low interest rates. With the S&P 500 now
Average Annual
Total Return -
Class A Shares
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 2.9% 8.3%
- ------------------------------
5 Years 13.7% 14.9%
- ------------------------------
10 Years 12.6% 13.2%
- ------------------------------
+Sales charge applicable to year of initial investment.
[LINE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Sentinel Growth Fund Performance - Class A Shares
Ten Years Ended 11/30/98
Growth Fund Growth Fund Lipper's Growth S&P
with/load Fund Avg. 500
0 Nov.'88 10,000 10,000 10,000
1 Nov.'89 12,135 12,949 13,080
2 Nov.'90 11,970 12,111 12,627
3 Nov.'91 13,789 15,405 15,193
4 Nov.'92 16,610 18,249 17,993
5 Nov.'93 16,391 20,346 19,806
6 Nov.'94 15,549 20,641 20,019
7 Nov.'95 19,415 27,216 27,409
8 Nov.'96 23,803 33,172 35,049
9 Nov.'97 30,291 40,497 45,092
10 Nov.'98 32,816 46,296 55,764
*An unmanaged index of stocks reflecting average prices in the stock market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
23
<PAGE>
having outperformed mid-cap and small-cap stocks for several years in a row, we
would expect investors to once again focus on the superior earnings growth and
superior relative values of companies in the small and mid-cap sectors. The fund
is well-positioned for such an environment with a significant weighting in
attractively-valued medium-sized companies in growth industries. We appreciate
your continued support and look forward to helping you achieve your goal of
long-term capital appreciation.
/s/ Robert L. Lee
Robert L. Lee, CFA
24
<PAGE>
Sentinel Growth Fund
Investment in Securities
at November 30, 1998
- -------------------------------------------------------------------------------
Shares Value
(Note 1)
- -------------------------------------------------------------------------------
Common Stocks 99.4%
Aerospace 1.3%
Goodrich (B. F.) 35,000 $1,327,813
------------
Banks 2.9%
Cullen Frost Bankers, Inc. 27,800 1,490,775
Mercantile Bankshares 40,000 1,405,000
------------
2,895,775
------------
Beverages 1.9%
Pepsico Inc. 50,000 1,934,375
------------
Chemicals 1.3%
Cambrex Corp. 48,800 1,366,400
Computer Products & Services 4.6%
------------
Automatic Data Processing 7,200 554,400
Compaq Computer 80,000 2,600,000
Hewlett Packard 24,000 1,506,000
------------
4,660,400
------------
Consumer & Business Services 6.9%
* Affiliated Computer Services 100,000 3,831,250
Electronic Data Systems 42,900 1,673,100
* Filenet Corp. 55,000 470,938
Omnicom Group 20,000 1,068,750
------------
7,044,038
------------
Drugs 1.8%
American Home Products 18,000 958,500
Merck & Co. 5,900 913,762
------------
1,872,262
------------
Entertainment 2.7%
* Cox Communications 52,000 2,739,750
------------
Financial Services 1.7%
American Express 12,000 1,200,750
SLM Holdings Corp. 11,000 484,000
------------
1,684,750
------------
Foods 4.5%
Hershey Foods Corp 8,000 538,000
McCormick & Co. 53,000 1,768,875
Sara Lee 10,000 583,750
* Sodexho Marriott Services 60,000 1,650,000
------------
4,540,625
------------
Healthcare Providers 1.2%
* Genesis Health Ventures 125,000 1,195,313
------------
Industrial - Diversified 1.2%
* Bush Boake Allen 35,000 1,194,375
------------
Insurance 3.3%
Enhance Financial Services 65,000 1,909,375
Life Reassurance Corp. 15,000 1,412,813
------------
3,322,188
------------
Lodging 1.0%
Marriott International -
Class A 35,000 $ 1,028,125
------------
Manufacturing - Diversified 0.7%
Bemis Co. 20,000 756,250
------------
Marketing Services 4.1%
* Acxiom Corp 90,000 2,126,250
* Catalina Marketing Corp. 35,000 2,038,750
------------
4,165,000
------------
Medical - Equipment & Supplies 5.7%
Abbott Laboratories 12,400 595,200
Becton Dickinson & Co. 20,400 867,000
Hillenbrand Industries 45,000 2,556,562
Medtronic Inc. 26,600 1,800,487
------------
5,819,249
------------
Medical - Lab & Testing Services 2.5%
* Covance Inc. 100,000 2,500,000
------------
Oil Field Equipment & Services 2.1%
* Smith International 90,000 2,171,250
------------
Restaurants 7.3%
* Outback Steakhouse 60,000 2,130,000
Ruby Tuesday, Inc. 170,000 3,166,250
Sbarro, Inc. 80,000 2,080,000
------------
7,376,250
------------
Retail 5.8%
* Costco Cos 16,000 1,004,000
Ethan Allen Interiors 26,200 1,034,900
Home Depot 21,000 1,044,750
Wal Mart Stores Inc. 38,000 2,861,875
------------
5,945,525
------------
Retail - Apparel 4.5%
Gap 16,800 1,235,850
* Lands' End Inc. 28,200 636,262
TJX Companies 20,000 512,500
* Wet Seal Inc. - Class A 80,000 2,220,000
------------
4,604,612
------------
Semiconductors & Semiconductor Equipment 11.7%
* Applied Materials Inc. 61,600 2,387,000
Dallas Semiconductor Corp. 48,000 1,812,000
Intel Corp. 18,000 1,937,250
* KLA Instruments 55,500 1,890,469
* Novellus Systems 50,000 2,481,250
* Photronics Inc. 72,200 1,444,000
------------
11,951,969
------------
Software 3.9%
* Microsoft Corp. 9,000 1,098,000
* Novell Inc. 170,000 2,815,625
------------
3,913,625
------------
Telecommunications 7.3%
AT & T 21,200 $ 1,321,025
* Airtouch Communications 10,000 571,875
* Cisco Systems Inc. 10,000 753,750
* MCI Worldcom 55,200 3,256,800
Motorola 25,000 1,550,000
------------
7,453,450
------------
Tobacco 5.4%
Philip Morris 70,500 3,943,594
UST, Inc. 44,000 1,529,000
------------
5,472,594
------------
Utilities 2.1%
* CalEnergy Inc. 69,200 2,166,825
------------
Total Common Stocks
(Cost $93,493,532)** 101,102,788
------------
Excess of Other Assets
Over Liabilities 0.6% 633,266
------------
Net Assets $101,736,054
============
- --------------------------------------------------------------------------------
* Non-income producing.
** Also cost for federal income tax purposes. At November 30, 1998 net
unrealized appreciation for federal income tax purposes aggregated $7,609,256 of
which $14,017,440 related to appreciated securities and $6,408,184 related to
depreciated securities.
See Notes to Financial Statements.
25
<PAGE>
Sentinel Growth Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $101,102,788
Cash and cash equivalents 805,987
Receivable for fund shares sold 63,706
Receivable for dividends 29,315
--------------
Total Assets 102,001,796
--------------
Liabilities
Payable for fund shares repurchased 78,736
Accrued expenses 46,684
Management fee payable 50,949
Distribution fee payable (Class A Shares) 68,244
Distribution fee payable (Class B Shares) 3,146
Fund service fee payable 17,983
--------------
Total Liabilities 265,742
--------------
Net Assets Applicable to Outstanding Shares $101,736,054
==============
Class A Shares
$97,894,832 / 6,683,438 shares outstanding $ 14.65
Sales Charge--5.00% of offering price 0.77
--------------
Maximum Offering Price $ 15.42
==============
Class B Shares
$3,841,222 / 264,547 shares outstanding $ 14.52
==============
Net Assets Represent
Capital stock at par value $ 69,480
Paid-in capital 86,433,052
Accumulated distributions in excess of
net investment income (24,789)
Accumulated undistributed net realized gain
on investments 7,649,055
Unrealized appreciation of investments 7,609,256
---------------
Net Assets $101,736,054
===============
Investments at Cost $ 93,493,532
===============
Sentinel Growth Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends $ 761,265
Interest 230,169
---------------
Total Income 991,434
---------------
Expenses:
Management advisory fee 591,429
Transfer agent and custodian 257,992
Distribution expense (Class A Shares) 283,040
Distribution expense (Class B Shares) 19,228
Accounting services 29,200
Auditing fees 10,250
Legal fees 5,125
Reports and notices to shareholders 18,175
Directors' fees and expenses 10,268
Other 26,968
---------------
Total Expenses 1,251,675
Expense Offset (22,987)
---------------
Net Expenses 1,228,688
---------------
Net Investment Loss (237,254)
---------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 7,709,262
Net change in unrealized appreciation (depreciation) (175,673)
---------------
Net Realized and Unrealized Gain on Investments 7,533,589
---------------
Net Increase in Net Assets from Operations $7,296,335
===============
See Notes to Financial Statements.
26
<PAGE>
Sentinel Growth Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
-------------- --------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment loss $ (237,254) $ (114,399)
Net realized gain on sales of investments 7,709,262 24,318,310
Net change in unrealized appreciation (depreciation) (175,673) (5,377,151)
-------------- --------------
Net increase in net assets from operations 7,296,335 18,826,760
-------------- --------------
Distributions to Shareholders
From net investment income
Class A Shares -- (59,692)
Class B Shares -- --
From net realized gain on investments
Class A Shares (24,253,869) (11,151,823)
Class B Shares -- --
-------------- --------------
Total distributions to shareholders (24,253,869) (11,211,515)
-------------- --------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 16,027,433 10,603,174
Class B Shares 4,100,488 --
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 22,564,015 10,331,592
Class B Shares -- --
-------------- --------------
42,691,936 20,934,766
Less: Payments for shares reacquired
Class A Shares (11,900,854) (10,181,809)
Class B Shares (281,977) --
-------------- --------------
Increase in net assets from capital share transactions 30,509,105 10,752,957
-------------- --------------
Total Increase in Net Assets for period 13,551,571 18,368,202
Net Assets: Beginning of period 88,184,483 69,816,281
-------------- --------------
Net Assets: End of period $ 101,736,054 $ 88,184,483
============== ==============
Distributions in Excess of Net Investment Income
at End of Period $ (24,789) $ (27,862)
============== ===============
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
<TABLE>
<CAPTION>
Sentinel Growth Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal period.
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 18.73 $ 17.57 $ 16.93 $ 16.15 $ 17.51
------------ ------------ ------------ ------------ ------------
Income (loss) from Investment Operations
Net investment income (loss) (0.03) (0.02) 0.03 0.07 0.05
Net realized and unrealized gain (loss) on investments 1.08 4.00 3.23 3.33 (0.92)
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.05 3.98 3.26 3.40 (0.87)
------------ ------------ ------------ ------------ ------------
Less Distributions
Dividends from net investment income -- 0.02 0.07 0.05 0.03
Distributions from realized gains on investments 5.13 2.80 2.55 2.57 0.46
------------ ------------ ------------ ------------ ------------
Total Distributions 5.13 2.82 2.62 2.62 0.49
------------ ------------ ------------ ------------ ------------
Net asset value at end of period $ 14.65 $ 18.73 $ 17.57 $ 16.93 $ 16.15
============ ============ ============ ============ ============
Total Return (%) * 8.3 27.3 22.6 24.9 (5.1)
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.26 1.29 1.40 1.50 1.43
Ratio of expenses to average net assets before
expense reductions (%) ** 1.29 1.32 1.43 1.54 1.43
Ratio of net investment income (loss)
to average net assets (%) (0.23) (0.15) 0.16 0.42 0.30
Portfolio turnover rate (%) 97 161 98 84 58
Average commission rate paid per share $0.0600 $ 0.0600 $ 0.0600 N/A N/A
Net assets at end of period (000 omitted) $97,895 $ 88,184 $ 69,816 $ 60,446 $ 50,447
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Period
1/12/98 to
Class B Shares 11/30/98 (A)
------------
Net asset value at beginning of period $ 13.08
------------
Income from Investment Operations
Net investment income (loss) (0.17)
Net realized and unrealized gain on investments 1.61
------------
Total from investment operations 1.44
------------
Less Distributions
Dividends from net investment income --
Distributions from realized gains on investments --
------------
Total Distributions --
------------
Net asset value at end of period $ 14.52
===========
Total Return (%) * 11.0 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.27 +
Ratio of expenses to
average net assets before
expense reductions (%)** 2.29 +
Ratio of net investment income (loss)
to average net assets (%) (1.24)+
Portfolio turnover rate (%) 97
Average commission rate paid per share $ 0.0600
Net assets at end of period (000 omitted) $ 3,841
(A) 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 earning credits as described in Notes (2)
and (1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
28
<PAGE>
Sentinel Small Company Fund seeks maximum long-term growth of capital through
primary investments in a diversified portfolio of common stocks issued by small
and medium-sized companies.
Sentinel Small Company Fund
Good stock selection, a lack of cyclical exposure and the fact that we locked in
profits throughout the year, were key factors behind this year's favorable
relative performance.
The Sentinel Small Company Fund Class A Shares achieved a return of 2.7% for the
twelve-month period ending November 30, 1998. This performance compares
favorably to the -6.7% average return for the universe of Lipper Small Company
Funds and was better than the -6.3% returned by the Russell 2000 index. For the
three-year period ending November 30, 1998, the Sentinel Small Company Fund
achieved an annualized return of 15.5%. This also compares favorably to the
annualized average return of 10.5% for the Lipper Small Company funds and an
annualized return of 10.4% for the Russell 2000 index.
Good stock selection and a lack of cyclical exposure were key factors behind
this year's favorable relative performance. Some notable events this year
included Cardinal Health's acquisition of R. P. Scherer, Swiss Re's acquisition
of Life Re, a management led buyout of Dynatech and ConAgra's acquisition of
Goodmark Foods. Dexter Corp.'s latest bid for the shares of its subsidiary, Life
Technologies, that it does not already own and the Sbarro family's current
attempt to buy the publicly traded shares of their restaurant chain also were
important events. Your Fund's investment in Affiliated Computer Services was a
particularly rewarding holding in an otherwise difficult environment for many
small capitalization stocks.
The fact that we locked in profits throughout the year in some of the Fund's
biggest winners was another reason for the strong relative performance this
year. We are usually reluctant to sell winners unless valuation, deteriorating
fundamentals, a large position size or market cap considerations warrant us to
take such action. Indeed, a significant majority of this year's gains were
realized by selling some long-term holdings that had become meaningfully
overvalued or presented a deteriorating fundamental outlook. Selling the shares
of large cap companies that were received as a result of mergers also
contributed to this year's gains.
Looking forward to 1999, we will continue to search for attractively valued
companies that are solving problems or creating competitive advantages for their
customers. Companies with products or services that provide real solutions to
customers' needs or problems should enjoy the increasingly rare ability to
increase unit volume and preserve pricing power. Of course,
- --------------------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year -2.5% 2.7%
- --------------------------------------------
3 Years 13.5% 15.5%
- --------------------------------------------
5 Years 10.9% 12.0%
- --------------------------------------------
Since Inception* 10.5% 11.5%
- --------------------------------------------
*3/1/93
+ Sales charge applicable to year of initial investment.
- --------------------------------------------------------------------------------
Sentinel Small Company Fund Performance - Class A Shares
3/1/93 Inception through 11/30/98
[LINE GRAPH APPEARS HERE]
'98 '98 '98
Sentinel Lipper's Small Co. Russell 2000
Small Company Fund Growth Fund Avg. Index*
3/1/93 10,000 10,000 10,000
11/30/93 10,056 11,013 11,384
11/30/94 10,259 11,053 11,257
11/30/95 11,505 14,644 14,465
11/30/96 14,036 17,486 16,854
11/30/97 17,257 21,174 20,758
11/30/98 17,718 19,747 19,444
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in share class expenses.
* An unmanaged stock index of small capitalization companies which includes
the reinvestment of all income.
29
<PAGE>
we also will continue to seek exposure to those small companies that are poised
to benefit from important long-term trends. The pharmaceutical industry's
incessant need to develop new and better drugs and corporate America's growing
appetite for specialized marketing services that are more effective than
traditional mass media advertising are two good examples of the sort of trends
that we expect to exploit with current holdings. As well, we continue to believe
that well-managed and financially sound small companies that have developed or
are developing strong brand names or attractive franchises are likely to be
rewarding long-term investments. But we also believe that as long as investors
remain concerned that the global economic turmoil might impact the U.S. economy,
small-capitalization stocks may not meaningfully outperform the shares of large
companies. Finally, while we do not want to predict when small company shares
might begin to outperform the large company shares, we feel strongly that many
small company stocks present compelling relative value and superior risk/reward
ratios when compared to most large capitalization stocks.
As we have done over the past three years, we will continue to manage your Fund
with a broadly diversified portfolio of high quality and attractively valued
companies that, for the most part, operate superior businesses. Our investment
approach is designed to present less overall risk while producing long-term
returns that compare favorably to most other small company funds. Avoiding
companies prone to problems can be a particularly rewarding investment strategy
for small company investors. We hope that you will agree that your Fund's strong
relative returns this fiscal year and the competitive relative returns for the
three-year period ending November 30, 1998, provide some evidence that our
approach has been successful. Your continued confidence in our efforts on your
behalf is appreciated.
/s/ Scott T. Brayman
Scott T. Brayman, CFA
/s/ Robert L. Lee
Robert L. Lee, CFA
30
<PAGE>
Sentinel Small Company Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------------------------------------
Common Stocks 93.8%
Advertising Agencies 2.3%
True North 100,000 $ 2,812,500
-------------
Banks 4.3%
Cullen Frost Bankers Inc 35,000 1,876,875
Mercantile Bankshares 45,000 1,580,625
Wilmington Trust Corp 30,000 1,740,000
-------------
5,197,500
-------------
Beverages 0.9%
* Mondavi (Robert) `A' 30,000 1,098,750
-------------
Chemicals 3.3%
Cambrex Corp 142,000 3,976,000
-------------
Communications 0.1%
* Dynatech Corp 17,500 43,750
-------------
Consumer & Business Services 13.1%
* Affiliated Computer Services 130,000 4,980,625
Analysts Int'l 110,700 1,868,063
* CACI Int'l 100,000 1,850,000
* FileNet Corp 150,000 1,284,375
* Healthcare Services Group 100,000 912,500
* Sterling Commerce 80,000 2,900,000
Unifirst Corporation 100,000 2,200,000
-------------
15,995,563
-------------
Cosmetics and Toiletries 2.0%
Alberto-Culver Co Class A 106,000 2,491,000
-------------
Electronics 4.0%
Harman Int'l Industries 50,000 2,134,375
Methode Electronics `A' 200,000 2,725,000
-------------
4,859,375
-------------
Environmental Control 3.2%
Donaldson Co 100,000 2,000,000
* TETRA Technologies 150,000 1,893,750
-------------
3,893,750
-------------
Financial Services 2.1%
Duff & Phelps Credit Rating 50,000 2,606,250
-------------
Food & Food Distributors 3.7%
ConAgra 62,594 1,967,799
Smart & Final Inc 55,000 584,375
Tootsie Roll Industries 30,000 1,143,750
Worthington Foods 41,500 785,906
-------------
4,481,830
-------------
Healthcare Providers 1.4%
* Genesis Health Ventures 88,000 841,500
Healthplan Services 84,000 840,000
-------------
1,681,500
-------------
Industrial - Diversified 6.1%
Aptargroup 100,000 2,793,750
* Bush Boake Allen 112,700 3,845,888
Lawter Int'l 92,000 759,000
-------------
7,398,638
-------------
Insurance 6.9%
Enhance Financial
Service Group 70,000 2,056,250
HCC Insurance Holdings 100,000 1,856,250
Horace Mann Educators 77,700 2,190,169
Life Reassurance Corp 24,000 2,260,500
-------------
8,363,169
-------------
Investment/Advisory Services 2.5%
Waddell & Reed Financial -
Class A 100,000 2,387,500
* Waddell & Reed Financial -
Class B 30,000 701,250
-------------
3,088,750
-------------
Manufacturing - Diversified 4.1%
Bemis Co. 50,000 1,890,625
Tyco International Ltd 48,000 3,159,000
-------------
5,049,625
-------------
Marketing Services 4.5%
* Acxiom Corp 95,000 2,244,375
* Catalina Marketing Corp 55,000 3,203,750
-------------
5,448,125
-------------
Medical - Equipment & Supplies 6.2%
Ballard Medical Products 72,000 1,566,000
Diagnostic Products 11,600 300,150
Hillenbrand Industries 25,000 1,420,312
Life Technologies 50,400 1,871,100
Mentor Corp 38,600 714,100
Minntech Corp 90,000 1,108,125
* Ocular Sciences 25,000 562,500
-------------
7,542,287
-------------
Medical - Lab & Testing Services 2.1%
* Covance Inc 100,000 2,500,000
-------------
Oil Field Equipment & Services 0.8%
* Smith International 40,000 965,000
-------------
Real Estate 2.6%
Chateau Communities Inc 112,000 3,206,000
-------------
Restaurants 5.0%
Applebee's Int'l 42,000 863,625
Ruby Tuesday Inc 140,000 2,607,500
Sbarro Inc 100,000 2,600,000
-------------
6,071,125
-------------
Retail 2.2%
Casey's General Stores 50,000 693,750
Ethan Allen Interiors 50,000 1,975,000
-------------
2,668,750
-------------
Retail - Apparel 3.0%
* Lands' End Inc. 30,000 676,875
* Wet Seal Inc - Class A 107,000 2,969,250
-------------
3,646,125
-------------
Semiconductors & Semiconductor Equipment 5.2%
Dallas Semiconductor Corp 60,000 2,265,000
* Novellus Systems 42,000 2,084,250
* Photronics 100,000 2,000,000
-------------
6,349,250
-------------
Transportation 0.3%
* Railtex Inc 30,000 363,750
-------------
Utilities 1.9%
* CalEnergy Inc 75,000 2,348,437
-------------
Total Common Stocks
(Cost $96,529,086) 114,146,799
-------------
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
Corporate Debt Convertible 0.2%
Phoenix Investment Partners 6%, '15
(Cost $403,571) 250M $ 261,562
-------------
Corporate Short-Term Notes 6.2%
Chevron Oil Finance 5.12%,
12/04/98 1200M 1,199,488
Ford Motor Credit Corp. 4.85%,
12/11/98 2000M 1,997,306
Norwest Financial 4.87%,
12/09/98 3000M 2,996,753
Texaco, Inc. 5.13%,
12/01/98 1300M 1,300,000
-------------
Total Corporate Short-Term Notes
(Cost $7,493,547) 7,493,547
-------------
Total Investments
(Cost $104,426,204)** 121,901,908
Excess of Liabilities
Over Other Assets (0.2%) (200,974)
-------------
Net Assets $121,700,934
=============
- --------------------------------------------------------------------------------
* Non-income producing.
** Cost for federal income taxes is substantially similar. At November 30, 1998
net unrealized appreciation for federal income tax purposes aggregated
$17,475,704 of which $24,557,709 related to appreciated securities and
$7,082,005 related to depreciated securities.
See Notes to Financial Statements.
31
<PAGE>
Sentinel Small Company Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $121,901,908
Cash and cash equivalents 286,256
Receivable for fund shares sold 59,697
Receivable for dividends and interest 49,148
--------------
Total Assets 122,297,009
--------------
Liabilities
Payable for securities purchased 360,387
Payable for fund shares repurchased 41,153
Accrued expenses 29,990
Management fee payable 60,543
Distribution fee payable (Class A Shares) 64,185
Distribution fee payable (Class B Shares) 13,000
Fund service fee payable 26,817
--------------
Total Liabilities 596,075
--------------
Net Assets Applicable to Outstanding Shares $121,700,934
==============
Net Asset Value and Offering Price per Share
Class A Shares
$109,597,879 / 19,316,736 shares outstanding $ 5.67
Sales Charge-- 5.00% of offering price 0.30
--------------
Maximum Offering Price $ 5.97
==============
Class B Shares
$12,103,055 / 2,194,588 shares outstanding $ 5.51
==============
Net Assets Represent
Capital stock at par value $ 215,113
Paid-in capital 90,930,093
Accumulated undistributed net investment income 57,617
Accumulated undistributed net realized gain
on investments 13,022,407
Unrealized appreciation of investments 17,475,704
--------------
Net Assets $121,700,934
==============
Investments at Cost $104,426,204
==============
Sentinel Small Company Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends $ 888,376
Interest 654,476
--------------
Total Income 1,542,852
Expenses:
Management advisory fee 766,120
Transfer agent and custodian 415,402
Distribution expense (Class A Shares) 343,650
Distribution expense (Class B Shares) 101,670
Accounting services 37,945
Auditing fees 9,100
Legal fees 4,300
Reports and notices to shareholders 39,000
Directors' fees and expenses 13,399
Other 21,458
--------------
Total Expenses 1,752,044
Expense Offset (23,042)
--------------
Net Expenses 1,729,002
--------------
Net Investment Loss (186,150)
--------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 13,141,667
Net change in unrealized appreciation (depreciation) (9,868,808)
--------------
Net Realized and Unrealized Gain on Investments 3,272,859
--------------
Net Increase in Net Assets from Operations $ 3,086,709
==============
See Notes to Financial Statements.
32
<PAGE>
Sentinel Small Company Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/98 11/30/97
---------------- ----------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income (loss) $ (186,150) $ 379,668
Net realized gain on sales of investments 13,141,667 14,644,582
Net change in unrealized appreciation (depreciation) (9,868,808) 7,565,634
---------------- ----------------
Net increase in net assets from operations 3,086,709 22,589,884
---------------- ----------------
Distributions to Shareholders
From net investment income
Class A Shares (348,277) (134,035)
Class B Shares -- --
From realized gain on investments
Class A Shares (13,692,058) (755,382)
Class B Shares (952,430) (17,013)
---------------- ----------------
Total distributions to shareholders (14,992,765) (906,430)
---------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 10,479,815 13,878,046
Class B Shares 5,429,602 5,225,981
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 12,740,406 809,158
Class B Shares 950,322 16,917
---------------- ----------------
29,600,145 19,930,102
Less: Payments for shares reacquired
Class A Shares (18,180,818) (19,403,606)
Class B Shares (999,866) (358,156)
---------------- ----------------
Increase in net assets from capital share transactions 10,419,461 168,340
---------------- ----------------
Total Increase (Decrease) in Net Assets for period (1,486,595) 21,851,794
Net Assets: Beginning of period 123,187,529 101,335,735
---------------- ----------------
Net Assets: End of period $ 121,700,934 $ 123,187,529
================ ================
Undistributed Net Investment Income
at End of Period $ 57,617 $ 272,080
================ ================
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
Sentinel Small Company Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 6.30 $ 5.17 $ 5.20 $ 5.53 $ 6.87
------------- ------------- ------------- ------------- -------------
Income from Investment Operations
Net investment income (loss) -- 0.02 0.01 0.02 (0.04)
Net realized and unrealized gain on investments 0.14 1.16 0.95 0.56 0.18
------------- ------------- ------------- ------------- -------------
Total from investment operations 0.14 1.18 0.96 0.58 0.14
------------- ------------- ------------- ------------- -------------
Less Distributions
Dividends from net investment income 0.02 0.01 0.03 -- --
Distributions from realized gains on investments 0.75 0.04 0.96 0.91 1.48
------------- ------------- ------------- ------------- -------------
Total Distributions 0.77 0.05 0.99 0.91 1.48
------------- ------------- ------------- ------------- -------------
Net asset value at end of period $ 5.67 $ 6.30 $ 5.17 $ 5.20 $ 5.53
============= ============= ============= ============= =============
Total Return (%) * 2.7 23.0 22.0 12.2 2.0
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.31 1.34 1.47 1.56 1.58
Ratio of expenses to average net assets before
expense reductions (%) ** 1.33 1.36 1.51 1.60 1.58
Ratio of net investment income (loss)
to average net assets (%) (0.07) 0.38 0.23 0.26 (0.74)
Portfolio turnover rate (%) 45 45 60 79 46
Average commission rate paid per share $ 0.0600 $ 0.0600 $ 0.0600 N/A N/A
Net assets at end of period (000 omitted) $109,598 $115,532 $ 99,393 $ 89,321 $ 88,420
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Eight Months
Year Ended Year Ended Ended
Class B Shares 11/30/98 11/30/97 11/30/96(A)
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 6.18 $ 5.12 $ 4.82
------------- ------------- -------------
Income from Investment Operations
Net investment loss (0.03) (0.03) (0.03)
Net realized and unrealized gain on investments 0.11 1.13 0.33
------------- ------------- -------------
Total from investment operations 0.08 1.10 0.30
------------- ------------- -------------
Less Distributions
Dividends from net investment income -- -- --
Distributions from realized gains on investments 0.75 0.04 --
------------- ------------- -------------
Total Distributions 0.75 0.04 --
------------- ------------- -------------
Net asset value at end of period $ 5.51 $ 6.18 $ 5.12
============= ============= =============
Total Return (%) * 1.7 21.6 6.2 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.24 2.35 2.62 +
Ratio of expenses to average net assets before
expense reductions (%) ** 2.25 2.36 2.64 +
Ratio of net investment income (loss)
to average net assets (%) (1.00) (0.62) (0.91)+
Portfolio turnover rate (%) 45 45 60
Average commission rate paid per share $ 0.0600 $ 0.0600 $ 0.0600
Net assets at end of period (000 omitted) $ 12,103 $ 7,656 $ 1,943
</TABLE>
(A) Commenced operations April 1, 1996.
+ Annualized
++ Not Annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earnings credits as described in Notes (2)
and (1) H.
N/A Not applicable to periods prior to 1996.
See Notes to Financial Statements.
34
<PAGE>
Sentinel World Fund seeks long-term growth of capital principally through
investments in a diversified portfolio of marketable equity securities of
established non-U.S. companies.
Sentinel World Fund
In a year of great volatility in global financial markets,
the Fund's focus on high-quality stocks and risk control continued to serve
shareholders well.
For the fiscal year ended November 30, 1998 Sentinel World Fund Class A Shares
recorded a gain of 10.3%, in line with the 10.4% rise posted by the average
international equity fund in the Lipper universe, although behind the 16.8%
return of the unmanaged MSCI Europe, Australia, and Far East Index (EAFE). In a
year of great volatility in global financial markets, the Fund's focus on
high-quality stocks and risk control continued to serve shareholders well.
During the dramatic third-quarter sell-off in financial markets, the Fund
delivered a 36th percentile return in the Lipper universe, falling well less
than the average international equity fund.
Europe outperformed other regions of the world in 1998 in the run up to the
launch of the Euro, Europe's new common currency, which becomes effective on
January 1, 1999. The drivers of higher share prices were continued declines in
interest rates, sustained low inflation, and healthy growth in corporate
profits. And while European stocks suffered during the summer market correction
in the wake of Russia's spectacular default on its government debt, the region
rebounded significantly in the final months of the year.
Markets in the Pacific Rim continued to face difficulties during the period,
with both Japan and the smaller markets of Asia delivering negative returns for
the year, notwithstanding their sharp recoveries from the early-October lows.
The key development in Japan was the recent announcement of a $500 billion bank
bailout plan, which led to improved sentiment in the stock market and a surge in
the value of the yen. And while the structural collapse in Asia's economic
climate persists, the smaller markets in the region have clearly benefited from
the coordinated easing of monetary policy by central banks around the world in
the past few months.
The World Fund continues to have a strong bias towards stable growth-oriented
companies in the consumer and utility sectors, while also retaining a healthy
commitment to financials, especially in Europe, where the interest-rate climate
is so favorable. On a geographic basis, the Fund's largest weighting,
representing about 70% of assets, is in Europe, while Japan and the smaller
markets of Asia remain underweighted relative to the EAFE Index. From a broader
perspective, we will continue to favor large, well-established companies that
are undervalued on a global basis while also striving for broad fund
diversification to control risk.
/s/Erik B. Granade
Erik B. Granade, CFA
- ------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 4.8% 10.3%
- ------------------------------
3 Years 10.9% 12.8%
- ------------------------------
5 Years 10.2% 11.3%
- ------------------------------
Since
Inception* 13.0% 14.0%
- ------------------------------
*3/1/93
+ Sales charge applicable to year of initial investment.
- --------------------------------------------------------------------------------
Sentinal World Fund Performance - Class A Shares
3/1/93 inception through 11/30/98
[LINE GRAPH APPEARS HERE]
World Fund
'98 '98 '98
World Fund Lipper's Int'l EAFE
with/load Fun/Avg. Index
3/1/93 10000 10000 10000
11/30/93 11786 12083 12027
11/30/94 12746 13454 13837
11/30/95 14050 14172 14930
11/30/96 16226 16130 16736
11/30/97 18258 16949 16727
11/30/98 20145 18717 19534
* An unmanaged index of 1,114 companies representing the stock markets of
Europe, Australia, New Zealand and the Far East.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 5% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in share class expenses.
35
<PAGE>
Sentinel World Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------------------------------------
Common Stocks 94.5%
Argentina 1.5%
YPF S.A. (ADR) 60,000 $ 1,770,000
----------------
Australia 6.6%
National Australia 190,000 2,840,618
News Corporation 350,000 2,454,457
Rio Tinto Limited 149,625 1,925,199
Westpac Bank Corp Ord. 96,008 639,955
----------------
7,860,229
----------------
Denmark 3.0%
Den Danske Bank 20,000 2,577,240
Novo Nordisk (ADR) 15,000 866,250
----------------
3,443,490
----------------
Finland 0.4%
Cultor 46,200 426,034
----------------
France 9.2%
Alcatel Alsthom (ADR) 40,005 1,035,130
Credit Commercial 25,000 2,154,144
Elf Aquitaine (ADR) 28,785 1,791,866
Group Danone 10,500 3,068,797
Guyenne et Gascogne 2,940 1,278,542
Societe Generale 10,850 1,711,625
----------------
11,040,104
----------------
Germany 5.7%
BASF AG 45,000 1,733,272
Bayer A.G. Ord. 60,000 2,564,269
Deutsche Bank 25,000 1,618,902
Siemens A.G. 13,000 921,638
----------------
6,838,081
----------------
Hong Kong 1.3%
HSBC Holdings 60,890 1,561,080
----------------
Italy 3.4%
San Paolo IMI SpA (ADR) 62,700 2,069,100
Telecom Italia (ADR) 25,000 2,018,750
----------------
4,087,850
----------------
Japan 14.4%
Canon 80,000 1,766,162
Daiichi Pharmaceuticals 110,000 1,687,432
Dai Nippon Printing Co 70,000 1,014,163
Fuji Photo Film 50,000 1,866,807
Ito-Yokado 23,000 1,403,839
Kyocera Corp 30,000 2,122,073
Mitsubishi Heavy Industry 400,000 1,496,692
Murata Manufacturing 70,000 2,738,525
Nintendo Co 20,000 1,852,198
Sankyo Co LTD 65,000 1,477,213
----------------
17,425,104
----------------
Mexico 1.0%
Telefonos de Mexico (ADR) 27,500 1,280,469
----------------
Netherlands 7.7%
ABN Amro Bank 84,876 1,750,983
Akzo Nobel N.V. 42,000 1,724,114
Hollandsche Beton
Groep N.V. 60,000 694,295
ING Groep N.V. 27,290 1,564,654
Unilever N.V. (ADR) 45,000 3,479,063
----------------
9,213,109
----------------
Norway 1.4%
Norsk Hydro (ADR) 45,000 1,648,125
----------------
Portugal 1.7%
Portugal Telecom (ADR) 45,000 1,982,813
----------------
South Korea 0.2%
Pohang Iron & Steel Co 6,740 291,021
----------------
Spain 8.0%
Banco Popular 30,000 2,207,567
Banco Santander 48,000 982,992
Endesa (ADR) 105,000 2,730,000
Repsol (ADR) 40,000 2,245,000
Telefonica de
Espana S.A. (ADR) 10,000 1,393,750
----------------
9,559,309
----------------
Sweden 4.3%
Aga B Free 85,000 1,001,534
Astra AB B Free 156,333 2,791,832
Volvo AB B 60,625 1,406,336
----------------
5,199,702
----------------
Switzerland 4.8%
Nestle A.G. Registered 1,575 3,275,602
Novartis A.G. Registered 1,348 2,532,817
----------------
5,808,419
----------------
United Kingdom 19.9%
Albright & Wilson 450,000 594,126
Assoc. Brit. Food 250,000 2,537,413
British Airways plc (ADR) 18,000 1,253,250
British Steel (ADR) 75,000 1,284,375
British Telecom plc (ADR) 25,000 2,488,500
Carlton Communications 150,000 1,196,916
Diageo plc 138,240 1,559,367
Glaxo Hldg plc (ADR) 25,000 1,587,500
Johnson Matthey plc 100,000 680,769
National Westminster
Bank plc 111,342 2,047,011
Powergen plc 175,000 2,428,903
Severn Trent Water plc 103,235 1,768,481
Shell Transport &
Trading (ADR) 62,000 2,251,375
Tesco plc 751,509 2,238,656
----------------
23,916,642
----------------
Total Common Stocks
(Cost $87,441,642) 113,351,581
----------------
Preferred Stocks 1.5%
Germany
RWE A.G
(Cost $1,239,670) 35,000 1,863,581
----------------
Corporate Short-Term Notes 2.5%
IBM Credit Corp. 4.85%,
12/01/98 2000M $ 2,000,000
John Deere Capital Corp. 4.86%,
12/04/98 1000M 999,596
----------------
(Cost $2,999,596) 2,999,596
----------------
Total Investments
(Cost $91,680,908)* 118,214,758
----------------
Excess of Other Assets
Over Liabilities 1.5% 1,750,263
----------------
Net Assets $119,965,021
================
- --------------------------------------------------------------------------------
Summary of Foreign Securities
by Industry Classification
Percent of Value
Industry Net Assets (Note 1)
Airlines 1.0% $ 1,253,250
Automobiles, Auto Parts 1.2% 1,406,336
Banks 17.2% 20,600,137
Biotechnology 2.3% 2,791,832
Broadcasting 2.0% 2,454,457
Building Materials, Construction 0.6% 694,295
Chemicals 4.9% 5,884,043
Distributors, Food & Health 4.7% 5,606,210
Electrical Components 2.5% 3,043,711
Entertainment 2.5% 3,049,114
Financial Services 2.6% 3,125,734
Foods, Beverage 1.7% 1,985,401
Foods, Grocery 2.9% 3,479,063
Gold, Precious Metals 2.2% 2,605,968
Healthcare - Diversified 1.2% 1,477,213
Healthcare - Drug/Pharmacy 5.6% 6,673,999
Machinery 1.2% 1,496,692
Manufacturing & Process 3.7% 4,471,797
Office Equipment & Supply 1.5% 1,766,162
Oil 8.1% 9,706,366
Photography 1.6% 1,866,807
Printing, Publishing 0.8% 1,014,163
Retail - Drug & Food 5.7% 6,792,800
Retail - General 1.2% 1,403,839
Steel 1.3% 1,575,396
Telecommunications 8.5% 10,199,412
Utilities - Electric 7.3% 8,790,965
----- -----------
96.0% $115,215,162
===== ===========
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1998 net unrealized
appreciation for federal income tax purposes aggregated $26,533,850 of which
$32,255,260 related to appreciated securities and $5,721,410 related to
depreciated securities.
(ADR) - American Depository Receipt
See Notes to Financial Statements.
36
<PAGE>
Sentinel World Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $ 118,214,758
Cash and cash equivalents 794,131
Foreign currency (cost $1,478,344) 1,472,529
Receivable for fund shares sold 368,956
Receivable for dividends and interest 415,700
----------------
Total Assets 121,266,074
----------------
Liabilities
Payable for fund shares repurchased 1,116,003
Accrued expenses 33,705
Management fee payable 59,826
Distribution fee payable (Class A Shares) 56,065
Distribution fee payable (Class B Shares) 17,341
Distribution fee payable (Class C Shares) 1,319
Fund service fee payable 16,794
----------------
Total Liabilities 1,301,053
----------------
Net Assets Applicable to Outstanding Shares $ 119,965,021
================
Net Asset Value and Offering Price per Share
Class A Shares
$100,789,778/5,540,261 shares outstanding $ 18.19
Sales Charge--5.00% of offering price 0.96
----------------
Maximum Offering Price $ 19.15
================
Class B Shares
$18,162,656/1,013,484 shares outstanding $ 17.92
================
Class C Shares
$1,012,587/56,088 shares outstanding $ 18.05
================
Net Assets Represent
Capital stock at par value $ 66,098
Paid-in capital 93,651,154
Accumulated undistributed net investment income 999,423
Accumulated undistributed net realized loss
on investments and foreign exchange (1,283,932)
Unrealized appreciation of investments
and foreign exchange 26,532,278
----------------
Net Assets $ 119,965,021
================
Investments at Cost $ 91,680,908
================
Investment Income
Income:
Dividends 2,621,880 *
Interest 185,613
----------------
Total Income 2,807,493
Expenses:
Management advisory fee 713,830
Transfer agent and custodian 334,556
Distribution expense (Class A Shares) 302,950
Distribution expense (Class B Shares) 147,700
Distribution expense (Class C Shares) 4,170
Accounting services 25,590
Auditing fees 10,175
Legal fees 5,370
Reports and notices to shareholders 17,510
Directors' fees and expenses 12,445
Other 34,123
----------------
Total Expenses 1,608,419
Expense Offset (25,786)
----------------
Net Expenses 1,582,633
----------------
Net Investment Income 1,224,860
----------------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss from:
Investments (1,283,934)
Foreign currency transactions (200,530)
----------------
Net realized loss (1,484,464)
----------------
Net change in unrealized appreciation during the period:
Investments 9,951,913
Foreign currency transactions (26,365)
----------------
Net change in unrealized appreciation 9,925,548
----------------
Net Realized and Unrealized Gain on Investments 8,441,084
----------------
Net Increase in Net Assets from Operations $9,665,944
================
* Net of Foreign Tax Withholding of $324,147
See Notes to Financial Statements.
37
<PAGE>
Sentinel World Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
--------------- ---------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 1,224,860 $ 941,301
Net realized gain (loss) on sales of investments (1,484,464) 3,434,462
Net change in unrealized appreciation 9,925,548 5,077,269
--------------- ---------------
Net increase in net assets from operations 9,665,944 9,453,032
--------------- ---------------
Distributions to Shareholders
From net investment income
Class A Shares (615,675) (509,018)
Class B Shares -- (9,446)
Class C Shares -- --
From realized gain on investments
Class A Shares (3,354,309) (1,108,321)
Class B Shares (392,508) (52,020)
Class C Shares -- --
--------------- ---------------
Total distributions to shareholders (4,362,492) (1,678,805)
--------------- ---------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 23,218,940 24,615,024
Class B Shares 8,692,576 6,914,575
Class C Shares 2,785,802 --
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,762,833 1,510,239
Class B Shares 388,693 58,245
Class C Shares -- --
--------------- ---------------
38,848,844 33,098,083
Less: Payments for shares reacquired
Class A Shares (20,790,851) (15,247,343)
Class B Shares (1,504,451) (409,118)
Class C Shares (1,753,067) --
--------------- ---------------
Increase in net assets from capital share transactions 14,800,475 17,441,622
--------------- ---------------
Total Increase in Net Assets for period 20,103,927 25,215,849
Net Assets: Beginning of period 99,861,094 74,645,245
--------------- ---------------
Net Assets: End of period $ 119,965,021 $ 99,861,094
--------------- ---------------
Undistributed Net Investment Income
at End of Period $ 999,423 $ 595,020
=============== ===============
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
Sentinel World Fund (A)
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 17.25 $ 15.69 $ 13.78 $ 12.74 $ 11.86
------------- ------------- ------------- ------------- -------------
Income from Investment Operations
Net investment income 0.18 0.11 0.12 0.14 0.08
Net realized and unrealized gain on investments 1.52 1.80 1.99 1.14 0.89
------------- ------------- ------------- ------------- -------------
Total from investment operations 1.70 1.91 2.11 1.28 0.97
------------- ------------- ------------- ------------- -------------
Less Distributions
Dividends from net investment income 0.12 0.11 0.13 0.09 0.03
Distributions from realized gains on investments 0.64 0.24 0.07 0.15 0.06
------------- ------------- ------------- ------------- -------------
Total Distributions 0.76 0.35 0.20 0.24 0.09
------------- ------------- ------------- ------------- -------------
Net asset value at end of period $ 18.19 $ 17.25 $ 15.69 $ 13.78 $ 12.74
============= ============= ============= ============= =============
Total Return (%) * 10.3 12.5 15.5 10.2 8.2
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.24 1.29 1.43 1.56 1.58
Ratio of expenses to average net assets before
expense reductions (%) ** 1.26 1.32 1.48 1.63 1.58
Ratio of net investment income to average net assets (%) 1.18 1.14 0.94 0.79 0.62
Portfolio turnover rate (%) 12 21 14 32 30
Average commission rate paid per share $ 0.0377 $0.0411 $0.0455 N/A N/A
Net assets at end of period (000 omitted) $100,790 $89,740 $71,458 $47,702 $41,970
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
Sentinel World Fund
Financial Highlights (cont'd.)
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Eight Months Period
Year Ended Year Ended Ended 5/4/98 to
Class B Shares 11/30/98 11/30/97 11/30/96 (B) Class C Shares 11/30/98 (C)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 17.05 $ 15.58 $ 14.49 $ 19.57
-------------- -------------- -------------- --------------
Income (loss) from Investment Operations
Net investment income (loss) 0.04 0.01 (0.08) (0.02)
Net realized and unrealized gain (loss) on
investments 1.47 1.74 1.17 (1.50)
-------------- -------------- -------------- --------------
Total from investment operations 1.51 1.75 1.09 (1.52)
-------------- -------------- -------------- --------------
Less Distributions
Dividends from net investment income -- 0.04 -- --
Distributions from realized gains on investments 0.64 0.24 -- --
-------------- -------------- -------------- --------------
Total Distributions 0.64 0.28 -- --
-------------- -------------- -------------- --------------
Net asset value at end of period $ 17.92 $ 17.05 $ 15.58 $ 18.05
============== ============== ============== ==============
Total Return (%) * 9.2 11.5 7.5++ (7.8)++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 2.23 2.16 2.56+ 2.20+
Ratio of expenses to average net assets before
expense reductions (%) ** 2.25 2.18 2.59+ 2.21+
Ratio of net investment income (loss) to average
net assets (%) 0.19 0.23 (0.19)+ 0.23+
Portfolio turnover rate (%) 12 21 14 12
Average commission rate paid per share $0.0377 $0.0411 $0.0455 $0.0377
Net assets at end of period (000 omitted) $18,163 $10,121 $3,188 $1,013
</TABLE>
(A) As of April 1, 1996 INVESCO Capital Management, Inc. became the sub-advisor
to the Fund.
(B) Commenced operations April 1, 1996
(C) Commenced operations May 4, 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 earning credits as described in Notes (2)
and (1) H.
N/A Not Applicable to periods prior to 1996.
See Notes to Financial Statements.
40
<PAGE>
Sentinel High Yield Bond Fund seeks high current income and total return by
investing primarily in lower rated corporate debt securities.
As short-term interest rates continue to drop in the coming year in the backdrop
of moderate economic growth, we expect credit risk spreads to narrow again. Our
outlook for the high yield markets remains positive.
Sentinel High Yield Bond Fund
Sentinel High Yield Bond Fund Class A Shares completed its second calendar year
of operations on November 30,1998. Total investment return for the fund's fiscal
year came in at +2.7%, a disappointing return which reflected the very
difficult markets which "spread" fixed income investments experienced in the
months of September and October of this year. Nevertheless, this investment
return compared favorably with the 0.9% average return achieved by all high
yield funds as measured by Lipper Analytical Services, Inc. This ranked the fund
at the 38th percentile among similar funds for the last 12 months, and at the
20th percentile since inception in July of 1997.
The first half of 1998 started strongly for high yield bonds as well as for the
Sentinel High Yield Bond Fund. In the first six months, both markets which
support high yield bonds, those for small capitalization stocks and the 10-year
treasury bond, performed well. Investment returns for all three exceeded 5% by
June 1998. Subsequently, the several historic events of August, which included
the Russian Ruble devaluation and debt default, a waterfall stock market
correction, and the failure of the country's largest hedge fund dramatically
altered the pricing of risk in world capital markets. Overnight the
yield-spreads to treasury securities that measure this risk widened
dramatically. Within 6 weeks that spread had widened 120 basis points for BBB
investment grade bonds, 400 basis points for high yield, and 900 basis points
for emerging-market debt. Looking back, we can understand how these events and
market reactions provide perspective to the clear reversal of Federal Reserve
Bank policy expressed in late September with the first of three cuts in the
Federal Funds rate. Recognizing that the forces of deflation and capital markets
risk had to be reversed, the American central bank, along with many others in
the world, have managed 64 central bank policy easings as of this report's
writing in mid December.
In response, the major broad equity market indexes have rallied strongly as risk
spreads in fixed income markets have narrowed somewhat. When measured by the
Chase bank, high yield spreads had narrowed from a wide level of +763 basis
points to +600 basis points by November 30. High yield bond prices recovered
accordingly. Looking forward we believe that risk spreads remain historically
high in light of current easy Fed policy as well as continuing inherent strength
in the economy. As short-term interest rates continue to drop in the coming year
- ------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year -1.4% 2.7%
- ------------------------------
Since
Inception* 4.0% 7.0%
- ------------------------------
*6/23/97
+Sales charge applicable
to year of initial investment.
- --------------------------------------------------------------------------------
Sentinel High Yield Bond Fund Performance-Class A Shares
6/23/97 inception through 11/30/98
[LINE GRAPH APPEARS HERE]
High Yield Bond Fund '98 '98
High Yield Lipper's High Current Lehman High
Bond Fund with/load Yield Fund Avg. Yield Bond Index
6/23/97 10,000
6/30/97 9,610 10,000 10,000
7/31/97 9,841 10,270 10,274
8/31/97 9,883 10,294 10,250
9/30/97 10,185 10,547 10,454
10/31/97 10,220 10,495 10,463
11/30/97 10,303 10,574 10,563
12/30/97 10,472 10,688 10,656
1/31/98 10,783 10,899 10,848
2/28/98 10,843 10,995 10,912
3/31/98 11,004 11,148 10,847
4/30/98 11,035 11,187 10,911
5/31/98 11,051 11,180 11,096
6/30/98 10,998 11,186 11,136
7/31/98 11,107 11,253 11,199
8/31/98 10,526 10,443 10,581
9/30/98 10,274 10,360 10,629
10/31/98 10,056 10,132 10,411
11/30/98 10,579 10,670 10,843
Since Inception 5.79% 6.70% 8.43%
1 year 2.68% 0.91% 2.65%
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in share class expenses.
41
<PAGE>
in the backdrop of moderate economic growth we expect credit risk spreads to
narrow again. Our outlook for the high yield markets remains positive.
Since its inception the Sentinel High Yield Fund has enjoyed a high degree of
investor support. At this writing its net asset value is approaching $100
million dollars. We are excited by the continuing enthusiastic response by
investors into this fund and wish to express our continuing gratitude for your
vote of confidence.
Prescott Crocker
42
<PAGE>
Sentinel High Yield Bond Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
U.S.Government Agency
Obligations 1.6%
Federal Home Loan Bank 1.6%
Agency Discount Notes:
5.00%, 12/01/98
(Cost $1,462,000) 1462M $1,462,000
----------
Bonds 88.4%
Aerospace 1.2%
BE Aerospace 9.5%, '08 1000M 1,057,500
Automotive 2.4% ----------
Eagle-Picher 9.375%, '08 750M 721,875
Exide Corp. 10%, '05 500M 497,500
Walbro Corp. 10.125%, '07 1000M 966,250
----------
2,185,625
Broadcasting 3.2% ----------
ACME Television
0%/10.875%, '04 800M 642,000
Azteca Holdings 11%, '02 500M 450,000
Capstar Broadcasting
0%/12.75%, '09 750M 616,875
Grupo Televisa
0%/13.25%, '08 1200M 921,000
TV Azteca SA 10.5%, '07 250M 227,500
----------
2,857,375
----------
Building Materials/Construction 1.4%
Dell Webb 9.375%, '09 1000M 951,250
Nortek Inc. 9.125%, '07 250M 260,000
----------
1,211,250
----------
Cable/Other Video Distribution 4.7%
Charter Communications
11.25%, '06 500M 547,500
Echostar Communications
0%/12.875%, '04 250M 253,438
Frontiervision 11%, '06 1000M 1,125,000
Metrocall Inc. 10.375%, '07 1000M 1,030,000
Star Choice 13.0%, '05 1250M 1,228,125
----------
4,184,063
----------
Chemicals 1.4%
Polymer Group 9%, '07 500M 500,000
Polymer Group 8.75%, '08 750M 742,500
----------
1,242,500
----------
Consumer Products 5.0%
Advance Stores 10.25%, '08 1000M 1,030,000
Loewen Group 8.25%, '03 1000M 870,000
MTS Inc. 9.375%, '05 500M 480,000
Outboard Marine 10.75%, '08 1000M 990,000
Printpack Inc. 10.625%, '06 1000M 1,047,500
----------
4,417,500
----------
Diversified Media 0.9%
Big Flower Press 8.875%, '07 750M 760,312
----------
Energy 5.2%
Anker Coal Group 9.75%, '07 350M $ 192,500
Cross Timber 8.75%, '09 250M 241,875
Giant Industries 9%, '07 940M 921,200
HS Resources 9.25%, '06 1000M 973,750
Nuevo Energy 8.875%, '08 500M 498,125
P&L Coal 9.625%, '08 1000M 1,030,000
Petsec Energy 9.5%, '07 1000M 800,000
----------
4,657,450
----------
Entertainment/Gaming 8.4%
Boyd Gaming 9.5%, '07 1000M 972,500
Horseshoe Gaming 9.375%, '07 1000M 961,250
Loews Cineplex 8.875%, '08 1000M 1,035,000
Premier Cruise, Ltd., 11%, '08 1000M 410,000
Premier Parks 9.25%, '06 1000M 1,052,500
Regal Cinemas 9.5%, '08 1000M 1,052,500
Station Casinos 9.75%, '07 1000M 1,020,000
Trump Atlantic City 11.25%, '06 1000M 945,000
----------
7,448,750
----------
Financial Services 2.0%
CB Richard Ellis 8.875%, '06 1000M 982,500
Contifinancial 8.375%, '08 1000M 800,000
----------
1,782,500
----------
Food/Restaurants 2.7%
Aurora Foods 9.875%, '07 500M 545,000
FRD Acquisitions 12.5%, '04 500M 515,000
Perkins Family Restaurant 10.125%, '07 750M 804,375
Sun World International 11.25%, '04 500M 522,500
----------
2,386,875
----------
Healthcare/Medical Technology 4.6%
Biovail Corp. 10.875%, '05 1000M 1,020,000
Integrated Health Services
9.25%, '08 1000M 977,500
Prime Medical 8.75%, '08 1000M 943,750
Talton Holdings 11%, '07 1250M 1,184,375
----------
4,125,625
----------
Industrial 0.6%
Motors & Gears Inc.
10.75%, '06 500M 517,500
----------
Information Technology 1.4%
Unisys Corp. 11.75%, '04 500M 572,500
Unisys Corp. 9.75%, '16 631M 653,874
----------
1,226,374
----------
Manufacturing 1.7%
Delta Mills 9.625%, '07 750M 748,125
International Knife & Saw
11.375%, '06 750M 765,000
----------
1,513,125
----------
Metals/Minerals 3.2%
* Acme Metals 10.875%, '07 1000M $ 175,000
AK Steel Corp. 10.75%, '04 900M 951,750
Great Central 8.875%, '08 750M 761,250
Kaiser Aluminum 12.75%, '03 750M 750,000
NSM Steel Ltd. 12%, '06 1000M 250,000
----------
2,888,000
----------
Oil & Gas 4.2%
Benton Oil & Gas
9.375%, '07 1000M 570,000
Chiles Offshore 10%, '08 1000M 865,000
Energy Corp. 9.5%, '07 500M 470,000
Houston Exploration
8.625%, '08 1000M 990,000
Rutherford-Moran Oil
10.75%, '04 1000M 821,250
----------
3,716,250
----------
Paper 4.4%
Applied Int'l. Finance 6%, '99 500M 440,000
Domtar Inc. 9.5%, '16 1000M 1,028,750
Riverwood Int'l. 10.25%, '06 500M 505,000
Riverwood Int'l. 10.875%, '08 1000M 950,000
Stone Containers 10.75%, '02 1000M 1,040,000
3,963,750
Service 1.5%
AFC Enterprises 10.25%, '07 500M 521,250
American Lawyer 9.75%, '07 750M 787,500
----------
1,308,750
----------
Shipping/Transportation 5.7%
Cenargo International
9.75%, '08 1000M 1,010,000
Global Ocean Carriers
10.25%, '07 1000M 620,000
Greyhound Lines 11.5%, '07 1000M 1,155,000
Hvide Marine 8.375%, '08 1000M 800,000
Pegasus Shipping
11.875%, '04 750M 686,250
Stena AB 8.75%, '07 650M 611,812
Stena Line AB 10.625%, '08 250M 227,500
----------
5,110,562
----------
Supermarkets 2.9%
Jitney Jungle 12%, '06 500M 557,500
Jitney Jungle 10.375%, '07 1000M 1,025,000
Pathmark Stores 9.625%, '03 1000M 995,000
----------
2,577,500
----------
(continued)
43
<PAGE>
Sentinel High Yield Bond Fund
Investment in Securities (cont'd.)
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
Telecommunications 11.4%
American Communications
10.25%, '08 1000M $ 1,025,000
Echostar Satellite
0%/13.125%, '04 750M 725,625
Galaxy Telecom 12.375%, '05 750M 830,625
Global Crossings 9.625%, '08 1000M 1,077,500
Hayes Lemmerz 9.125%, '07 1000M 1,045,000
Ico Global Communications
15%, '05 500M 370,000
MJD Communications
9.5%, '08 500M 507,500
Nextel Communications
0%/9.95%, '08 500M 310,000
Nextel International
0%/12.125%, '08 1500M 675,000
Paging Network 10%, '08 1000M 1,035,000
Pegasus Communications
9.625%, '05 1500M 1,500,000
Verio Inc. 11.25%, '08 1000M 1,040,000
----------
10,141,250
----------
Wireless Communications 8.3%
Comcast Cellular 9.5%, '07 1000M 1,077,500
Level 3 Communications
9.125%, '08 1000M 1,001,250
Price Communications
9.125%, '06 1000M 1,040,000
Price Comm. Cellular
11.25%, '08 1000M 965,000
Rural Cellular 9.625%, '08 1000M 1,020,000
SFX Entertainment
9.125%, '08 1000M 1,005,000
Telewest Communications
0%/11.0%, '07 1500M 1,263,750
----------
7,372,500
----------
Total Bonds
(Cost $82,053,478) 78,652,886
----------
Corporate Convertible Bonds 0.7%
Industrial 0.7%
Exide Corp. 2.9%, '05
(Cost $643,197) 1000M 585,000
----------
- --------------------------------------------------------------------------------
Shares Value
(Note 1)
- --------------------------------------------------------------------------------
Preferred Stock 5.2%
Cable/Other Video Distribution 2.6%
Adelphia Communications 13% 6,500 $ 767,000
CSC Holdings 11.125% 8,523 963,099
Echostar Communications
12.125% 562 590,417
----------
2,320,516
----------
Telecommunications 1.1%
Rural Cellular Corp. 11.375% 1,057 1,000,407
----------
Transportation 1.5%
Global Crossings 10.5% 10,000 1,010,000
Trans World Airlines $4.625 7,200 333,900
----------
1,343,900
----------
Total Preferred Stock
(Cost $4,686,245) 4,664,823
----------
Total Investments
(Cost $88,844,920)** 85,364,709
Excess of Other Assets
Over Liabilities 4.1% 3,621,470
-----------
Net Assets $88,986,179
===========
** Bond in default.
** Also cost for federal income tax purposes. At November 30, 1998 unrealized
depreciation for federal income tax purposes aggregated $3,480,211 of which
$2,063,347 related to appreciated securities and $5,543,558 related to
depreciated securities.
See Notes to Financial Statements.
44
<PAGE>
Sentinel High Yield Bond Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $85,364,709
Cash and cash equivalents 837,484
Receivable for securities sold 2,477,783
Receivable for fund shares sold 416,276
Receivable for interest 1,828,588
-----------
Total Assets 90,924,840
-----------
Liabilities
Payable for securities purchased 1,694,167
Payable for fund shares repurchased 118,556
Accrued expenses 25,169
Management fee payable 53,296
Distribution fee payable (Class A Shares) 9,336
Distribution fee payable (Class B Shares) 30,008
Distribution fee payable (Class C Shares) 1,471
Fund service fee payable 6,658
-----------
Total Liabilities 1,938,661
-----------
Net Assets Applicable to Outstanding Shares $88,986,179
===========
Net Asset Value and Offering Price per Share
Class A Shares
$31,119,632 / 3,190,634 shares outstanding $ 9.75
Sales Charge-- 4.00% of offering price 0.41
-----------
Maximum Offering Price $ 10.16
===========
Class B Shares
$55,911,029 / 5,737,879 shares outstanding $ 9.74
===========
Class C Shares
$1,955,518 / 200,475 shares outstanding $ 9.75
===========
Net Assets Represent
Capital stock at par value $ 91,290
Paid-in capital 93,860,496
Accumulated undistributed net investment income 4,996
Accumulated undistributed net realized loss
on investments (1,490,392)
Unrealized depreciation of investments (3,480,211)
-----------
Net Assets $88,986,179
===========
Investments at Cost $88,844,920
===========
See Notes to Financial Statements.
Sentinel High Yield Bond Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends $ 312,411
Interest 6,580,814
-----------
Total Income 6,893,225
-----------
Expenses:
Management advisory fee 533,592
Transfer agent and custodian 75,668
Distribution expense (Class A Shares) 48,040
Distribution expense (Class B Shares) 259,818
Distribution expense (Class C Shares) 5,480
Accounting services 21,705
Auditing fees 7,280
Legal fees 3,525
Reports and notices to shareholders 8,275
Directors' fees and expenses 7,405
Other 52,353
-----------
Total Expenses 1,023,141
Expense Offset (19,453)
-----------
Net Expenses 1,003,688
-----------
Net Investment Income 5,889,537
-----------
Realized and Unrealized Loss on Investments
Net realized loss on sales of investments (1,490,419)
Net change in unrealized depreciation (4,106,785)
-----------
Net Realized and Unrealized Loss on Investments (5,597,204)
-----------
Net Increase in Net Assets from Operations $ 292,333
===========
See Notes to Financial Statements.
45
<PAGE>
<TABLE>
<CAPTION>
Sentinel High Yield Bond Fund
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------
Year Period
Ended 6/23/97 to
11/30/98 11/30/97
------------ ------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 5,889,537 $ 1,083,710
Net realized gain (loss) on sales of investments (1,490,419) 398,650
Net change in unrealized appreciation (depreciation) (4,106,785) 626,574
------------- -------------
Net increase in net assets from operations 292,333 2,108,934
------------- -------------
Distributions to Shareholders
From net investment income
Class A Shares (2,030,629) (211,310)
Class B Shares (3,810,264) (868,621)
Class C Shares (47,427) --
From net realized gain on investments
Class A Shares (106,907) --
Class B Shares (291,716) --
Class C Shares -- --
------------- -------------
Total distributions to shareholders (6,286,943) (1,079,931)
------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 25,055,794 11,052,160
Class B Shares 28,434,192 33,231,276
Class C Shares 1,996,985 --
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 1,504,347 142,566
Class B Shares 1,375,149 127,228
Class C Shares 43,607 --
------------- -------------
58,410,074 44,553,230
Less: Payments for shares reacquired
Class A Shares (4,351,448) (241,707)
Class B Shares (3,955,134) (448,640)
Class C Shares (14,589) --
------------- -------------
Increase in net assets from capital share
transactions 50,088,903 43,862,883
------------- -------------
Total Increase in Net Assets for period 44,094,293 44,891,886
Net Assets: Beginning of period 44,891,886 --
------------- -------------
Net Assets: End of period $ 88,986,179 $ 44,891,886
============= ==============
Accumulated undistributed Net Investment
Income at End of Period $ 4,996 $ 3,779
============= ==============
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
<TABLE>
<CAPTION>
Sentinel High Yield Bond Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- -------------------------------------------------------------------------------------------
Period
Year Ended Ended
Class A Shares 11/30/98 11/30/97(A)
-------------- --------------
<S> <C> <C>
Net asset value at beginning of period $ 10.41 $ 10.00
-------------- --------------
Income from Investment Operations
Net investment income 0.87 0.32
Net realized and unrealized gain (loss) on investments (0.58) 0.41
-------------- --------------
Total from investment operations 0.29 0.73
-------------- --------------
Less Distributions
Dividends from net investment income 0.86 0.32
Distributions from realized gains on investments 0.09 --
-------------- --------------
Total Distributions 0.95 0.32
-------------- --------------
Net asset value at end of period $ 9.75 $ 10.41
============== ==============
Total Return (%) * 2.7 7.3 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.26 1.20 +
Ratio of expenses to average net assets before
expense reductions (%) ** 1.28 1.26 +
Ratio of net investment income to average net assets (%) 8.42 7.80 +
Portfolio turnover rate (%) 139 133
Net assets at end of period (000 omitted) $31,120 $11,084
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
<TABLE>
<CAPTION>
Sentinel High Yield Bond Fund
Financial Highlights (cont'd.)
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- ----------------------------------------------------------------------------------------------------------------------------------
Period Period
Year Ended Ended 5/4/98 to
Class B Shares 11/30/98 11/30/97(A) Class C Shares 11/30/98 (B)
----------- ----------- ------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 10.40 $ 10.00 $10.70
----------- ----------- ------------
Income (loss) from Investment Operations
Net investment income 0.84 0.32 0.41
Net realized and unrealized gain (loss) on investments (0.57) 0.39 (0.91)
----------- ----------- ------------
Total from investment operations 0.27 0.71 (0.50)
----------- ----------- ------------
Less Distributions
Dividends from net investment income 0.84 0.31 0.45
Distributions from realized gains on investments 0.09 -- --
----------- ----------- ------------
Total Distributions 0.93 0.31 0.45
----------- ----------- ------------
Net asset value at end of period $ 9.74 $ 10.40 $ 9.75
=========== =========== ============
Total Return (%) * 2.4 7.2 ++ (4.7)++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.49 1.30 + 2.05 +
Ratio of expenses to average net assets before
expense reductions (%) ** 1.52 1.34 + 2.06 +
Ratio of net investment income to average net assets (%) 8.19 7.70 + 7.63 +
Portfolio turnover rate (%) 139 133 139
Net assets at end of period (000 omitted) $55,911 $33,808 $1,956
</TABLE>
(A) Commenced operations June 23, 1997
(B) Commenced operations May 4, 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 earning credits as described in Notes (2)
and (1) H.
See Notes to Financial Statements.
48
<PAGE>
Sentinel Bond Fund seeks as high a level of continuing income as is consistent
with the preservation of capital through primary investments in a well
diversified portfolio of high quality corporate bonds.
Three 25-basis point reductions in the Fed Funds Rate have gone a long way
toward improving investor confidence, as the financial markets have not only
stabilized but rebounded significantly from the lows witnessed just a couple of
months ago.
Sentinel Bond Fund
For the fiscal year ended November 30, 1998, Sentinel Bond Fund earned a total
return of 8.0%, slightly below the 8.2% average return of the A-rated Corporate
Debt Funds tracked by Lipper Analytical Services. The Lehman Aggregate Index,
which is considered a good proxy for the overall bond market, returned
9.5% for the same period. The disparity between the performance of the Bond Fund
and the Lehman Aggregate Index was mostly attributable to the underperformance
of corporate securities during the three month period from August through
October.
U.S. Treasury yields fell sharply during the year, with the yield on the 30-year
Treasury bond reaching a record low of 4.69%. The decline in yields was
triggered by a number of factors, including low inflation, moderate economic
growth and an accommodative Federal Reserve. Also contributing were the flight
to quality stemming from the Russian financial crisis which erupted in
mid-August and the headline-catching difficulties experienced by several hedge
funds towards the end of September and early October.
August's Russian debt restructuring announcement led to a complete revaluation
of credit risk worldwide, causing a substantial widening of corporate bond
spreads. This widening trend, and the resulting underperformance of corporates
relative to Treasuries, continued into early November. However, three 25-basis
point reductions in the Fed Funds Rate have gone a long way toward improving
investor confidence, as the financial markets have not only stabilized but
rebounded significantly from the lows witnessed just a couple of months ago.
During the course of the fiscal year, we lengthened the Fund's duration, largely
by selling mortgages for intermediate- and long-maturity corporates and
Treasuries. Late in the year, with corporate bond spreads regaining some of the
ground that they lost in late-summer and early-fall, we reduced the Fund's
exposure to the corporate sector as a defensive measure. Nevertheless, despite
their recent improvement, corporate bond spreads remain at historically wide
levels and appear to offer good relative value.
- ----------------------------------
Average Annual
Total Return -
Class A Shares
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 3.6% 8.0%
- ----------------------------------
5 Years 5.5% 6.3%
- ----------------------------------
10 Years 8.4% 8.9%
- ----------------------------------
+Sales charge applicable to year of initial investment.
- --------------------------------------------------------------------------------
Sentinel Bond Fund Performance -- Class A Shares
Ten Years Ended 11/30/98
[LINE GRAPH APPEARS HERE]
'98 '98 '98
Bond Lipper's A rated Lehman
with/load Corp.Bond Fund Avg. Aggregate
Nov.'87
Nov.'88 10,000 10,000 10,000
Nov.'89 10,839 11,289 11,435
Nov.'90 11,470 11,899 12,302
Nov.'91 13,259 13,647 14,075
Nov.'92 14,515 14,929 15,322
Nov.'93 16,509 16,931 16,991
Nov.'94 15,699 16,275 16,471
Nov.'95 18,647 19,143 19,376
Nov.'96 19,483 20,140 20,553
Nov.'97 20,790 21,572 22,105
Nov.'98 22,444 23,339 24,194
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results. Performance will vary
for each class of shares due to differences in share class expenses.
49
<PAGE>
Looking forward, we intend to continue managing the Fund in a manner that will
allow us to attain its objective of high current income and capital
preservation.
/s/ Richard D. Temple
Richard D. Temple
/s/ William C. Kane
William C. Kane, CFA
50
<PAGE>
Sentinel Bond Fund
Investment in Securities
at November 30, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- ---------------------------------------------------------------------------------
<S> <C> <C>
U.S.Government Obligations 26.9%
U.S. Treasury Obligations 18.5%
10-Year:
Note 7%, '06 1000M $ 1,137,610
Note 5.625%, '08 7000M 7,445,550
-----------
8,583,160
-----------
30-Year:
Note 6%, '26 8800M 9,681,320
Note 5.5%, '28 1625M 1,718,600
-----------
11,399,920
-----------
Total U.S. Treasury Obligations 19,983,080
-----------
U.S. Government Agency Obligations 8.4%
Federal Home Loan Mortgage Corporation 1.3%
30-Year
FHLMC 8.0%, '08 1298M 1,372,282
-----------
Federal National Mortgage Association 6.2%
Collateralized Mortgage Obligations:
CMO Trust Series
22(Y) 7.95%, '17 1654M 1,702,287
-----------
15-Year:
7.5%, '04 524M 538,973
-----------
30-Year:
6%, '28 1151M 1,138,459
7%, '28 1300M 1,328,028
7%, '28 1986M 2,029,351
-----------
4,495,838
-----------
Total Federal National
Mortgage Association 6,737,098
-----------
Government National Mortgage Association 0.9%
15-year:
7%, '09 931M 961,894
-----------
30-year:
13%, '11 7M 8,685
13%, '13 1M 721
-----------
9,406
-----------
Total Government National
Mortgage Association 971,300
-----------
Total U.S. Government
Agency Obligations 9,080,680
-----------
Total U.S. Government Obligations
(Cost $28,181,100) 29,063,760
-----------
Bonds 70.2%
Beverages 0.5%
Anheuser Busch 8.5%, '17 503M 520,605
-----------
Financial Institutions 15.0%
Bankers Trust 7.25%, '11 1000M 1,071,250
Contifinancial 7.5%, '02 1000M 820,000
First Union Corp.
6.824%, '26 2325M 2,621,438
Household Finance Corp.
5.875%, '04 1000M 1,008,750
Lehman Brothers Holdings
8.5%, '15 3000M 3,307,500
Providian National Bank
6.7%, '03 1500M 1,513,125
Salomon Brothers 7.2%, '04 3750M 3,960,937
Simon Debartolo 6.75%, '05 2000M 1,945,000
-----------
16,248,000
-----------
Foreign Financial Institutions 13.9%
Bank Austria 7.25%, '17 2000M 2,120,000
Banque National de Paris
7.738%, '49 3000M 2,925,000
BCH Cayman Islands Ltd.
7.7%, '06 2500M 2,718,750
Credit Suisse 7.9%, '07 1500M 1,531,875
Midland Bank 7.65%, '25 2600M 2,856,750
Societe Generale 7.64%, '49 3000M 2,801,250
-----------
14,953,625
-----------
Foreign Utilities - Electric 1.5%
Korea Electric Power
6.75%, '27 1000M 856,250
Korea Electric Power 7%, '27 1000M 830,000
-----------
1,686,250
-----------
Healthcare 1.2%
Tenet Healthcare 7.625%, '08 1250M 1,278,125
-----------
Industrial - Diversified 13.2%
Akzo Nobel Inc. 6%, '03 1000M 1,010,000
Dimon Inc. 8.875%, '06 1860M 1,843,725
Federal-Mogul 7.75%, '06 1000M 1,001,250
General Motors 7.1%, '06 1000M 1,077,500
IMC Global Inc. 7.4%, '02 2000M 2,047,500
Lubrizol Corp. 5.875%, '08 1750M 1,741,250
Marriott Int'l. Inc. 6.625% '03 1750M 1,758,750
Mirage Resorts 6.625%, '05 1500M 1,464,375
Owens Corning 7.5%, '05 2200M 2,277,000
-----------
14,221,350
-----------
Insurance 6.0%
Farmers Insurance Exchange
8.625%, '24 3100M 3,727,750
Lumbermens Mutual Casualty
8.3%, '37 2500M 2,712,500
-----------
6,440,250
-----------
Telecommunications 6.9%
Comsat 8.05%, '06 2000M 2,321,100
Continental Cablevision
9.5%, '13 2625M 3,107,344
News America Holdings
6.625%, '08 2000M 2,050,000
-----------
7,478,444
-----------
Utilities - Electric 7.2%
Calenergy Co. 7.23%, '05 1750M 1,756,562
Cleveland Electric 9%, '23 2000M 2,220,000
Waterford 3 Funding
8.09%, '17 3500M 3,775,625
-----------
7,752,187
-----------
Utilities - Gas 0.3%
Consolidated Natural Gas
8.625%, '11 309M 309,000
-----------
Utilities - Telephone 4.5%
MCI Worldcom Inc.
6.4%, '05 2000M 2,080,000
NYNEX Capital Funding
7.63%, '09 1500M 1,752,690
US West Capital Funding
6.25%, '05 1000M 1,038,750
-----------
4,871,440
-----------
Total Bonds
(Cost $73,744,384) 75,759,276
-----------
Corporate Short-Term Notes 8.8%
American Express 5.1%
12/31/98 5000M 4,978,750
Commercial Credit 5.1%
12/15/98 1500M 1,497,025
IBM Credit Corp. 4.85%
12/31/98 3000M 2,987,875
-----------
Total Corporate Short-Term Notes
(Cost $9,463,650) 9,463,650
-----------
Total Investments
(Cost $111,389,134)* 114,286,686
Excess of Liabilities
Over Other Assets (5.9%) (6,388,973)
-----------
Net Assets $107,897,713
============
</TABLE>
- --------------------------------------------------------------------------------
* Cost for federal income taxes is substantially similar. At November 30,
1998, unrealized appreciation for federal income tax purposes aggregated
$2,897,552 of which $3,377,638 related to appreciated securities and
$480,086 related to depreciated securities.
See Notes to Financial Statements.
51
<PAGE>
Sentinel Bond Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $114,286,686
Cash and cash equivalents 768,490
Receivable for securities sold 3,676,554
Receivable for fund shares sold 123,991
Receivable for interest 1,910,768
Receivable from fund administrator 155,787
------------
Total Assets 120,922,276
------------
Liabilities
Payable for securities purchased $ 12,784,752
Payable for fund shares repurchased 109,515
Accrued expenses 34,706
Management fee payable 45,767
Distribution fee payable (Class A Shares) 24,897
Distribution fee payable (Class B Shares) 14,427
Fund service fee payable 10,499
------------
Total Liabilities 13,024,563
------------
Net Assets Applicable to Outstanding Shares $107,897,713
============
Net Asset Value and Offering Price per Share
Class A Shares
$91,296,600 / 14,157,366 shares outstanding $ 6.45
Sales Charge-- 4.00% of offering price 0.27
------------
Maximum Offering Price $ 6.72
============
Class B Shares
$16,601,113 / 2,568,747 shares outstanding $ 6.46
============
Net Assets Represent
Capital stock at par value $ 167,261
Paid-in capital 108,650,203
Accumulated distributions in excess of
net investment income (11,851)
Accumulated undistributed net realized loss
on investments (3,805,452)
Unrealized appreciation of investments 2,897,552
------------
Net Assets $107,897,713
============
Investments at Cost $111,389,134
============
Sentinel Bond Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Interest $ 7,076,311
-----------
Expenses:
Management advisory fee 533,634
Transfer agent and custodian 147,526
Distribution expense (Class A Shares) 178,675
Distribution expense (Class B Shares) 113,075
Accounting services 30,970
Auditing fees 8,775
Legal fees 2,950
Reports and notices to shareholders 9,873
Directors' fees and expenses 10,681
Other 18,007
-----------
Total Expenses 1,054,166
Expense Reimbursement (155,787)
Expense Offset (24,166)
-----------
Net Expenses 874,213
-----------
Net Investment Income 6,202,098
-----------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 528,645
Net change in unrealized appreciation 759,337
-----------
Net Realized and Unrealized Gain on Investments 1,287,982
-----------
Net Increase in Net Assets from Operations $ 7,490,080
===========
See Notes to Financial Statements.
52
<PAGE>
Sentinel Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
------------- -------------
Increase in Net Assets from Operations
Net Investment income $ 6,202,098 $ 6,196,358
Net realized gain on sales of investments 528,645 40,248
Net change in unrealized appreciation 759,337 2,486
------------- -------------
Net increase in net assets from operations 7,490,080 6,239,092
------------- -------------
Distributions to Shareholders
From net investment income
Class A Shares (5,570,866) (5,792,899)
Class B Shares (610,309) (339,384)
From net realized gain on investments
Class A Shares -- --
Class B Shares -- --
------------- -------------
Total distributions to shareholders (6,181,175) (6,132,283)
------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 15,581,402 11,715,128
Class B Shares 10,004,831 4,004,623
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,791,071 3,914,792
Class B Shares 396,798 231,042
------------- -------------
29,774,102 19,865,585
Less: Payments for shares reacquired
Class A Shares (18,008,356) (26,313,113)
Class B Shares (2,048,004) (910,853)
------------- -------------
Increase (Decrease) in net assets from
capital share transactions 9,717,742 (7,358,381)
------------- -------------
Total Increase (Decrease) in Net Assets
for period 11,026,647 (7,251,572)
Net Assets: Beginning of period 96,871,066 104,122,638
------------- -------------
Net Assets: End of period $ 107,897,713 $ 96,871,066
============= =============
Distributions in Excess of Net Investment Income
at End of Period $ (11,851) $ (14,366)
============= =============
See Notes to Financial Statements.
53
<PAGE>
Sentinel Bond Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period 6.36 6.35 6.49 5.85 6.90
---------- ---------- ---------- ---------- ----------
Income from Investment Operations
Net investment income 0.40 0.40 0.41 0.42 0.39
Net realized and unrealized gain (loss) on investments 0.09 0.01 (0.14) 0.64 (0.70)
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.49 0.41 0.27 1.06 (0.31)
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends from net investment income 0.40 0.40 0.41 0.42 0.39
Distributions from realized gains on investments -- -- -- -- 0.35
---------- ---------- ---------- ---------- ----------
Total Distributions 0.40 0.40 0.41 0.42 0.74
---------- ---------- ---------- ---------- ----------
Net asset value at end of period 6.45 6.36 6.35 6.49 5.85
========== ========== ========== ========== ==========
Total Return (%) * 8.0 6.7 4.5 18.8 (4.9)
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.77 0.97 0.98 0.99 0.98
Ratio of expenses to average net assets before
expense reductions (%) ** 0.95 0.99 1.00 1.03 0.98
Ratio of net investment income to average net assets (%) 6.26 6.37 6.46 6.81 6.34
Ratio of net investment income to average net assets before
voluntary expense reimbursements (%) 6.11 6.37 6.46 6.81 6.34
Portfolio turnover rate (%) 147 130 176 237 133
Net assets at end of period (000 omitted) 91,297 88,756 99,408 108,755 80,487
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Eight Months
Year Ended Year Ended Ended
Class B Shares 11/30/98 11/30/97 11/30/96(A)
------------- ------------- ------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 6.38 $ 6.36 $ 6.30
------------- ------------- ------------
Income from Investment Operations
Net investment income 0.34 0.34 0.21
Net realized and unrealized gain on investments 0.08 0.02 0.06
------------- ------------- ------------
Total from investment operations 0.42 0.36 0.27
------------- ------------- ------------
Less Distributions
Dividends from net investment income 0.34 0.34 0.21
Distributions from realized gains on investments -- -- --
------------- ------------- ------------
Total Distributions 0.34 0.34 0.21
------------- ------------- ------------
Net asset value at end of period 6.46 6.38 6.36
============= ============= ============
Total Return (%) * 6.8 5.9 4.5++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 1.64 1.87 2.16+
Ratio of expenses to average net assets before
expense reductions (%) ** 1.84 1.90 2.18+
Ratio of net investment income to average net assets (%) 5.40 5.46 5.28+
Ratio of net investment income to average net assets
before voluntary expense reimbursements (%) 5.22 5.46 5.28+
Portfolio turnover rate (%) 147 130 176
Net assets at end of period (000 omitted) 16,601 $ 8,115 4,714
</TABLE>
(A) Commenced operations April 1, 1996.
+ Annualized
++ Not annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earning credits as described in Notes (2)
and (1) H.
See Notes to Financial Statements.
54
<PAGE>
Sentinel Government Securities Fund seeks as high a level of current income as
is consistent with safety of principal through primary investments in securities
issued or guaranteed by the United States government, its agencies and
instrumentalities.
Sentinel Government Securities Fund
The Fund's fiscal year performance was enhanced by its gradual lengthening of
duration, as well as its relative underweighting of the mortgage-backed
securities (MBS) sector.
For the fiscal year ended November 30, 1998, the Sentinel Government Securities
Fund produced a total return of 10.0%, easily exceeding the 8.9% return of the
Lipper U.S. Government Fund Average. The Lehman Government Bond Index and the
Lehman Mortgage-Backed Security Index returned 10.8% and 7.5%, respectively,
over the same period.
The twelve-month period ended November 30, 1998 can once again be categorized as
one of high volatility with respect to the direction of interest rates, the
shape of the U.S. Treasury yield curve, and the relative spreads of
mortgage-backed securities (MBS). Bond market psychology was very positive for
most of the year, as inflation remained dormant with the global economic
slowdown. Interest rates fell approximately 100 basis points across the yield
curve with the 30-year U.S Treasury Bond closing at 5.07% for the twelve-month
period. The Federal Reserve did ease monetary policy three times as the target
level of Federal Funds fell to 4.75%.
Early in the year, the bond market feared a tightening of monetary policy by the
Fed as U.S. economic real growth exceeded 5.5% and the U.S. employment rate fell
to 4.3%, well below the perceived level of full employment. However, as Asian
economic conditions worsened, coupled with a significant decline in commodity
prices, bond market participants began to discount a slowdown in U.S. economic
activity. In addition, the default by the Russian government and the implosion
of a hedge fund named Long-Term Capital Management triggered a huge
flight-to-quality in U.S. Treasuries sending yields on the 30-year Bond to a
record low yield of 4.69%.
Over the fiscal year, the Fund gradually increased its portfolio duration from
5.4 years to 6.0 years. This was accomplished by swapping mortgage-backed
securities in favor of intermediate and long U.S. Treasuries. Exposure to
mortgage-backed securities declined to 48% of assets, down from 56% as of
November 30, 1997. The Fund actively engaged in U.S. Treasury dollar rolls, an
income strategy which added approximately 40
- ---------------------------------
Average Annual
Total Return
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 5.6% 10.0%
- ---------------------------------
5 Years 5.6% 6.5%
- ---------------------------------
10 Years 8.1% 8.5%
- ---------------------------------
+ Sales charge applicable to year of initial investment.
- --------------------------------------------------------------------------------
Sentinel Government Securities Fund Performance
Ten Years Ended 11/30/98
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Gov't Secs.Fund '98 '98 '98 '98
Gov't Secs. Lipper's Government Lehman Gov't Lehman
with/load Fund Avg. Bond Index Mortgage Index
<S> <C> <C> <C> <C>
0 Nov.'88 10,000 10,000 10,000 10,000
1 Nov.'89 10,757 11,201 11,447 11,407
2 Nov.'90 11,645 11,959 12,276 12,495
3 Nov.'91 13,221 13,464 13,901 14,412
4 Nov.'92 14,358 14,566 15,158 15,525
5 Nov.'93 15,877 16,220 16,991 16,667
6 Nov.'94 15,165 15,475 16,381 16,400
7 Nov.'95 17,881 18,092 19,231 19,071
8 Nov.'96 18,437 18,871 20,251 20,449
9 Nov.'97 19,772 20,122 21,739 22,072
10 Nov.'98 21,754 21,915 24,076 23,722
</TABLE>
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Indices and Average shown above, you should note
that the Fund's performance reflects the maximum 4% sales charge and includes
all expenses and management fees, while that shown for the Indices and Average
does not. Past performance is not predictive of future results.
*An unmanaged index of bonds reflecting average prices in the bond market.
55
<PAGE>
basis points to the Fund's return. The Fund's fiscal year performance was
enhanced by its gradual lengthening of duration, as well as its relative
underweighting of the mortgage-backed securities (MBS) sector.
In summary, we are committed to achieving the Fund's goals of high current
income and capital preservation through all market conditions, and appreciate
your continued support.
/s/ David M. Brownlee
David M. Brownlee, CFA
56
<PAGE>
Sentinel Government Securities Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
U.S. Government Obligations 121.8%
U.S. Treasury Obligations 51.8%
5-Year:
Note 4.25%,'03 6000M $ 5,933,880
Note 5.25%,'03 6500M 6,687,590
-----------
12,621,470
-----------
10-Year:
Note 5.625%,'08 8500M 9,041,025
-----------
30-Year:
Note 6%,'26 5500M 6,050,825
Note 5.5%,'28 11250M 11,898,000
-----------
17,948,825
-----------
Total U.S. Treasury Obligations 39,611,320
-----------
U.S. Government Agency Obligations 70.0%
Federal Farm Credit Bank 9.8%
Agency Discount Notes:
5.02%, 12/15/98 1527M 1,524,019
5.01%, 12/28/98 6000M 5,977,455
-----------
Total Federal Farm Credit Bank 7,501,474
-----------
Federal Home Loan Mortgage Corporation 10.0%
Agency Discount Notes:
4.8%, 12/02/98 1500M 1,499,800
5.04%, 12/15/98 2000M 1,996,080
5.05%, 12/21/98 2000M 1,994,389
-----------
5,490,269
-----------
15-Year:
9.5%,'05 445M 469,317
9%,'06 117M 120,694
6.5%,'07 1197M 1,238,090
-----------
1,828,101
-----------
30-Year:
8.25%,'05 93M 98,898
11%,'09 12M 13,824
11%,'15 35M 38,811
11%,'15 33M 36,382
11%,'15 25M 27,667
11%,'16 5M 5,852
11%,'16 8M 8,691
11%,'17 9M 10,469
11%,'17 79M 88,067
-----------
328,661
-----------
Total Federal Home Loan
Mortgage Corporation 7,647,031
-----------
Federal National Mortgage Association 32.6%
Agency Discount Notes:
5.26%, 12/21/98 4000M 3,988,311
-----------
Collateralized Mortgage Obligations:
CMO Trust Series
22(Y) 7.95%, '17 2426M 2,496,688
-----------
15-Year:
8.25%,'02 70M 72,900
9.75%,'04 278M 294,927
7.75%,'05 1375M 1,452,727
-----------
1,820,554
-----------
30-Year:
9.25%,'09 277M $ 295,097
8%,'16 476M 498,455
7.5%,'20 1533M 1,577,696
7%,'21 1889M 1,930,243
6%,'25 1088M 1,082,208
6%,'28 3130M 3,094,423
7%,'28 3972M 4,058,702
7%,'28 2495M 2,548,430
7%,'28 1500M 1,532,340
-----------
16,617,594
-----------
Total Federal National
Mortgage Association 24,923,147
-----------
Government National
Mortgage Association 17.6%
10-Year:
7%,'03 553M 572,273
7%,'03 779M 806,268
-----------
1,378,541
-----------
15-Year:
10%,'01 12M 12,889
7%,'09 2425M 2,506,108
6.5%,'13 2330M 2,375,176
6.5%,'13 995M 1,014,980
6.5%,'13 1002M 1,021,848
-----------
6,931,001
-----------
30-Year:
7%,'27 3063M 3,140,062
6.5%,'28 1993M 2,014,720
-----------
5,154,782
-----------
Total Government National
Mortgage Association 13,464,324
-----------
Total U.S. Government
Agency Obligations 53,535,976
-----------
Total U.S. Government Obligations
(Cost $92,085,621) 93,147,296
-----------
Corporate Short-Term Notes 19.9%
American Express 5.08%,
12/31/98 3800M $ 3,783,913
Chevron Oil Finance 5.05%,
12/31/98 2800M 2,788,217
G.E. Capital Corp. 5.22%,
02/16/99 3750M 3,708,131
Household Financial 5.1%,
12/01/98 2000M 2,000,000
Norwest Financial 5.23%,
12/01/98 900M 900,000
Norwest Financial 5.28%,
01/22/99 1100M 1,091,611
Texaco, Inc. 5.15%,
12/15/98 1000M 997,997
-----------
(Cost $15,269,869) 15,269,869
-----------
Total Investments
(Cost $107,355,490)* 108,417,165
Excess of Liabilities
Over Other Assets (41.7%) (31,918,679)
-----------
Net Assets $76,498,486
===========
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1998 unrealized
appreciation for federal income tax purposes aggregated $1,061,675 of which
$1,096,253 related to appreciated securities and $34,578 related to depreciated
securities.
See Notes to Financial Statements.
57
<PAGE>
Sentinel Government Securities Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $ 108,417,165
Cash and cash equivalents 933,790
Receivable for securities sold 16,550,194
Receivable for fund shares sold 37,214
Receivable for interest 497,564
Receivable fund administrator 57,551
-------------
Total Assets 126,493,478
-------------
Liabilities
Payable for securities purchased 49,805,031
Payable for fund shares repurchased 105,521
Accrued expenses 20,769
Management fee payable 33,118
Distribution fee payable 22,404
Fund service fee payable 8,149
-------------
Total Liabilities 49,994,992
-------------
Net Assets Applicable to Outstanding Shares $ 76,498,486
=============
Net Asset Value and Offering Price Per Share
$76,498,486 / 7,313,259 shares outstanding $ 10.46
Sales Charge -- 4.00% of Offering Price 0.44
-------------
Maximum Offering Price Per Share $ 10.90
=============
Net Assets Represent
Capital stock at par value $ 73,133
Paid-in capital 78,328,621
Accumulated distributions in excess of
net investment income (12,441)
Accumulated undistributed net realized loss
on investments (2,952,502)
Unrealized appreciation of investments 1,061,675
-------------
Net Assets $ 76,498,486
=============
Investments at Cost $ 107,355,490
=============
Sentinel Government Securities Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Interest $ 5,157,811
-------------
Expenses:
Management advisory fee 395,246
Transfer agent and custodian 127,516
Distribution expense 149,070
Accounting services 22,970
Auditing fees 7,000
Legal fees 2,100
Reports and notices to shareholders 8,000
Directors' fees and expenses 7,956
Other 20,163
-------------
Total Expenses 740,021
Expense Reimbursement (57,551)
Expense Offset (7,446)
-------------
Net Expenses 675,024
-------------
Net Investment Income 4,482,787
-------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 2,896,784
Net change in unrealized appreciation (depreciation) (277,519)
-------------
Net Realized and Unrealized Gain on Investments 2,619,265
-------------
Net Increase in Net Assets from Operations $ 7,102,052
=============
See Notes to Financial Statements.
58
<PAGE>
Sentinel Government Securities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
------------- -------------
Increase in Net Assets from Operations
Net investment income $ 4,482,787 $ 5,009,119
Net realized gain on sales of investments 2,896,784 370,658
Net change in unrealized appreciation
(depreciation) (277,519) (65,921)
------------- -------------
Net increase in net assets from operations 7,102,052 5,313,856
------------- -------------
Distributions to Shareholders
From net investment income (4,425,304) (4,829,535)
From net realized gain on investments -- --
------------- -------------
Total distributions to shareholders (4,425,304) (4,829,535)
------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares 12,434,900 6,651,510
Net asset value of shares in reinvestment
of dividends and distributions 3,445,346 3,691,450
------------- -------------
15,880,246 10,342,960
Less: Payments for shares reacquired (17,868,058) (27,316,752)
------------- -------------
Decrease in net assets from capital share
transaction (1,987,812) (16,973,792)
------------- -------------
Total Increase (Decrease) in Net Assets for
period 688,936 (16,489,471)
Net Assets: Beginning of period 75,809,550 92,299,021
------------- -------------
Net Assets: End of period $ 76,498,486 $ 75,809,550
============= =============
Distributions in Excess of Net Investment
Income at End of Period $ (12,441) $ (16,276)
============= =============
See Notes to Financial Statements. 59
<PAGE>
Sentinel Government Securities Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.09 $ 10.00 $ 10.30 $ 9.31 $ 10.45
----------- ----------- ----------- ----------- -----------
Income (loss) from Investment Operations
Net investment income 0.61 0.59 0.61 0.63 0.59
Net realized and unrealized gain (loss) on investments 0.37 0.09 (0.30) 0.99 (1.04)
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.98 0.68 0.31 1.62 (0.45)
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends from net investment income 0.61 0.59 0.61 0.63 0.58
Distributions from realized gains on investments -- -- -- -- 0.11
----------- ----------- ----------- ----------- -----------
Total Distributions 0.61 0.59 0.61 0.63 0.69
----------- ----------- ----------- ----------- -----------
Net asset value at end of period $ 10.46 $ 10.09 $ 10.00 $ 10.30 $ 9.31
=========== =========== =========== =========== ===========
Total Return(%)* 10.0 7.2 3.2 17.9 (4.5)
Ratios/Supplemental Data
Ratio of net expenses to average net assets(%) 0.91 0.98 1.00 1.03 1.00
Ratio of expenses to average net assets before
expense reductions(%)** 0.99 0.99 1.01 1.04 1.00
Ratio of net investment income to average net assets (%) 6.02 6.15 6.18 6.50 5.95
Ratio of net investment income to average net assets before
voluntary expense reimbursements(%) 5.94 6.15 6.18 6.50 5.95
Portfolio turnover rate(%) 355 249 614 367 149
Net assets at end of period (000 omitted) $76,498 $75,810 $92,299 $108,100 $104,457
</TABLE>
+ Annualized
++ Not annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total return.
** Expense reductions are comprised of the voluntary expense reimbursements and
include, effective 1995, the earning credits as described in Notes (2) and
(1)H.
See Notes to Financial Statements.
60
<PAGE>
Sentinel Short Maturity Government Fund seeks as high a level of current income
as is consistent with safety of principal through primary investments in
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities.
Sentinel Short Maturity Government Fund
The Fund's exposure to mortgage-backed securities and its relatively short
duration made the largest contributions to the Fund's performance during the
period.
For the fiscal year ended November 30, 1998, the Sentinel Short Maturity
Government Fund produced a total return of 6.6%. This compares very favorably to
an average return of 4.8% as reported by Lipper Analytical Services Inc. for
Short U.S. Government Funds. The Lehman 1-3 Year Government Index returned 7.3%
for the same period.
The investment goal of the Fund is to provide a high level of current income,
consistent with safety of principal, by investing in U.S. government securities,
including those of its agencies and instrumentalities. The Fund attempts to earn
a competitive yield and rate of return between that of a money market fund and
that provided by a long-term government bond fund. At least 65% of the Fund's
assets are invested in U.S. government securities with average maturities of 2
to 5 years. Included in this group of securities are U.S. Treasury and agency
issues, as well as mortgage-backed securities (MBS) issued by the
instrumentalities of the U.S. government. The investment strategy of the Fund is
to be at least 95% invested in all market environments, with a primary focus on
yield, as the price appreciation/ depreciation of short maturity securities is
fairly limited over a 12,-month investment horizon. In addition, yield and
total return are highly and positively correlated for short duration instruments
over short investment horizons. The Fund's target duration is 2.0 years, managed
within a range of 1.5 to 2.5 years.
Interest rates declined fairly steadily over the twelve-month period ended
November 30, 1998 as inflation remained dormant even in the face of stronger
than expected U.S. economic growth. Over the period, yields on the 2-year U.S.
Treasury Note fell 12,3 basis points to 4.52%, while 30-year U.S. Treasury Bond
yields declined 97 basis points to 5.07%. Short-term interest rates did fall
below 4.0% at one point during the fiscal year as a flight to safety in U.S.
Treasuries occurred as Russia defaulted on its recent bond debt and a hedge
fund, named Long-Term Capital Management, imploded, forcing massive liquidations
of non-U.S. Treasury securities. After the Federal Reserve restored calm to the
capital markets by easing monetary policy, short-term interest rates drifted
higher to more justifiable levels.
As of November 30, 1998, the Fund was positioned with 79% of assets in short
mortgage-backed securities and 21% in short-intermediate U.S. Treasuries. The
Fund utilizes mortgage-
- -------------------------------------
Average Annual
Total Return
Through 11,/30/98
w/sales w/o sales
Period charge+ charge
1 Year 5.6% 6.6%
- -------------------------------------
3 Year 5.7% 6.1%
- -------------------------------------
Since
Inception* 6.4% 6.7%
- -------------------------------------
*3/27/95
+ Sales charge applicable to year of initial investment.
- --------------------------------------------------------------------------------
Sentinel Short Maturity Government Fund Performance
3/27/95 inception through 11,/30/98
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
'98 '98 '98
Short Maturity Lipper's Short US Lehman 1-3 yr
Gov't Fund with/load Gov't Fund Avg. Gov't Bond Index
<S> <C> <C> <C>
03/27/95 9,900
03/31/95 9,890 10,000 10,000
4/30/95 9,984 10,082 10,089
5/31/95 10,191 10,235 10,262
6/30/95 10,221 10,283 10,317
7/31/95 10,240 10,309 10,358
8/31/95 10,301 10,374 10,420
9/30/95 10,342 10,425 10,471
10/30/95 10,421 10,503 10,558
11/30/95 10,525 10,588 10,648
12/31/95 10,615 10,665 10,728
1/31/96 10,678 10,741 10,819
2/29/96 10,618 10,697 10,777
3/31/96 10,614 10,686 10,769
4/30/96 10,603 10,693 10,780
5/30/96 10,620 10,707 10,804
6/30/96 10,695 10,777 10,883
7/31/96 10,734 10,814 10,925
8/31/96 10,753 10,843 10,965
9/30/96 10,898 10,934 11,065
10/31/96 11,021 11,045 11,190
11/30/96 11,119 11,299 11,273
12/31/96 11,103 11,293 11,275
1/31/97 11,182 11,343 11,329
2/28/97 11,201 11,371 11,357
3/31/97 11,162 11,352 11,347
4/30/97 11,267 11,435 11,441
5/31/97 11,344 11,502 11,521
6/30/97 11,443 11,564 11,600
7/31/97 11,568 11,686 11,727
8/31/97 11,585 11,690 11,738
9/30/97 11,688 11,771 11,827
10/31/97 11,768 11,853 11,915
11/30/97 11,790 11,879 11,945
12/31/97 11,861 11,899 12,024
1/29/98 12,002 11,903 12,139
2/28/98 12,010 11,913 12,150
3/30/98 12,067 11,952 12,197
4/29/98 12,124 11,999 12,256
5/29/98 12,217 12,060 12,321
6/30/98 12,268 12,113 12,385
7/28/98 12,301 12,060 12,442
8/27/98 12,416 12,282 12,594
9/26/98 12,536 12,432 12,763
10/26/98 12,548 12,454 12,826
11/30/98 12,570 12,452 12,812
</TABLE>
* An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 1% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
61
<PAGE>
backed securities for their excess yield spreads available over comparable
duration U.S. Treasuries. The Fund carefully limits the type of MBS product it
buys to those which possess limited risk should interest rates unexpectedly
rise.
In summary, the Fund's exposure to mortgage-backed securities and its relatively
short duration made the largest contributions to the Fund's performance during
the period. We look forward to helping you achieve your investment goals in the
coming year.
/s/ David M. Brownlee
David M. Brownlee, CFA
62
<PAGE>
Sentinel Short Maturity Government Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
U.S. Government Obligations 104.6%
U.S. Treasury Obligations 20.8%
5-Year:
4.25%, '03 5000M $ 4,944,900
5.25%, '03 9000M 9,259,740
------------
14,204,640
------------
U.S. Government Agency Obligations 83.8%
Federal Farm Credit Bank 1.3%
Agency Discount Notes:
5.01%, 12/08/98 917M 916,107
------------
Federal Home Loan Mortgage Corporation 31.2%
Agency Discount Notes:
4.75%, 12/02/98 1235M 1,234,837
4.8%, 12/15/98 1000M 998,133
------------
2,232,970
------------
Collateralized Mortgage Obligations:
FHLMC 1057(D),8%, '00 364M 367,566
FHLMC 1455L,7%, '20 302M 306,926
FHLMC 53(A) P11,9.5%, '20 1M 1,274
FSPC T-2A,7%, '21 339M 342,707
------------
1,018,473
------------
10-Year:
6.5%,'04 565M 585,804
------------
15-Year:
8.5%,'01 332M 343,802
9%,'01 133M 138,390
9%,'01 153M 158,899
9.5%,'01 1M 1,257
9.5%,'01 2M 2,605
7.5%,'02 289M 298,672
8%,'02 418M 432,931
9%,'02 374M 389,183
9.5%,'03 3M 3,280
9.5%,'03 211M 223,608
9.5%,'04 117M 123,272
10%,'05 91M 96,996
9%,'06 433M 455,833
8.5%,'07 36M 37,873
9%,'07 324M 340,566
8%,'08 216M 222,753
5.5%,'09 756M 764,081
7.5%,'11 1448M 1,494,175
8%,'11 911M 939,558
8%,'12 340M 351,596
6.5%,'13 843M 856,369
------------
7,675,699
------------
30-Year:
8.5%,'03 456M 484,750
7%,'06 554M 568,253
6.5%,'07 579M 608,610
7%,'07 293M 301,012
8%,'07 426M 450,876
8.25%,'07 383M 403,697
7.5%,'08 771M 809,094
7.5%,'08 525M 551,419
8%,'08 339M 346,780
7.5%,'09 486M 510,317
7.75%,'09 452M 475,114
8%,'09 196M 206,818
8%,'09 196M 207,334
8.25%,'09 707M 751,264
8.5%,'09 1124M 1,200,646
10.25%,'09 16M 18,117
9.25%,'11 1153M 1,235,878
8%,'23 617M 645,484
------------
9,775,463
------------
Total Federal Home Loan
Mortgage Corporation 21,288,409
------------
Federal National Mortgage Association 36.3%
Collateralized Mortgage Obligations:
FNMA G96-2C 7.5%, '11 500M 503,245
------------
7-Year Balloon:
7%,'04 634M 647,563
------------
15-Year:
9%,'02 4M 4,129
9%,'02 514M 539,563
7%,'03 260M 266,004
6%,'04 671M 690,338
7%,'07 336M 345,188
7.25%,'09 1052M 1,082,795
7%,'10 988M 1,014,241
8.5%,'10 276M 287,094
------------
4,229,352
------------
30-Year:
10.5%,'03 24M 25,364
8%,'04 220M 230,657
8%,'04 161M 168,750
9%,'04 518M 543,273
7%,'05 446M 453,484
8%,'05 355M 369,664
7.75%,'06 405M 422,454
8%,'06 590M 611,421
7%,'07 512M 534,200
7.5%,'07 175M 183,818
8%,'08 482M 504,494
8.25%,'09 190M 199,942
8.75%,'09 157M 166,422
8.5%,'11 178M 188,191
8%,'12 868M 909,711
8.5%,'12 2035M 2,154,092
8.75%,'13 63M 66,122
12.5%,'14 84M 96,344
8.25%,'17 422M 444,264
8.25%,'22 140M 147,770
7%,'28 2979M 3,044,026
7%,'28 6030M 6,160,329
7.5%,'28 1767M 1,817,992
------------
19,442,784
------------
Total Federal National
Mortgage Association 24,822,944
------------
Government National
Mortgage Association 15.0%
Collateralized Mortgage Obligations:
CMO Trust 27(A)7.25%,'17 190M $ 189,331
MDC Asset Inv
Trust XII 3,8.94%,'18 499M 509,195
------------
698,526
------------
15-Year:
9.5%,'99 0M 493
10.25%,'99 2M 2,013
11%,'00 3M 3,679
11.25%,'00 8M 8,995
9%,'01 13M 14,088
9.75%,'01 4M 4,377
9.75%,'01 1M 1,259
9.5%,'04 6M 6,585
7%,'07 513M 530,050
9%,'07 23M 23,900
7.5%,'08 365M 378,397
8%,'08 365M 378,049
7%,'09 269M 278,456
9%,'11 347M 364,807
6.5%,'13 711M 725,062
6.5%,'13 1037M 1,057,239
6.5%,'13 1077M 1,098,373
7%,'13 930M 957,780
7%,'13 992M 1,020,639
------------
6,854,241
------------
20-Year:
9.25%,'07 33M 35,082
9.75%,'10 70M 75,120
------------
110,202
------------
30-Year:
6.5%,'03 199M 200,673
8%,'03 226M 237,911
7.75%,'05 276M 289,057
9%,'09 109M 116,566
10%,'09 9M 10,360
10%,'16 11M 11,532
9.25%,'26 182M 195,154
7%,'28 1461M 1,498,906
------------
2,560,159
------------
Total Government National
Mortgage Association 10,223,128
------------
Total U.S. Government
Agency Obligations 57,250,588
------------
Total U.S. Government Obligations
(Cost $70,741,276) 71,455,228
------------
(continued)
63
<PAGE>
Sentinel Short Maturity Government Fund
Investment in Securities (cont'd.)
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
Corporate Short-Term Notes 15.6%
American Express 5.1%,
12/31/98 3400M $ 3,385,550
Assoc. Corp of NA, 5.16%,
12/1/98 1200M 1,200,000
Commercial Credit 5.1%,
12/1/98 2300M 2,300,000
G.E. Capital Corp. 5.11%,
12/31/98 2400M 2,389,780
Texaco, Inc. 5.14%,
12/1/98 1400M 1,400,000
------------
(Cost $10,675,330) 10,675,330
------------
Total Investments
(Cost $81,416,606)* 82,130,558
Excess of Liabilities
Over Other Assets(20.2%) (13,784,621)
------------
Net Assets $ 68,345,937
============
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1998 unrealized
appreciation for federal income tax purposes aggregated $713,952 of which
$799,767 related to appreciated securities and $85,815 related to depreciated
securities.
See Notes to Financial Statements.
64
<PAGE>
Sentinel Short Maturity Government Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $ 82,130,558
Cash and cash equivalents 389,298
Receivable for securities sold 10,444,445
Receivable for fund shares sold 571,545
Receivable for interest 608,243
Receivable from fund administrator 142,478
------------
Total Assets 94,286,567
------------
Liabilities
Payable for securities purchased 24,628,738
Payable for fund shares repurchased 1,223,684
Accrued expenses 9,402
Management fee payable 29,768
Distribution fee payable 43,549
Fund service fee payable 5,489
------------
Total Liabilities 25,940,630
------------
Net Assets Applicable to Outstanding Shares $ 68,345,937
============
Net Asset Value and Offering Price Per Share
$68,345,937 / 6,917,259 shares outstanding $ 9.88
Sales Charge -- 1.00% of Offering Price 0.10
------------
Maximum Offering Price Per Share $ 9.98
============
Net Assets Represent
Capital stock at par value $ 69,173
Paid-in capital 68,843,903
Accumulated undistributed net investment income 8,518
Accumulated undistributed net realized loss
on investments (1,289,609)
Unrealized appreciation of investments 713,952
------------
Net Assets $ 68,345,937
============
Investments at Cost $ 81,416,606
============
Sentinel Short Maturity Government Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Interest $ 3,936,247
------------
Expenses:
Management advisory fee 304,073
Transfer agent and custodian 73,619
Distribution expense 200,730
Accounting services 17,590
Auditing fees 6,000
Legal fees 1,850
Reports and notices to shareholders 4,500
Directors' fees and expenses 5,975
Other 26,457
------------
Total Expenses 640,794
Expense Reimbursement (162,979)
Expense Offset (8,294)
------------
Net Expenses 469,521
------------
Net Investment Income 3,466,726
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss on sales of investments (71,256)
Net change in unrealized appreciation 223,112
------------
Net Realized and Unrealized Gain on Investments 151,856
------------
Net Increase in Net Assets from Operations $ 3,618,582
============
See Notes to Financial Statements.
65
<PAGE>
Sentinel Short Maturity Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
------------- -------------
Increase in Net Assets from Operations
Net investment income $ 3,466,726 $ 2,621,254
Net realized loss on sales of investments (71,256) (370,535)
Net change in unrealized appreciation 223,112 211,738
------------- -------------
Net increase in net assets from operations 3,618,582 2,462,457
------------- -------------
Distributions to Shareholders
From net investment income (3,343,865) (2,412,181)
From realized gain on sale of investments -- --
------------- -------------
Total distributions to shareholders (3,343,865) (2,412,181)
------------- -------------
From Capital Share Transactions
Net proceeds from sales of shares 59,684,286 34,463,483
Net asset value of shares in reinvestment
of dividends and distributions 2,666,871 1,991,335
------------- -------------
62,351,157 36,454,818
Less: Payments for shares reacquired (39,324,195) (27,934,530)
------------- -------------
Increase in net assets from capital share
transactions 23,026,962 8,520,288
------------- -------------
Total Increase in Net Assets for period 23,301,679 8,570,564
Net Assets: Beginning of period 45,044,258 36,473,694
------------- -------------
Net Assets: End of period $ 68,345,937 $ 45,044,258
============= =============
Undistributed Net Investment Income
at End of Period $ 8,518 $ 7,429
============= =============
See Notes to Financial Statements.
66
<PAGE>
Sentinel Short Maturity Government Securities Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months
Year Ended Year Ended Year Ended Ended
11/30/98 11/30/97 11/30/96 11/30/95(A)
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.82 $ 9.81 $ 9.84 $ 9.64
------------ ----------- ----------- --------------
Income from Investment Operations
Net investment income 0.57 0.56 0.57 0.40
Net realized and unrealized gain (loss) on investments 0.06 0.01 (0.03) 0.20
------------ ----------- ----------- --------------
Total from investment operations 0.63 0.57 0.54 0.60
------------ ----------- ----------- --------------
Less Distributions
Dividends from net investment income 0.57 0.56 0.57 0.40
Distributions from realized gains on investments -- -- -- --
------------ ----------- ----------- --------------
Total Distributions 0.57 0.56 0.57 0.40
------------ ----------- ----------- --------------
Net asset value at end of period $ 9.88 $ 9.82 $ 9.81 $ 9.84
============ =========== =========== ==============
Total Return(%)* 6.6 6.0 5.6 6.3 ++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.82 1.00 1.00 1.00 +
Ratio of expenses to average net assets before
expense reductions(%)** 1.12 1.18 1.20 1.38 +
Ratio of net investment income to average net assets (%) 6.04 6.20 6.09 6.07 +
Ratio of net investment income to average net assets before
voluntary expense reimbursements(%) 5.76 6.14 5.93 5.76
Portfolio turnover rate(%) 229 61 120 58
Net assets at end of period (000 omitted) $68,346 $45,044 $36,474 $ 28,417
</TABLE>
(A) Commenced operations March 27, 1995
+ Annualized
++ Not annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earning credits as described in Notes (2)
and (1) H.
See Notes to Financial Statements.
67
<PAGE>
Sentinel U.S. Treasury Money Market Fund is a no-load money market fund which
seeks high current income, safety of principal, and liquidity by investing
exclusively in the short-term obligations issued and guaranteed by the U.S
Treasury with remaining maturities of 397 days or less.
Sentinel U.S. Treasury Money Market Fund
As of November 30, 1998, the Sentinel U.S. Treasury Money Market Fund's net
assets increased over the previous year by 14.8% to $102.5 million. Looking
ahead, we will continue to manage the Fund to insure a high degree of liquidity
and preservation of capital.
For the 12-month period ended November 30, 1998, short-term interest rates
decreased substantially, as the Federal Reserve responded to market turmoil with
three 25 basis point cuts - one in late September, another in mid October and
the third in mid November. At the end of the fiscal year, the prime rate had
decreased 75 basis points to 7.75%. The 90-day Treasury bills and Federal funds
rate declined 69 basis points to 4.52% and 5.00%, respectively. On average,
90-day certificates of deposit and commercial paper dropped 56 basis points both
ending the fiscal year at 5.21%. During the Federal Reserve's intervention, the
discount rate was cut by a total of 50 basis points, bringing it to 4.50% at the
end of November.
The year began with low interest rate volatility, as the economy continued to
grow without a hint of accelerating inflation. Conditions began to change in
late August, with the Russian debt crisis and the subsequent collapse of a large
hedge fund, which resulted in tremendous turmoil in the financial markets and,
in turn, a massive flight to quality. In an effort to bring stability to the
markets and to ease the slowdown in the U. S. economy, the Federal Reserve
intervened with the three interest rate cuts mentioned above. The financial
markets continue to anticipate further cuts in short rates.
In this environment, the Fund lengthened its maturity from 45 to 64 days. The
7-day yield decreased 57 basis points to 4.11%. As of November 30, 1998, the
Sentinel U.S. Treasury Money Market Fund's net assets increased over the
previous year by 14.8% to $102.5 million. Looking ahead, we will continue to
manage the Fund to insure a high degree of liquidity and preservation of
capital.
/s/ Darlene A. Coppola
Darlene A. Coppola
/s/ Richard D. Temple
Richard D. Temple
68
<PAGE>
Sentinel U.S.Treasury Money Market Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
U.S. Treasury Obligations 94.2%
U S Treasury Bill
4.985%,12/10/98 2000M $ 1,997,508
U S Treasury Bill
4.93%,12/17/98 500M 498,904
U S Treasury Bill
4.945%,12/17/98 750M 748,352
U S Treasury Bill
4.515%,12/24/98 5000M 4,985,577
U S Treasury Note
5.75%,12/31/98 6500M 6,502,877
U S Treasury Bill
4.35%,01/07/99 7800M 7,765,128
U S Treasury Note
6.375%,01/15/99 12600M 12,618,357
U S Treasury Bill
3.895%,01/21/99 800M 795,586
U S Treasury Bill
4.56%,01/21/99 2000M 1,987,080
U S Treasury Bill
4.6%,01/21/99 5500M 5,464,158
U S Treasury Bill
4.775%,01/21/99 1750M 1,738,162
U S Treasury Bill
4.745%,01/28/99 3500M 3,473,243
U S Treasury Bill
4.405%,02/04/99 2100M 2,083,298
U S Treasury Bill
4.42%,02/04/99 8200M 8,134,559
U S Treasury Bill
4.62%,02/04/99 3000M 2,974,975
U S Treasury Bill
4.35%,02/11/99 2600M 2,577,380
U S Treasury Note
5%,02/15/99 7000M 6,994,778
U S Treasury Bill
3.99%,03/04/99 2000M 1,979,385
U S Treasury Bill
4.095%,03/04/99 1800M 1,780,958
U S Treasury Bill
4.43%,03/04/99 5000M 4,942,779
U S Treasury Bill
4.5%,03/11/99 1000M 987,500
U S Treasury Bill
4.37%,03/18/99 1200M 1,184,414
U S Treasury Bill
4.46%,03/18/99 2000M 1,973,488
U S Treasury Bill
4.07%, 03/25/99 1200M $ 1,184,534
U S Treasury Note
6.25%, 03/31/99 6100M 6,138,673
U S Treasury Bill
4.32%, 04/08/99 1125M 1,107,720
U S Treasury Bill
4.44%, 04/08/99 2050M 2,017,637
U S Treasury Bill
4.35%, 04/15/99 2000M 1,967,375
------------
Total U.S. Treasury Obligations
(Amortized Cost $96,604,385) 96,604,385
------------
Repurchase Agreements 3.1%
Repurchase agreement with State Street
Bank dated 11/30/98 at 3.50% to be
repurchased at $3,200,311 on 12/01/98,
collateralized by a $3,200,000 U.S.
Treasury Note due 05/31/00 valued
at $3,268,860.
(Amortized Cost $3,200,000) 3200M 3,200,000
------------
Total Investments
(Amortized Cost $99,804,385)* 99,804,385
Excess of Other Assets
Over Liabilities 2.7% 2,732,981
------------
Net Assets $102,537,366
============
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes.
See Notes to Financial Statements.
69
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $ 99,804,385
Cash and cash equivalents 73,530
Receivable for fund shares sold 2,244,690
Receivable for interest 627,774
------------
Total Assets 102,750,379
------------
Liabilities
Payable for fund shares repurchased 132,450
Accrued expenses 36,191
Management fee payable 32,267
Fund service fee payable 12,105
------------
Total Liabilities 213,013
------------
Net Assets Applicable to Outstanding Shares $102,537,366
============
Net Asset Value
Class A Shares
$98,115,042/98,115,042 shares outstanding $ 1.00
============
Class B Shares
$4,422,324/4,422,324 shares outstanding $ 1.00
============
Net Assets Represent
Capital stock at par value $ 1,025,374
Paid-in capital 101,511,992
------------
Net Assets $102,537,366
============
Investments at Cost $ 99,804,385
============
Sentinel U.S. Treasury Money Market Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Interest $ 4,679,697
------------
Expenses
Management advisory fee 360,205
Transfer agent and custodian 206,488
Accounting services 27,655
Auditing fees 9,100
Legal fees 4,350
Reports and notices to shareholders 12,600
Directors' fees and expenses 9,435
Other 26,495
------------
Total Expenses 656,328
Expense Offset (3,138)
------------
Net Expenses 653,190
------------
Net Investment Income and Net Increase in
Net Assets from Operations $ 4,026,507
============
See Notes to Financial Statements.
70
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
-------------- --------------
Increase in Net Assets from Operations
Net investment income $ 4,026,507 $ 3,906,356
-------------- --------------
Distributions to Shareholders
From net investment income
Class A Shares (3,847,499) (3,725,989)
Class B Shares (179,008) (180,367)
-------------- --------------
Total Distributions to Shareholders (4,026,507) (3,906,356)
-------------- --------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 195,386,431 198,798,449
Class B Shares 8,254,397 7,962,012
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,219,677 3,338,706
Class B Shares 161,984 150,530
-------------- --------------
207,022,489 210,249,697
Less: Payments for shares reacquired
Class A Shares (186,402,562) (197,029,796)
Class B Shares (7,427,663) (7,839,276)
-------------- --------------
Increase in net assets from capital share
transaction 13,192,264 5,380,625
-------------- --------------
Total Increase in Net Assets for period 13,192,264 5,380,625
Net Assets: Beginning of period 89,345,102 83,964,477
-------------- --------------
Net Assets: End of period $ 102,537,366 $ 89,345,102
============== ==============
See Notes to Financial Statements.
71
<PAGE>
Sentinel U.S. Treasury Money Market Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ----------- ----------- ----------- -----------
Income from Investment Operations
Net investment income 0.04 0.04 0.04 0.05 0.03
Net realized and unrealized gain (loss) on investments -- -- -- -- --
------------ ----------- ----------- ----------- -----------
Total from investment operations 0.04 0.04 0.04 0.05 0.03
------------ ----------- ----------- ----------- -----------
Less Distributions
Dividends from net investment income 0.04 0.04 0.04 0.05 0.03
Distributions from realized gains on investments -- -- -- -- --
------------ ----------- ----------- ----------- -----------
Total Distributions 0.04 0.04 0.04 0.05 0.03
------------ ----------- ----------- ----------- -----------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ =========== =========== =========== ===========
Total Return(%)* 4.6 4.6 4.6 5.0 3.1
Ratios/Supplemental Data
Ratio of net expenses to average net assets(%) 0.72 0.76 0.78 0.81 0.81
Ratio of expenses to average net assets before
expense reductions(%)** 0.73 0.77 0.78 0.82 0.81
Ratio of net investment income to average net assets (%) 4.47 4.46 4.38 4.83 3.01
Net assets at end of period (000 omitted) $98,115 $85,911 $80,804 $80,664 $75,301
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Eight Months
Year Ended Year Ended Ended
Class B Shares 11/30/98 11/30/97 11/30/96(A)
------------ ----------- -----------
<S> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00
------------ ----------- -----------
Income from Investment Operations
Net investment income 0.04 0.05 0.03
Net realized and unrealized gain (loss) on investments -- -- --
------------ ----------- -----------
Total from investment operations 0.04 0.05 0.03
------------ ----------- -----------
Less Distributions
Dividends from net investment income 0.04 0.05 0.03
Distributions from realized gains on investments -- -- --
------------ ----------- -----------
Total Distributions 0.04 0.05 0.03
------------ ----------- -----------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00
============ =========== ===========
Total Return(%)* 4.5 4.7 3.0++
Ratios/Supplemental Data
Ratio of net expenses to average net assets(%) 0.77 0.73 .76+
Ratio of expenses to average net assets before
expense reductions(%)** 0.78 0.73 .77+
Ratio of net investment income to average net assets(%) 4.42 4.50 4.40+
Net assets at end of period (000 omitted) $ 4,422 $ 3,434 $ 3,160
</TABLE>
(A) Commenced operations April 1, 1996.
+ Annualized
++ Not annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total return.
** Expense reductions are comprised of the voluntary expense reimbursements and
include, effective 1995, the earning credits as described in Notes (2) and
(1) H.
See Notes to Financial Statements.
72
<PAGE>
Sentinel Tax-Free Income Fund seeks a high level of current income and
preservation of capital through a portfolio of high quality municipal bonds
which are exempt from federal income taxes.
Sentinel Tax-Free Income Fund
At current prices, municipal bonds provide after-tax yields that compare
favorably to corporate, government and mortgage backed securities . . .
For the fiscal year ended November 30, 1998, the Sentinel Tax-Free Income Fund
produced a total return of 7.4%, outperforming the 6.8% average return of the
Lipper Analytical Services Inc. universe of general municipal debt funds. The
Lehman Municipal Bond Index returned 7.8% for the same period.
The environment for tax-exempt securities remains favorable for investors as the
Federal Reserve has begun to take a more accommodating stance in its credit
policy by reducing key interest rates in an effort to maintain a consistent
level of economic growth. The current level of interest rates combined with a
1.5% inflation rate provides investors a high real rate of interest, which in
the case of municipal securities is exempt from federal income tax. Yields on
tax-exempt bonds are nearly identical to the yields offered by taxable U.S.
Treasury securities making municipals very "cheap" on a relative basis. This
unique opportunity was created by the large volume of tax-exempt bond deals that
limited the rally for these securities at the same time as the Treasury bond
market rallied sharply. International capital flows sought the risk free stature
and liquidity of Treasury bonds, driving yields dramatically lower as investors
reacted to economic turmoil in Russia and Asia. For example, a high grade,
fifteen-year municipal bond yielding 4.5% has a taxable equivalent yield of 7.5%
for an investor in the 39.6% federal income tax bracket. At current prices,
municipal bonds provide after-tax yields that compare favorably to corporate,
government and mortgage backed securities for investors who are looking to
maximize risk adjusted, after-tax cash flows in their fixed-income portfolios.
The current factors contributing to taxable and tax-exempt yields trading at
parity are technical and should revert to a more normal relationship over time.
It appears that the Federal Reserve will continue to monitor the growth
prospects for the U.S. economy and will be prepared to ease credit conditions
should economic activity slow. Although international economic events remain a
source of volatility, we believe that overall conditions have begun to
stabilize. Credit quality of state and local governments that issue municipal
bonds is excellent. Robust tax receipts, a result of strong economic growth, has
allowed
- ------------------------------------------------
Average Annual
Total Return
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 3.2% 7.4%
- ------------------------------------------------
3 Years 4.8% 6.2%
- ------------------------------------------------
5 Years 4.8% 5.7%
- ------------------------------------------------
Since
Inception* 7.3% 7.8%
- ------------------------------------------------
*10/1/90
+Sales charge applicable to year of initial investment.
Sentinel Tax-Free Income Fund Performance
10/1/90 inception through 11/30/98
[LINE GRAPH APPEARS HERE]
Tax-Free Income Fund '98 '98
Tax-Free Income Lipper's Gen'l Municipal Lehman Municipal
with/load Debt Fund Avg. Bond Index
10/01/90 9,500 10,000 10,000
Nov.'90 9,890 10,382 10,386
Nov.'91 10,897 11,418 11,452
Nov.'92 11,988 12,565 12,600
Nov.'93 13,416 14,004 13,997
Nov.'94 12,739 13,096 13,262
Nov.'95 14,780 15,496 15,769
Nov.'96 15,418 16,257 16,695
Nov.'97 16,475 17,399 17,892
Nov.'98 17,702 18,586 19,281
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
73
<PAGE>
municipal issuers to accumulate surplus
funds while proceeding with projects to upgrade
public facilities. In this environment, we will
continue to structure the portfolio to take
advantage of changing market conditions, while
striving to provide our shareholders with a
relatively high level of current income exempt
from federal taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
74
<PAGE>
Sentinel Tax-Free Income Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
Bonds 97.3%
California 8.5%
Foothill/Eastern CA Toll
6.500%, 01/01/32 3500M $3,927,840
San Mateo Cnty CA
Power Rev (AMBAC)
6.500%, 07/01/15 3000M 3,632,460
--------------
7,560,300
--------------
Colorado 2.0%
Arapahoe County Capital
Improvements
6.950%, 08/31/20 1500M 1,798,605
--------------
Delaware 0.6%
Delaware Health Facility Auth
7.625%, 11/01/10 500M 547,490
--------------
Florida 3.2%
Orange County Healthcare A
(MBIA)
6.250%, 10/01/13 1500M 1,765,575
University Community
Hospital Income (FSA)
7.500% 09/01/11 1000M 1,087,650
--------------
2,853,225
--------------
Georgia 1.8%
GA Municipal Electric Authority
(AMBAC)
0.000%, 01/01/02 1800M 1,603,080
--------------
Hawaii 1.2%
Dept of Budget Financial
of HI (FSA)
7.650%, 07/01/19 1000M 1,115,740
Hawaii State Housing Finance
7.800%, 07/01/29 5M 5,151
--------------
1,120,891
--------------
Idaho 0.5%
Idaho Housing Agency
Series D-1
8.000%, 01/01/20 370M 413,505
--------------
Illinois 7.3%
Illinois Educational
Facs Authority
6.100%, 12/15/16 560M 604,397
Illinois Housing
Development Authority
7.000%, 07/01/10 990M 1,075,774
Illinois State Sales Tax Revenue
6.500%, 06/15/13 1000M 1,187,990
Illinois State Sales Tax
6.000%, 06/15/12 2180M 2,482,540
IL MC Henry County School
(FSA)
5.850%, 01/01/16 1000M 1,123,440
--------------
6,474,141
--------------
Indiana 0.1%
Indianapolis IN Economic
Dev Revenue
7.800%, 12/01/17 55M 57,275
--------------
Kansas 0.1%
Kansas City Leavenworth Cty &
City of Lenexa Series
A - Mtg Rev
8.400%, 05/01/15 120M 124,160
--------------
Louisiana 0.4%
Jefferson LA Sales Tax (MBIA)
8.250%, 07/01/02 390M 401,513
--------------
Massachusetts 6.8%
Boston Series A G/O (FGIC)
4.500%, 01/01/18 2820M 2,667,720
Massachusetts State G/O
6.875%, 07/01/10 1000M 1,096,840
Massachusetts State G/O (FGIC)
6.000%, 08/01/09 1000M 1,146,860
Mass State Health
& Educational Facs
New England Baptist
Hospital Revenue
7.300%, 07/01/11 1000M 1,107,200
--------------
6,018,620
--------------
Michigan 1.1%
Redford MI Union School
(AMBAC)
5.000% 05/01/22 750M 762,442
Michigan State Building
Authority
6.250%, 10/01/20 170M 181,410
--------------
943,852
--------------
Missouri 1.3%
Central Missouri
St University (MBIA)
7.000% 07/01/14 1000M 1,102,500
Missouri Housing
Development Comm
9.375%, 04/01/16 25M 26,724
--------------
1,129,224
--------------
Nebraska 2.4%
Omaha Public Power District
7.625%, 02/01/12 1000M 1,005,620
Omaha Public Power District
6.150%, 02/01/12 1000M 1,153,830
--------------
2,159,450
--------------
New Mexico 3.3%
Sante Fe County
NM Revenue (FSA)
6.000%, 02/01/27 2500M 2,938,850
--------------
New York 25.1%
Long Island NY Power
Authority
5.50% 12/02/29 2500M 2,577,925
Monroe County NY G/O
6.000%, 03/01/14 1000M 1,132,090
New York City NY
(Prerefunded)
7.100%, 02/01/09 1055M 1,175,101
New York City NY
7.100%, 02/01/09 145M 159,541
NYC Municipal Water
Fin Authority
7.000%, 06/15/07 250M 273,002
New York NY Series G
5.750%, 02/01/20 1600M 1,692,032
NYC University Certificates
of Participation
5.750%, 08/15/05 2000M 2,179,260
NY State Dorm Authority
6.375% 07/01/08 1275M 1,397,094
NY State Dorm Mental
Authority
6.000%, 08/15/16 2800M 3,150,812
NY State Housing Agency
Revenue (MBIA)
5.000%, 11/01/15 1000M 1,008,330
NY State Environ Facs Corp
(Prerefunded)
7.250%, 06/15/10 40M 44,286
NY State Environmental
Facs Corp
7.250%, 06/15/10 10M 11,028
NY State Medical Care Facs
(Prerefunded)
7.875%, 08/15/08 175M 191,121
NY State Medical Care Facs
7.875%, 08/15/08 75M 81,321
NY State Thruway (MBIA)
5.250%, 04/01/09 2200M 2,359,192
Triborough Bridge &
Tunnel Authority
6.000%, 01/01/12 3250M 3,734,803
Urban Development Corp
5.750%, 01/01/13 1000M 1,060,810
--------------
22,227,748
--------------
Ohio 0.6%
OH Housing Finance
Authority
7.050%, 09/01/16 515M 542,676
--------------
(continued)
75
<PAGE>
Sentinel Tax-Free Income Fund
Investment in Securities (cont'd.)
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
Pennsylvania 5.1%
Bensalem Twp School
District (FGIC)
5.875%, 07/15/16 1500M $ 1,627,650
Montgomery Cty Higher Ed
& Health
8.300%, 06/01/10 500M 544,145
Pennsylvania State G/O
6.250%, 07/01/11 2000M 2,354,400
--------------
4,526,195
--------------
Puerto Rico 3.4%
Puerto Rico Hwy
& Transportation
5.500%, 07/01/36 2750M 2,973,300
--------------
South Carolina 1.4%
SC Spartanburg Waterwork
(FGIC)
5.250%, 06/01/28 1200M 1,243,908
--------------
Tennessee 2.6%
Lawrenceburg TN Electrical
Revenue (MBIA)
6.625%, 07/01/18 1910M 2,327,144
--------------
Texas 1.3%
North Central TX Health
6.250%, 05/15/10 1000M 1,151,350
--------------
Utah 0.1%
Utah State Housing
Finance Authority
7.250%, 07/01/22 15M 15,846
--------------
Vermont 5.0%
Vermont Education &
Health Norwich
6.000% 09/01/13 1070M 1,123,650
Vermont Education &
Health Norwich
5.500% 07/01/18 2295M 2,318,386
Vermont Education &
Health St. Michaels
7.050%, 10/01/16 900M 987,300
--------------
4,429,336
--------------
Virginia 4.9%
Fairfax County Water
Authority
7.250%, 01/01/27 1000M 1,060,760
VA Pocahontas Parkway
5.500%, 08/15/28 1900M 1,883,337
VA State Housing
Development Authority
5.200%, 01/01/06 1355M 1,416,910
--------------
4,361,007
--------------
Washington 7.2%
Snohomish County
Washington School Dist
7.100% 12/01/07 500M 540,770
Washington State G/O
6.200%, 03/01/11 1220M 1,426,070
Washington State Public
Power
7.625%, 07/01/10 250M 274,605
Washington State Public
Power (MBIA)
7.125%, 07/01/16 3295M 4,143,100
--------------
6,384,545
--------------
Total Investments
(Cost $79,042,260)* 86,327,236
Excess of Other Assets
Over Liabilities 2.7% 2,356,190
--------------
Net Assets $88,683,426
==============
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1998, net
unrealized appreciation for federal income tax purposes aggregated $7,284,976
of which $7,299,018 related to appreciated securities and $14,042 related to
depreciated securities.
The following abbreviations are used in portfolio descriptions:
(AMBAC) - Guaranteed by AMBAC Indemnity Corp.
(FGIC) - Guaranteed by Financial Guaranty Insurance Co.
(FSA) - Guaranteed by Financial Security Assurance Inc.
(MBIA) - Guaranteed by Municipal Bond Investors Assurance Corp.
G/O - General Obligation Bond
See Notes to Financial Statements.
76
<PAGE>
Sentinel Tax-Free Income Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $ 86,327,236
Cash and cash equivalents 585,392
Receivable for fund shares sold 19,222
Receivable for interest 1,724,564
Receivable from fund administrator 114,393
---------------
Total Assets 88,770,807
---------------
Liabilities
Payable for fund shares repurchased 6,200
Accrued expenses 13,025
Management fee payable 38,349
Distribution fee payable 23,032
Fund service fee payable 6,775
---------------
Total Liabilities 87,381
---------------
Net Assets Applicable to Outstanding Shares $ 88,683,426
===============
Net Asset Value and Offering Price per Share
$88,683,426 / 6,437,752 shares outstanding $ 13.78
Sales Charge--4.00% of offering price 0.57
---------------
Maximum Offering Price $ 14.35
===============
Net Assets Represent
Capital stock at par value $ 64,378
Paid-in capital 80,226,415
Accumulated undistributed net investment income 2,645
Accumulated undistributed net realized gain
on investments 1,105,012
Unrealized appreciation of investments 7,284,976
---------------
Net Assets $ 88,683,426
===============
Investments at Cost $ 79,042,260
===============
Sentinel Tax-Free Income Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Interest $ 4,892,074
---------------
Expenses:
Management advisory fee 471,905
Transfer agent and custodian 89,651
Distribution expense 178,000
Accounting services 27,405
Auditing fees 7,500
Legal fees 2,900
Reports and notices to shareholders 6,000
Directors' fees and expenses 9,497
Other 22,698
---------------
Total Expenses 815,556
Expense Reimbursement (153,309)
Expense Offset (6,831)
---------------
Net Expenses 655,416
---------------
Net Investment Income 4,236,658
---------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 1,104,977
Net change in unrealized appreciation 1,013,730
---------------
Net Realized and Unrealized Gain on Investments 2,118,707
---------------
Net Increase in Net Assets from Operations $ 6,355,365
===============
See Notes to Financial Statements.
77
<PAGE>
Sentinel Tax-Free Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Year
Ended Ended
11/30/98 11/30/97
---------------- ----------------
Increase in Net Assets from Operations
Net investment income $ 4,236,658 $ 4,483,929
Net realized gain on sales of investments 1,104,977 1,229,122
Net change in unrealized appreciation 1,013,730 279,598
---------------- ----------------
Net increase in net assets from operations 6,355,365 5,992,649
---------------- ----------------
Distributions to Shareholders
From net investment income
Class A Shares (4,234,079) (4,463,971)
Class B Shares -- (32,187)
From net realized gain on investments
Class A Shares (1,229,059) (916,286)
Class B Shares -- (8,418)
---------------- ----------------
Total distributions to shareholders (5,463,138) (5,420,862)
---------------- ----------------
From Capital Share Transactions
Net proceeds from sales of shares
Class A Shares 10,999,021 7,209,749
Class A Shares issued upon conversion
from Class B -- 1,168,657
Class B Shares -- 519,027
Net asset value of shares in reinvestment
of dividends and distributions
Class A Shares 3,837,597 3,629,221
Class B Shares -- 30,609
---------------- ----------------
14,836,618 12,557,263
Less: Payments for shares reacquired
Class A Shares (14,980,884) (24,604,903)
Class B Shares -- (152,989)
Class B Shares reacquired upon conversion
into Class A shares -- (1,168,657)
---------------- ----------------
Decrease in net assets from capital share
transactions (144,266) (13,369,286)
---------------- ----------------
Total Increase (Decrease) in Net Assets for
period 747,961 (12,797,499)
Net Assets: Beginning of period 87,935,465 100,732,964
---------------- ----------------
Net Assets: End of period $ 88,683,426 $ 87,935,465
================ ================
Undistributed Net Investment Income
at End of Period $ 2,645 $ 66
================ ================
See Notes to Financial Statements.
78
<PAGE>
Sentinel Tax-Free Income Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A Shares 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 13.64 $ 13.53 $ 13.62 $ 12.35 $ 13.81
------------ ------------ ------------ ------------ ------------
Income (loss) from Investment Operations
Net investment income 0.65 0.65 0.65 0.67 0.68
Net realized and unrealized gain (loss) on investments 0.33 0.24 (0.09) 1.27 (1.34)
------------ ------------ ------------ ------------ ------------
Total from investment operations 0.98 0.89 0.56 1.94 (0.66)
------------ ------------ ------------ ------------ ------------
Less Distributions
Dividends from net investment income 0.65 0.65 0.65 0.67 0.68
Distributions from realized gains on investments 0.19 0.13 -- -- 0.12
------------ ------------ ------------ ------------ ------------
Total Distributions 0.84 0.78 0.65 0.67 0.80
------------ ------------ ------------ ------------ ------------
Net asset value at end of period $ 13.78 $ 13.64 $ 13.53 $ 13.62 $ 12.35
============ ============ ============ ============ ============
Total Return(%)* 7.4 6.9 4.3 16.0 (5.1)
Ratios/Supplemental Data
Ratio of net expenses to average net assets(%) 0.74 0.91 0.94 0.90 0.75
Ratio of expenses to average net assets before
expense reductions(%)** 0.92 0.95 0.97 0.99 0.94
Ratio of net investment income to average net assets(%) 4.77 4.84 4.86 5.06 5.11
Ratio of net investment income to average net assets before
voluntary expense reimbursement(%) 4.59 4.84 4.86 5.00 4.92
Portfolio turnover rate(%) 37 47 112 112 92
Net assets at end of period(000 omitted) $88,683 $87,935 $99,967 $110,506 $99,935
</TABLE>
- --------------------------------------------------------------------------------
Eleven Eight
Months Ended Months Ended
Class B Shares 10/31/97(B) 11/30/96(A)
-------------- -------------
Net asset value at beginning of period $ 13.54 $ 13.28
-------------- -------------
Income from Investment Operations
Net investment income 0.43 0.32
Net realized and unrealized gain on investments 0.22 0.26
-------------- -------------
Total from investment operations 0.65 0.58
-------------- -------------
Less Distributions
Dividends from net investment income 0.44 0.32
Distributions from realized gains on investments 0.13 -
-------------- -------------
Total Distributions 0.57 0.32
Net asset value at end of period $ 13.62 $ 13.54
============== =============
Total Return(%)* 5.0 ++ 4.5++
Ratios/Supplemental Data
Ratio of net expenses to average net assets(%) 2.17 + 2.18 +
Ratio of expenses to average net assets before
expense reductions(%)** 2.34 + 2.48 +
Ratio of net investment income to average
net assets(%) 3.58 + 3.61 +
Portfolio turnover rate(%) 45 112
Net assets at end of period(000 omitted) $ - $ 766
(A) Commenced operations April 1, 1996.
(B) All Class B shares were converted to Class A shares as of October 31, 1997.
+ Annualized
++ Not annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earning credits as described in Notes (2)
and (1) H.
See Notes to Financial Statements. 79
<PAGE>
Sentinel New York Tax-Free Income Fund seeks a high level of current income and
stability of principal through investments in obligations issued by the State of
New York, its agencies and authorities, which are exempt from federal and New
York State income taxes.
Sentinel New York Tax-Free Income Fund
A high grade, fifteen-year municipal bond yielding 4.5% has a taxable equivalent
yield of 8.1% for a New York state resident in the 39.6% federal income tax
bracket.
For the fiscal year ended November 30, 1998, the Sentinel New York Tax-Free
Income Fund produced a total return of 8.3%, outperforming the 7.1% average
return for the Lipper Analytical Services Inc. universe of New York state
municipal debt funds. The Lehman Municipal Bond Index returned 7.8% for the same
period.
The environment for tax-exempt securities remains favorable for investors as the
Federal Reserve has begun to take a more accommodating stance in its credit
policy by reducing key interest rates in an effort to maintain a consistent
level of economic growth. The current level of interest rates combined with a
1.5% inflation rate provides investors a high real rate of interest, which in
the case of municipal securities is exempt from federal income tax. Yields on
tax-exempt bonds are nearly identical to the yields offered by taxable U.S.
Treasury securities making municipals very "cheap" on a relative basis. This
unique opportunity was created by the large volume of tax-exempt bond deals that
limited the rally for these securities at the same time as the Treasury bond
market rallied sharply.
International capital flows sought the risk free stature and liquidity of
Treasury bonds, driving yields dramatically lower as investors reacted to
economic turmoil in Russia and Asia. For example, a high grade, fifteen-year
municipal bond yielding 4.5% has a taxable equivalent yield of 8.1% for a New
York state resident in the 39.6% federal income tax bracket. At current prices,
municipal bonds provide after-tax yields that compare favorably to corporate,
government and mortgage backed securities for investors who are looking to
maximize risk adjusted, after-tax cash flows in their fixed-income portfolios.
The current factors contributing to taxable and tax-exempt yields trading at
parity are technical and should revert to a more normal relationship over time.
It appears that the Federal Reserve will continue to monitor the growth
prospects for the U.S. economy and will be prepared to ease credit conditions
should economic activity slow. Although international economic events remain a
source of volatility, we believe that overall conditions have begun to
stabilize. Credit quality of state and
- --------------------------------------------------------------------------------
Sentinel NY Tax-Free Income Fund Performance
3/27/95 inception through 11/30/98
NY Tax-Free Income Fund
Average Annual
Total Return
Through 11/30/98
w/sales w/o sales
Period Charge+ Charge
1 Year 4.0% 8.3%
- -------------------------------------------------------
3 Years 5.4% 6.9%
- -------------------------------------------------------
Since
Inception* 6.6% 7.8%
- -------------------------------------------------------
*03/27/95
+ Sales charge applicable to year of initial investment.
[LINE GRAPH APPEARS HERE]
Sentinel Lipper Lehman
NY Tax-Free NY Municipal Municipal
Date Income Fund Debt Fund Average Bond Index
---- ----------- ----------------- ----------
03/27/95 10000
0 3/31/95 9617 10000 10000
1 4/30/95 9608 10010 10012
2 5/31/95 9993 10330 10331
3 6/30/95 9789 10191 10241
4 7/31/95 9843 10252 10338
5 8/31/95 9966 10369 10469
6 9/30/95 10011 10424 10535
7 10/30/95 10206 10595 10688
8 11/30/95 10376 10801 10866
9 12/31/95 10460 10915 10970
10 1/31/96 10519 10967 11054
11 2/29/96 10397 10871 10978
12 3/31/96 10231 10692 10838
13 4/30/96 10197 10649 10807
14 5/30/96 10190 10650 10803
15 6/30/96 10303 10760 10921
16 7/31/96 10399 10864 11020
17 8/31/96 10376 10838 11017
18 9/30/96 10555 11007 11171
19 10/31/96 10662 11117 11298
20 11/30/96 10859 11321 11505
21 12/31/96 10773 11264 11456
22 1/31/97 10776 11260 11478
23 2/28/97 10875 11362 11583
24 3/31/97 10718 11215 11429
25 4/30/97 10815 11311 11524
26 5/31/97 11019 11480 11698
27 6/30/97 11157 11596 11822
28 7/31/97 11534 11950 12150
29 8/31/97 11384 11812 12036
30 9/30/97 11533 11946 12179
31 10/31/97 11624 12016 12257
32 11/30/97 11697 12082 12329
33 12/31/97 11897 12273 12509
34 1/31/98 12029 12392 12638
35 2/28/98 12010 12387 12642
36 3/31/98 12042 12390 12653
37 4/30/98 11956 12292 12596
38 5/31/98 12181 12513 12795
39 6/30/98 12255 12561 12846
40 7/31/98 12265 12513 12878
41 8/31/98 12472 12788 13077
42 9/30/98 12654 12948 13240
43 10/31/98 12625 12898 13240
44 11/30/98 12667 12940 13286
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
80
<PAGE>
local governments that issue municipal bonds is excellent. Robust tax receipts,
a result of strong economic growth, has allowed municipal issuers to accumulate
surplus funds while proceeding with projects to upgrade public facilities. In
this environment, we will continue to structure the portfolio to take advantage
of changing market conditions, while striving to provide our shareholders with a
relatively high level of current income exempt from federal taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
<PAGE>
Sentinel New York Tax-Free Income Fund
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
Bonds 92.5%
New York 80.4%
City University NY
Certificate of Participation
5.75%, 08/15/05 300M $326,889
Dutchess County NY G/O
5.00%, 06/15/17 325M 327,428
Dutchess County NY Water
& Sewer
5.05%, 06/01/11 100M 100,694
Insured University Revenue
5.625%, 07/01/13 (MBIA) 250M 269,135
Long Island NY Electric
Power Revenue
5.25%, 12/01/26 200M 201,546
Metro Transportation Authority
5.75%, 07/01/13 250M 276,072
Monroe County G/O
6.00%, 03/01/14 250M 283,023
Monroe Woodbury
Central School Dist.
5.625%, 05/15/22 (MBIA) 250M 265,125
New York City Municipal
Water Fin. Auth.
6.00%, 06/15/17 100M 107,249
5.75%, 06/15/20 (MBIA) 220M 235,132
5.125%, 06/15/30 (FGIC) 300M 302,583
New York NY G/O Series G
5.75%, 02/01/20 400M 423,008
New York NY Transitional
Fin. Auth.
4.50%, 11/15/27 300M 275,457
New York State Dorm.
Authority Revenue
City University System
5.625%, 07/01/16 250M 270,260
5.375%, 07/01/25 (AMBAC) 200M 205,734
Cornell Univ. - Ser A
7.375%, 07/01/30 50M 53,757
Department of Health
5.50%, 07/01/20 125M 127,554
Mental Health Services
5.70%, 08/15/09 250M 275,650
Municipal Health Facility Impts.
5.125%, 01/15/13 (FSA) 250M 258,082
Nursing Home-Hebrew Home
5.625%, 02/01/17 220M 235,358
NY Medical College
4.75%, 07/01/27 (MBIA) 250M 239,075
State Univ. Educ. Fac. - Ser A
7.20%, 05/15/06 200M 225,996
5.00%, 05/15/10 250M 259,268
6.375%, 05/15/14 250M 280,350
State Univ. Educ. Fac. - Ser B
4.75%, 05/15/28 250M 235,280
St. Johns Univ.
5.25%, 07/01/18 (MBIA) 205M 211,458
Wyckoff Hights Medical Ctr.
5.3%, 08/15/21 250M 252,082
New York State Energy
Resources
7.50%, 07/01/25 50M 51,528
New York State Environmental
Facilities
5.75%, 01/15/13 250M 272,640
5.75%, 03/15/13 300M 316,317
New York State Environmental
Water Revenue
7.25%, 06/15/10 60M 66,168
New York State Housing
Finance Agency
5.625%, 05/01/02 250M 261,930
New York State Local Govt.
Assistance Corp.
7.00%, 04/01/08 100M 112,175
5.375%, 04/01/16 (AMBAC) 300M 310,929
New York State Medical
Care Facilities
7.875%, 08/15/20 10M 10,796
7.875%, 08/15/20
(Prerefunded) 10M 10,921
7.30%, 02/15/21 10M 10,961
7.30%, 02/15/21
(Prerefunded) 15M 16,687
Hospitals & Nursing Homes
6.45%, 02/15/09 225M 242,458
New York State Mortgage
Agency Revenue
7.95%, 04/01/22 100M 105,387
New York State Thwy. Auth.
Service Contract
6.25%, 04/01/14 200M 228,038
New York State Urban
Development Corp.
5.70%, 04/01/20 250M 273,465
Suffolk County NY Water
Authority
5.625%, 06/01/16 (AMBAC) 170M 179,370
Triborough Bridge &
Tunnel Authority
6.00%, 01/01/12 250M 287,293
6.875%, 01/01/15 65M 69,359
United Nations Development
Corp.
6.00%, 07/01/12 250M 277,110
-------------
9,626,777
-------------
Puerto Rico 12.1%
Puerto Rico Commonwealth
5.375%, 07/01/21 (MBIA) 255M 265,965
5.40%, 07/01/25 300M 308,112
Puerto Rico Commonwealth
Aqueduct & Sewer
6.00%, 07/01/09 250M 283,530
Puerto Rico Electric Power
Authority
4.50%, 07/01/18 (MBIA) 300M 287,178
Puerto Rico Indl. Tourist Edl.
Med. & Envir. Ctl. Facs.
5.00%, 10/01/22 (MBIA) 300M 302,379
-------------
1,447,164
-------------
Total Bonds
(Cost $10,345,620) 11,073,941
-------------
Short-Term Investments 0.8%
New York City G/O
3.10%, 08/15/22 (a)
(Cost $100,000) 100M 100,000
-------------
Total Investments
(Cost $10,445,620)* 11,173,941
Excess of Other Assets
Over Liabilities 6.7% 803,691
-------------
Net Assets $11,977,632
=============
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1998, net
unrealized appreciation for federal income tax purposes aggregated $728,321
of which, $728,693 related to appreciated securities and $372 related to
depreciated securities.
(a) Variable rate security that may be tendered back to issuer prior to
maturity, at par.
The following abbreviations are used in portfolio descriptions:
(AMBAC) - Guaranteed by American Municipal Bond Association Corp.
(FGIC) - Guaranteed by Financial Guaranty Insurance Co
(FSA) - Guaranteed by Financial Security Assurance Inc
(MBIA) - Guaranteed by Municipal Bond Investors Assurance Corp.
82 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Sentinel New York Tax-Free Income Fund
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
<S> <C>
Assets
Investments at value $ 11,173,941
Cash and cash equivalents 571,804
Receivable for fund shares sold 7,002
Receivable for interest 173,203
Receivable from fund administrator 64,275
----------------
Total Assets 11,990,225
----------------
Liabilities
Accrued expenses 3,552
Management fee payable 5,119
Distribution fee payable 3,285
Fund service fee payable 637
----------------
Total Liabilities 12,593
----------------
Net Assets Applicable to Outstanding Shares $ 11,977,632
================
Net Asset Value and Offering Price Per Share
$11,977,632 / 982,448 shares outstanding $ 12.19
Sales Charge -- 4.00% of Offering Price 0.51
----------------
Maximum Offering Price Per Share $ 12.70
================
Net Assets Represent
Capital stock at par value $ 9,824
Paid-in capital 11,237,165
Accumulated undistributed net investment income 542
Accumulated undistributed net realized gain
on investments 1,780
Unrealized appreciation of investments 728,321
----------------
Net Assets $ 11,977,632
================
Investments at Cost $ 10,445,620
================
</TABLE>
Sentinel New York Tax-Free Income Fund
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Interest $ 476,358
----------------
Expenses:
Management advisory fee 48,855
Transfer agent and custodian 8,966
Distribution expense 18,430
Accounting services 2,820
Auditing fees 2,900
Legal fees 350
Reports and notices to shareholders 775
Directors' fees and expenses 955
Other 9,325
----------------
Total Expenses 93,376
Expense Reimbursement (90,275)
Expense Offset (3,101)
----------------
Net Expenses -
----------------
Net Investment Income 476,358
----------------
Realized and Unrealized Gain on Investments
Net realized gain on sales of investments 1,777
Net change in unrealized appreciation 255,201
----------------
Net Realized and Unrealized Gain on Investments 256,978
----------------
Net Increase in Net Assets from Operations $ 733,336
================
See Notes to Financial Statements. 83
<PAGE>
Sentinel New York Tax-Free Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/98 11/30/97
-------------- --------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 476,358 $ 341,190
Net realized gain on sales of investments 1,777 19,066
Net change in unrealized appreciation 255,201 150,280
-------------- --------------
Net increase in net assets from operations 733,336 510,536
-------------- --------------
Distributions to Shareholders
From net investment income (476,229) (341,158)
From realized gain on investments (19,064) (45,214)
-------------- --------------
Total distributions to shareholders (495,293) (386,372)
-------------- --------------
From Capital Share Transactions
Net proceeds from sales of shares 4,692,578 2,421,008
Net asset value of shares in reinvestment
of dividends and distributions 456,688 363,889
-------------- --------------
5,149,266 2,784,897
Less: Payments for shares reacquired (1,114,125) (953,210)
-------------- --------------
Increase in net assets from capital share transactions 4,035,141 1,831,687
-------------- --------------
Total Increase in Net Assets for period 4,273,184 1,955,851
Net Assets: Beginning of period 7,704,448 5,748,597
-------------- --------------
Net Assets: End of period $ 11,977,632 $ 7,704,448
============== ==============
Undistributed Net Investment Income
at End of Period $ 542 $ 413
============== ==============
</TABLE>
See Notes to Financial Statements.
84
<PAGE>
Sentinel New York Tax-Free Income Fund
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months
Year Ended Year Ended Year Ended Ended
11/30/98 11/30/97 11/30/96 11/30/95(A)
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 11.88 $11.72 $11.72 $11.19
---------- ---------- ---------- -----------
Income from Investment Operations
Net investment income 0.62 0.60 0.53 0.36
Net realized and unrealized gain on investments 0.34 0.25 -- 0.53
---------- ---------- ---------- -----------
Total from investment operations 0.96 0.85 0.53 0.89
---------- ---------- ---------- -----------
Less Distributions
Dividends from net investment income 0.62 0.60 0.53 0.36
Distributions from realized gains on investments 0.03 0.09 -- --
---------- ---------- ---------- -----------
Total Distributions 0.65 0.69 0.53 0.36
---------- ---------- ---------- -----------
Net asset value at end of period $ 12.19 $11.88 $11.72 $11.72
========== ========== ========== ===========
Total Return (%) * 8.3 7.7 4.8 8.1++
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) -- 0.30 1.04 1.22+
Ratio of expenses to average net assets before
expense reductions (%) ** 1.01 1.09 1.10 1.29+
Ratio of net investment income to average net assets (%) 5.17 5.31 4.65 4.60+
Ratio of net investment income to average net assets before
voluntary expense reimbursements (%) 4.19 4.57 4.65 4.60+
Portfolio turnover rate (%) 6 21 48 32
Net assets at end of period (000 omitted) $11,978 $7,704 $5,749 $5,332
</TABLE>
(A) Commenced operations March 27, 1995.
+ Annualized
++ Not annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at the net asset value during the period, and a redemption on
the last day of the period. Initial sales charge is not reflected in the
calculation of total return.
** Expense reductions are comprised of the voluntary expense reimbursements
and include, effective 1995, the earning credits as described in Note (2)
and (1) H.
See Notes to Financial Statements.
85
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Sentinel Group Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company. The Company consists of twelve separate series - Sentinel Small Company
Fund (formerly Sentinel Emerging Growth Fund), Sentinel Growth Fund, Sentinel
World Fund, Sentinel Common Stock Fund, Sentinel Balanced Fund, Sentinel High
Yield Bond Fund (commenced operations on June 23, 1997), Sentinel Bond Fund,
Sentinel Tax-Free Income Fund, Sentinel New York Tax-Free Income Fund (a
non-diversified series), Sentinel Government Securities Fund, Sentinel Short
Maturity Government Fund (formerly Sentinel Short-Intermediate Government Fund)
and Sentinel U.S. Treasury Money Market Fund, each individually referred to as a
Fund. All Funds offer one class of shares now referred to as Class A Shares. In
addition, Sentinel Small Company, Sentinel Growth (commenced operations January
12, 1998), Sentinel World, Sentinel Common Stock, Sentinel Balanced, Sentinel
High Yield Bond, Sentinel Bond and Sentinel U.S. Treasury Money Market Funds
have a second class of shares called Class B Shares. A third class of shares
called Class C shares were effective for Sentinel Common Stock, Sentinel
Balanced, Sentinel High Yield Bond and Sentinel World on May 4, 1998. On August
21, 1998 the board of directors approved Class D shares on the Sentinel Balanced
Fund to commence January 4, 1999. The following is a summary of significant
accounting policies followed by the Company.
A. Security Valuation: Equity securities which are traded on a national or
foreign securities exchange and over-the-counter securities listed in the NASDAQ
National Market System are valued at the last reported sales price on the
principal exchange on which they are traded on the date of determination.
Securities for which no sale was reported on that date are valued at the mean
between the last reported bid and asked prices. Over-the-counter securities not
listed on the NASDAQ National Market System are valued at the mean of the
current bid and asked prices. Fixed income securities are valued on the basis of
valuations provided by independent pricing services. Short-term securities
maturing in 60 days or less are stated at cost plus accrued interest earned
which approximates market value. Portfolio securities of the Sentinel U.S.
Treasury Money Market Fund are valued at amortized cost, which approximates
market value, in accordance with the terms of a rule adopted by the Securities
and Exchange Commission. The amortized cost method values a security at cost on
the date of purchase and thereafter assumes a constant amortization to maturity
of any discount or premium.
B. Securities Transactions and Related Investment Income: Securities
transactions are accounted for on the date the securities are purchased or sold
(trade date). Interest income is recorded on the accrual basis. Cost is
determined, and realized gains and losses are computed, using the identified
cost method. Market discount and original issue discount are accreted to income.
The Sentinel Tax-Free Income Fund, the Sentinel New York Tax-Free Income Fund
and the Sentinel Short Maturity Government Fund amortize premium. Sentinel New
York Tax-Free Income Fund invests in debt instruments of municipal issuers whose
ability to meet their obligations may be affected by economic developments in
the State of New York.
C. Dividends and Distributions: Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage-backed
securities, foreign currency transactions and the reclassification of ordinary
losses to paid-in-capital. Reclassifications were made to reflect these
differences as of November 30, 1998 as follows:
Increase (decrease) in
Accumulated accumulated undistributed
undistributed net realized gain (loss)
net investment on investments and foreign Paid-in
Fund income (loss) currency transactions capital
- -------------------------- -------------- -------------------------- --------
World .................... ($204,782) $ 204,782 --
Balanced ................. (27,138) 27,138 --
Bond ..................... (18,408) 24,096 (5,688)
Government Sec. .......... (53,648) 57,613 (3,965)
Short Maturity Gov't. .... (121,772) 121,772 --
Growth ................... 240,327 -- (240,327)
Small Company ............ 319,964 (119,410) (200,554)
D. Dollar Rolls: Sentinel Balanced, Sentinel Bond, Sentinel Government
Securities and Sentinel Short Maturity Government Funds enter into dollar rolls
in which the Funds sell securities for delivery in the current month, and
simultaneously contract to repurchase similar (same type, coupon and maturity)
securities on a specified future date. During the roll period the Funds forgo
principal and interest paid on the securities. The Funds are compensated by the
interest earned on the cash proceeds of the initial sale and by the lower
repurchase price at the future date. The difference between the sale proceeds
and the lower repurchase price is taken into income. The Funds maintain
segregated accounts, the dollar value of which is equal to its obligations, in
respect of dollar rolls.
86
<PAGE>
E. Federal Income Taxes: Each Fund intends to continue to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies. The
Company intends to distribute all of its taxable income to its shareholders,
relieving each Fund of any federal excise tax or income tax liability.
F. Foreign Currency Translations: The books and records of the Sentinel World
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars at the mean between the buying and selling rates on the
following basis:
(1) market value of investment securities, assets and liabilities at the closing
daily rate of exchange; and
(2) purchases and sales of investment securities, income and expenses at the
rate of exchange prevailing on the respective dates of such transactions.
The Sentinel World Fund does not isolate that portion of gains and losses on
investments in securities which is due to changes in the foreign exchange rates
from that which is due to changes in market prices of such securities. However,
pursuant to United States federal income tax regulations, gains and losses from
certain foreign currency transactions are treated as ordinary income for federal
income tax purposes.
G. Repurchase Agreements: Each Fund may enter into repurchase agreements as a
means of making short-term investments, of seven days or less, and in aggregate
amounts of not more than 25% of the net assets of a Fund. Each Fund, through its
custodian, takes possession of the securities collateralizing repurchase
agreements. All repurchase agreements entered into by the Funds provide that the
market value of the collateral underlying the repurchase agreement at the time
of purchase, and each subsequent business day, will always be at least equal to
102% of the repurchase agreement amount including accrued interest. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
H. Other: Direct expenses of a Fund are charged to that Fund while common
expenses of the Company are allocated proportionately based upon the Funds'
respective average net assets or number of shareholder accounts.
Allocation of expenses not allocated to a specific Class of each Fund are
allocated on the basis of daily net assets or number of shareholder accounts,
each on a pro rata basis, of each Class.
Investment income, gains and losses (realized and unrealized) are allocated pro
rata according to daily net assets of each Class of each Fund.
Earnings credits are received from the custodian and dividend paying agent on
cash balances and are reflected in the statement of operations as an expense
offset.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
(2) Management Advisory Fee and Other Transactions with Affiliates:
Pursuant to the Investment Advisory Agreement (the "Agreement"), Sentinel
Advisors, Co., ("SAC"), a Vermont general partnership whose general partners are
Sentinel Advisors, Inc., an indirect wholly-owned subsidiary of National Life
Insurance Company ("National Life"), ProvidentMutual Management Co., Inc., an
affiliate of Provident Mutual Life Insurance Company of Philadelphia ("Provident
Mutual"), HTK of Delaware, Inc. ("HTK"), an affiliate of The Penn Mutual Life
Insurance Company ("Penn Mutual") and Sentinel Management Company ("SMC"), a
Vermont general partnership whose general partners are affiliates of National
Life, Provident Mutual and Penn Mutual, provides general supervision of the
Funds' investments as well as certain administrative and related services. As
compensation in full for services rendered under its Agreement, the Funds pay
SAC a monthly fee determined as follows: (1) With respect to Sentinel Small
Company, Sentinel Growth, Sentinel World and Sentinel Balanced Funds: 0.70% per
annum on the first $200 million of aggregate average daily net assets of such
Funds; 0.65% per annum on the next $100 million of such assets; 0.60% per annum
on the next $100 million of such assets; and 0.55% per annum on such assets in
excess of $400 million. (2) With respect to Sentinel Common Stock Fund: 0.55%
per annum on the average daily net assets of the Fund. (3) With respect to
Sentinel High Yield Bond Fund: 0.75% per annum on the first $100 million of
average daily net assets; 0.70% per annum on the next $100 million of such
assets; 0.65% per annum on the next $100 million of such assets; and 0.60% per
annum on such assets in excess of $300 million. (4) With respect to Sentinel
Bond, Sentinel Tax-Free Income, Sentinel New York Tax-Free Income, Sentinel
Government Securities and Sentinel Short Maturity Government Funds: 0.55% per
annum on the first $200 million of aggregate average daily net assets of such
Funds;
87
<PAGE>
0.50% per annum on the next $200 million of such assets; and 0.45% per annum on
such assets in excess of $400 million. (5) With respect to Sentinel U.S.
Treasury Money Market Fund: 0.40% per annum on the first $300 million of average
daily net assets; and 0.35% per annum on such assets in excess of $300 million.
With respect to Sentinel World Fund, SAC has entered into a sub-advisory
agreement with INVESCO Capital Management, Inc. ("INVESCO"). Pursuant to such
agreement, INVESCO provides SAC with a continuous investment program consistent
with Sentinel World Fund's investment objectives and policies. The sub-advisory
agreement provides for a fee to be paid by SAC to INVESCO of the greater of (a)
a monthly fee equal to 0.375% per annum of the average daily net assets of
Sentinel World Fund up to $500 million and 0.30% per annum of such average net
assets in excess of $500 million, or (b) $20,000 per annum.
With respect to Sentinel High Yield Bond Fund, SAC has entered into a
sub-advisory agreement with Keystone Investment Management Company ("Keystone").
Pursuant to such agreement, Keystone provides SAC with a continuous investment
program consistent with Sentinel High Yield Bond Fund's investment objectives
and policies. The sub-advisory agreement provides for a fee from SAC to Keystone
equal to one half of the fee paid by Sentinel High Yield Bond Fund to SAC,
provided that the fee paid by SAC to Keystone will always be at least 0.35% per
annum of the average daily net assets.
All Funds (except Sentinel U.S. Treasury Money Market Fund) have adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act. These distribution
plans are herein referred to as the "A Plans". The Sentinel New York Tax-Free
Income Fund became subject to the A Plan upon its inception on March 27, 1995
and Sentinel High Yield Bond Fund became subject to it on its inception on June
23, 1997. On March 24, 1995 the Sentinel Short Maturity Government Fund adopted
a supplemental distribution plan pursuant to Rule 12b-1 applicable only to it.
On March 29, 1996 each of the Funds with Class B Shares (except Sentinel U.S.
Treasury Money Market Fund) adopted a Class B distribution plan referred to as
the "B Plans". The Sentinel High Yield Bond Fund became subject to the B Plan on
June 23, 1997. On May 4, 1998 each of the Funds with Class C Shares adopted a
Class C distribution plan referred to as the "C Plans". None of the fees paid by
the other Funds pursuant to the Plans will be used to reimburse Sentinel
Financial Services Company ("SFSC"), a Vermont general partnership whose general
partners are National Life Investment Management Company, Inc., a wholly-owned
subsidiary of National Life, ProvidentMutual Financial Services, Inc., an
affiliate of Provident Mutual, HTK and SMC, the principal underwriter
("Distributor") of the Company's shares, for expenses incurred in connection
with the distribution of the Sentinel U.S. Treasury Money Market Fund shares.
Under the A Plans, each participating Fund pays to the Distributor a monthly fee
at the maximum annual rate of (a) 0.30% of average daily net assets relating to
A Shares outstanding in the case of the Sentinel Small Company, Sentinel Growth,
Sentinel World, Sentinel Common Stock and Sentinel Balanced Funds, (b) 0.20% of
average daily net assets relating to A Shares outstanding in the case of the
Sentinel High Yield Bond, Sentinel Bond, Sentinel Tax-Free Income, Sentinel New
York Tax-Free Income and Sentinel Government Securities Funds or (c) 0.35% of
average daily net assets relating to A Shares outstanding in the case of the
Sentinel Short Maturity Government Fund. Such fees will be used to reimburse the
Distributor for expenses incurred in connection with distribution and promotion
of the shares of each participating Fund, including salaries and expenses of the
Distributor's wholesale sales force, home office management and marketing
personnel, expenses incurred by the Distributor for the occupancy of its office
space in Montpelier, Vermont, expenses incurred by the Distributor with respect
to equipment and supplies, expenses incurred for the preparation, printing and
distribution of sales literature used in connection with the offering of such
shares to the public, expenses incurred in advertising, promotion and selling
shares of such Fund to the public, expenses incurred for the preparation,
printing and distribution of the Prospectus and Statement of Additional
Information, any supplement thereto used in connection with the offering of such
Fund's shares to the public, or any reports and other communications for the
distribution to existing shareholders, and service fees (deferred commissions)
paid to securities dealers who have executed a selling agreement with the
Distributor.
Under the Plan applicable to the Class B Shares, the Class B Shares of the
Common Stock, Balanced, Growth, Small Company, World, High Yield and Bond Funds
pay to the Distributor a monthly fee at an annual rate of up to a total of 1.00%
of average daily net assets, of which up to 0.25% shall be for service fees to
broker-dealers, and the remaining 0.75% shall be for the recovery of the initial
sales commissions paid by the Distributor at the time of sales of Class B
Shares, together with the cost of financing such payments, and for the other
types of distribution, sales and marketing expenditures detailed in the
preceding paragraph for the Plans applicable to
88
<PAGE>
the Class A shares. The High Yield Fund Class B shares are not assessed a
distribution fee in respect of the seed money shares owned by National Life,
which will result in an overall Rule 12b-1 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.
Under the Plan applicable to the Class C shares, the Class C shares of each of
the Common Stock, Balanced, World and High Yield Funds pay to the Distributor 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 this fee will be applied to recover
the initial sales commission of 1.00% paid by the Distributor to the selling
dealer. In subsequent years, the entire 1.00% will be paid to the selling dealer
as additional commission and/or service fees.
These asset-based fees, excepting the service fee component, are subject to
aggregate limits imposed by the National Association of Securities Dealers, Inc.
The Distributor will not be reimbursed for any unreimbursed eligible expenses
from any other Fund, or in any future year from any of the Plans.
SFSC also receives a sales charge added to the net asset value received by the
Company on the sale of its Class A Shares. This compensation is not an expense
of the Company and does not affect its operating results. SFSC has advised the
Company that it received sales charges aggregating $4,760,931 for the year ended
November 30, 1998. The Company is advised that the total distribution charges
retained by SFSC on the sale of shares amounted to $152,874 after allowances of
$2,256,971 to Equity Services, Inc., an affiliate of National Life, $411,059 to
1717 Capital Management Company, an affiliate of Provident Mutual, $780,486 to
Hornor, Townsend & Kent, Inc. and $173,768 to Janney Montgomery Scott, Inc.
("JMS"), affiliates of Penn Mutual, and $985,773 to other investment dealers.
During this same period, SFSC received $9,952 in contingent deferred sales
charges from certain redemptions of Class A shares and $349,773 in contingent
deferred sales charges from redemptions of Class B shares and $344 in contingent
deferred sales charges from redemptions of Class C shares.
During the year the Company transacted purchases and sales of portfolio
securities through, among others, JMS for which it received $23,520 in brokerage
commissions. In addition JMS acted as dealer on certain purchases of shares of
the Company for which it received dealer's concessions noted above.
Each director who is not an employee of the adviser or an affiliated company is
paid an annual fee of $16,000 plus $1,500 for each meeting of the Board of
Directors attended. Such directors are reimbursed for travel and other out-of-
pocket expenses incurred in attending such meetings.
Pursuant to the Fund Services Agreement with Sentinel Administrative Service
Company ("SASC"), a Vermont general partnership whose general partners are
Sentinel Administrative Service Corporation, an indirect wholly-owned subsidiary
of National Life, SIGMA American Corp., an affiliate of Provident Mutual, HTK
and SMC, the Company receives fund accounting and financial administrative
services, transfer agent services and investor services, all of which are
coordinated with other services which the Company has contracted for with
outside providers. Total fees for the year ended November 30, 1998 were
$3,475,581.
SAC has voluntarily agreed to refund its fee to the extent necessary to prevent
the overall aggregate expense ratio of the Funds' Class A Shares and Sentinel
Pennsylvania Tax-Free Trust (excluding the Sentinel World Fund) from exceeding
1.30% of average daily net assets in any fiscal year. The aggregate expense
ratio of the Funds' Class B Shares (excluding the Sentinel World Fund) would
also be reduced proportionately. The Funds and Sentinel Pennsylvania Tax-Free
Trust make up the Sentinel Family of Funds. Although SAC has no present
intention to do so, this arrangement may be terminated at any time. Expenses for
the year ended November 30, 1998 did not exceed 1.30% of its average daily net
assets.
For the period December 1, 1997 through March 29, 1998 SASC has agreed to
reimburse the Sentinel Short Maturity Government Fund Class A for all operating
expenses in excess of an annual rate of 1.00% of the Funds' average daily net
assets. With respect to Class A Shares of Sentinel New York Tax-Free Income
Fund, SASC has agreed to reimburse the Fund for all its operating expenses
effective March 31, 1997.
Effective March 30, 1998 Sentinel Advisors has voluntarily agreed to reimburse
the following Funds for advisory fees or other expenses necessary to limit these
Fund's overall expense ratios, after expense offset, (i.e. net of certain
credits against Fund expenses) to the amounts shown below:
Bond Fund Class A shares 0.68%
Government Securities Fund Class A shares 0.87%
Short Maturity Government Fund Class A shares 0.75%
Tax-Free Income Fund Class A shares 0.72%
89
<PAGE>
In case of the Bond Fund, the reimbursement of advisory fees will also benefit
the Class B shares of the Bond Fund, which will experience the same reduced
effective advisory fee rate as the Class A shares.
For the fiscal year ended November 30, 1998 the total amount reimbursable to
Sentinel Bond Fund Class A was $135,034, Sentinel Bond Fund Class B $20,753,
Sentinel Government Securities Fund $57,551, Sentinel Short Maturity Government
Fund $162,979, Sentinel Tax-Free Income Fund $153,309, and Sentinel New York
Tax-Free Income Fund $90,275.
Although SASC has no present intention to do so, this arrangement may be
terminated at any time.
(3) Investment Transactions:
Purchases and sales of investment securities (excluding short-term obligations)
for the year ended November 30, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases of Sales of
other than Purchases of other than
U.S. U.S. U.S. Sales of U.S.
government government government government
direct and direct and direct and direct and
agency agency agency agency
Fund obligations obligations obligations obligations
- --------------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Common Stock ........ $446,843,885 -- $488,504,255 --
Balanced ............ 151,662,580 $130,628,197 140,581,945 $141,275,982
Growth .............. 99,340,833 -- 88,644,288 --
Small Company ....... 51,949,773 -- 52,633,466 --
World ............... 25,207,496 -- 13,395,975 --
High Yield Bond ..... 120,182,609 16,576,016 74,470,243 16,734,436
Bond ................ 85,321,797 67,246,011 64,928,385 77,563,484
Government .......... -- 263,348,690 -- 265,434,029
Short Maturity Gov't. -- 153,871,727 -- 128,390,981
Tax-Free ............ 32,154,425 -- 33,757,040 --
N.Y. Tax-Free ....... 3,952,112 -- 513,023 --
</TABLE>
(The Sentinel U.S. Treasury Money Market Fund invests only in short-term
obligations.)
For Federal income tax purposes, the Company has capital loss carryforwards at
November 30, 1998 as follows:
$2,140,898, $538,825 and $1,051,666 (expiring in 2001, 2002 and 2004,
respectively) for a total of $3,731,389 for the Sentinel Bond Fund, $2,952,502
(expiring in 2004) for the Sentinel Government Securities Fund, $1,490,419
(expiring in 2006) for the Sentinel High Yield Bond Fund, $1,283,934 (expiring
in 2006) for the Sentinel World Fund and $278,001, $619,379, $142,166, $83,225
and $166,838 (expiring in 2000, 2001, 2002, 2004 and 2005, respectively) for a
total of $1,289,609 for the Sentinel Short Maturity Government Fund. During the
year ended November 30, 1998, the Sentinel Bond Fund, Sentinel Short Maturity
Fund and the Sentinel Government Securities Fund utilized $626,804, $50,516 and
$2,954,401 of capital loss carryforwards, respectively. It is unlikely that a
capital gains distribution will be paid to shareholders of these Funds until net
gains have been realized in excess of such capital loss carryforwards or the
carryforwards expire.
90
<PAGE>
(4) Fund Shares:
At November 30, 1998, 2 billion shares of one cent par value were authorized.
There are 1.36 billion shares allocated to the various Funds as Class A Shares ,
260 million shares allocated to the various Funds as Class B Shares and 40
million shares allocated to various Class C Shares. Proceeds from sales and
payments for redemptions on Fund shares as shown in the statement of changes in
net assets are represented by the following number of shares:
<TABLE>
<CAPTION>
Shares issued Net
Shares issued in (reacquired) increase
reinvestment of upon conversion (decrease)
dividends and Shares from/(into) in shares
Fund Shares sold distributions reacquired Class B/A outstanding
---- ----------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended 11/30/98
Common Stock - A ...... 2,319,503 3,707,242 4,126,688 -- 1,900,057
Common Stock - B ...... 1,247,141 220,053 300,254 -- 1,166,940
Common Stock - C ** ... 128,386 40 8,149 -- 120,277
Balanced - A .......... 1,761,700 1,281,894 2,754,031 -- 289,563
Balanced - B .......... 1,008,603 109,017 180,545 -- 937,075
Balanced - C ** ....... 72,665 312 111 -- 72,866
Growth - A ............ 1,107,943 1,695,268 827,751 -- 1,975,460
Growth - B* ........... 284,897 -- 20,350 -- 264,547
Small Company - A ..... 1,816,196 2,341,987 3,171,812 -- 986,371
Small Company - B ..... 959,051 178,297 181,707 -- 955,641
World - A ............. 1,261,819 229,155 1,153,057 -- 337,917
World - B ............. 481,379 23,804 85,449 -- 419,734
World - C ** .......... 154,395 -- 98,307 -- 56,088
High Yield Bond - A ... 2,403,640 147,508 425,396 -- 2,125,752
High Yield Bond - B ... 2,737,683 135,496 385,851 -- 2,487,328
High Yield Bond - C ** 197,536 4,462 1,523 -- 200,475
Bond - A .............. 2,428,801 592,479 2,808,497 -- 212,783
Bond - B .............. 1,553,747 61,897 319,531 -- 1,296,113
Government ............ 1,206,526 336,396 1,743,268 -- (200,346)
Short Maturity Gov't .. 6,037,319 270,309 3,978,257 -- 2,329,371
U.S. Treasury - A ..... 195,386,431 3,219,677 186,402,562 -- 12,203,546
U.S. Treasury - B ..... 8,254,397 161,984 7,427,663 -- 988,718
Tax-Free .............. 805,481 281,459 1,096,968 -- (10,028)
N.Y. Tax-Free ......... 387,759 37,877 91,615 -- 334,021
Year Ended 11/30/97
Common Stock - A ...... 2,705,403 2,975,446 3,615,554 -- 2,065,295
Common Stock - B ...... 1,086,877 74,040 77,413 -- 1,083,504
Balanced - A .......... 1,826,520 782,123 3,117,018 -- (508,375)
Balanced - B .......... 754,261 33,293 68,172 -- 719,382
Growth ................ 626,402 710,563 603,146 -- 733,819
Small Company - A ..... 2,422,659 155,607 3,455,802 -- (877,536)
Small Company - B ..... 919,683 3,285 63,324 -- 859,644
World - A ............. 1,472,913 99,489 924,429 -- 647,973
World - B ............. 409,903 3,852 24,658 -- 389,097
High Yield Bond - A *** 1,074,262 13,753 23,133 -- 1,064,882
High Yield Bond - B *** 3,282,060 12,285 43,795 -- 3,250,550
Bond - A .............. 1,877,830 628,012 4,218,555 -- (1,712,713)
Bond - B .............. 640,073 36,953 145,602 -- 531,424
Government ............ 670,673 373,702 2,764,716 -- (1,720,341)
Short Maturity Gov't .. 3,520,498 203,920 2,855,286 -- 869,132
U.S. Treasury - A ..... 198,798,449 3,338,706 197,029,796 -- 5,107,359
U.S. Treasury - B ..... 7,962,012 150,530 7,839,276 -- 273,266
Tax-Free - A (a) ...... 539,782 272,246 1,839,547 85,799 (941,720)
Tax-Free - B (a) ...... 38,576 2,296 11,628 (85,799) (56,555)
N.Y. Tax-Free ......... 207,637 31,400 81,284 -- 157,753
</TABLE>
* For the period January 12, 1998 to November 30, 1998.
** For the period May 4, 1998 to November 30, 1998.
*** For the period June 23, 1997 to November 30, 1997.
(a) On October 31, 1997 all outstanding Class B shares were converted to Class
A shares.
(5) Post Retirement Benefits:
The Company provides certain health care and life insurance benefits to its
retirees. At November 30, 1998 the projected obligation for such benefits had
been accrued.
91
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of Sentinel Group Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Sentinel Small Company Fund,
Sentinel Growth Fund, Sentinel World Fund, Sentinel Common Stock Fund, Sentinel
Balanced Fund, Sentinel High Yield Bond Fund, Sentinel Bond Fund, Sentinel
Tax-Free Income Fund, Sentinel New York Tax-Free Income Fund, Sentinel
Government Securities Fund, Sentinel Short Maturity Government Fund and Sentinel
U.S. Treasury Money Market Fund (constituting Sentinel Group Funds, Inc.,
hereafter referred to as the "Fund") at November 30, 1998, the results of each
of their operations, the changes of each of their net assets, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 18, 1998
92
<PAGE>
Sentinel Pennsylvania Tax-Free Trust seeks a high level of current income and
stability of principal through investments in obligations issued by the
Commonwealth of Pennsylvania and its agencies and authorities, which are exempt
from federal and Pennsylvania state income taxes.
Sentinel Pennsylvania Tax-Free Trust
Yields on tax-exempt bonds are nearly identical to the yields offered by taxable
U.S. Treasury securities, making municipals very "cheap" on a relative basis.
For the fiscal year ended November 30, 1998, the Sentinel Pennsylvania Tax-Free
Trust produced a total return of 6.9% versus the 6.5% average return for the
Lipper Analytical Services Inc. universe of Pennsylvania municipal debt funds.
The Lehman Municipal Bond Index returned 7.8% for the same period.
The environment for tax-exempt securities remains favorable for investors as the
Federal Reserve has begun to take a more accommodating stance in its credit
policy by reducing key interest rates in an effort to maintain a consistent
level of economic growth. The current level of interest rates combined with a
1.5% inflation rate provides investors a high real rate of interest, which in
the case of municipal securities is exempt from federal income tax. Yields on
tax-exempt bonds are nearly identical to the yields offered by taxable U.S.
Treasury securities, making municipals very "cheap" on a relative basis. This
unique opportunity was created by the large volume of tax-exempt bond deals that
limited the rally for these securities at the same time the Treasury bond market
rallied sharply. International capital flows sought the risk free stature and
liquidity of Treasury bonds, driving yields dramatically lower as investors
reacted to economic turmoil in Russia and Asia. For example, a high grade,
fifteen-year municipal bond yielding 4.5% has a taxable equivalent yield of 7.7%
for a Pennsylvania resident in the 39.6% federal income tax bracket. At current
prices, municipal bonds provide after-tax yields that compare favorably to
corporate, government and mortgage backed securities for investors who are
looking to maximize risk adjusted, after-tax cash flows in their fixed-income
portfolios. The current factors contributing to taxable and tax-exempt yields
trading at parity are technical and should revert to a more normal relationship
over time.
It appears that the Federal Reserve will continue to monitor the growth
prospects for the U.S. economy and will be prepared to ease credit conditions
should economic activity slow. Although international economic events remain a
source of volatility, we believe that overall conditions have begun to
stabilize. Credit quality of state and local governments that issue municipal
bonds is excellent. Robust tax receipts, a result of strong economic growth, has
- -------------------------------------------
Average Annual
Total Return
Through 11/30/98
w/sales w/o sales
Period charge+ charge
1 Year 2.6% 6.9%
- -------------------------------------------
5 Years 4.5% 5.4%
- -------------------------------------------
10 Years 6.6% 7.1%
- -------------------------------------------
+Sales charge applicable to year of initial investment.
[LINE GRAPH APPEARS HERE]
PA Tax-Free Trust Lipper's PA Municipal Lehman Municipal
with/load Debt Fund Avg. Bond Index
--------- -------------- ----------
Nov.-88 10,000 10,000 10,000
Nov.-89 10,550 11,108 11,101
Nov.-90 11,180 11,776 11,956
Nov.-91 12,169 12,968 13,183
Nov.-92 13,414 14,318 14,505
Nov.-93 14,637 16,182 16,113
Nov.-94 13,921 15,068 15,266
Nov.-95 15,976 17,877 18,151
Nov.-96 16,770 18,789 19,218
Nov.-97 17,788 20,057 20,596
Nov.-98 19,007 21,360 22,194
*An unmanaged index of bonds reflecting average prices in the bond market.
Ending values are based upon an initial investment of $10,000 and the subsequent
reinvestment of all dividends and distributions. When comparing the Fund's
performance with that of the Index and Average shown above, you should note that
the Fund's performance reflects the maximum 4% sales charge and includes all
expenses and management fees, while that shown for the Index and Average does
not. Past performance is not predictive of future results.
93
<PAGE>
allowed municipal issuers to accumulate surplus funds while proceeding with
projects to upgrade public facilities. In this environment, we will continue to
structure the portfolio to take advantage of changing market conditions, while
striving to provide our shareholders with a relatively high level of current
income exempt from federal taxation.
/s/ Kenneth J. Hart
Kenneth J. Hart
94
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Investment in Securities
at November 30, 1998
- --------------------------------------------------------------------------------
Principal Amount Value
(M=$1,000) (Note 1)
- --------------------------------------------------------------------------------
Bonds 97.4%
Pennsylvania 91.3%
Allegheny County G/O
5.15%, 09/01/11 (FGIC) 1500M $1,560,615
Allegheny County Hospital
6.00%, 10/01/03 (FGIC) 1000M 1,089,240
Allegheny County
Institution G/O
7.30%, 04/01/09 (MBIA) 1000M 1,044,030
Armstrong County Hospital
Auth.
6.25%, 06/01/13 (AMBAC) 1200M 1,304,844
Beaver County Industrial
Dev. Auth.
7.75%, 09/01/24 500M 521,385
Bensalem Township
School Dist.
5.875%, 07/15/16 1150M 1,247,865
Berks County G/O
7.25%, 11/15/20 (FGIC) 1000M 1,089,750
Butler PA Area School District
4.75%, 10/01/22 (FGIC) 1000M 962,650
Chester County Health
& Education
5.375%, 05/15/27 1500M 1,517,220
Erie PA Higher Education
Building Auth.
5.75%, 03/15/20 (ACA) 1500M 1,594,170
Grove City PA Hospital Auth.
5.25%, 07/01/12 (ACA) 1500M 1,565,340
Hazelton PA Area
School District
0.00%, 03/01/25 (FGIC) 1255M 335,549
Jim Thorpe PA Area
School District
5.30%, 03/15/16 (MBIA) 1500M 1,600,065
Lehigh County Industrial
Dev. Auth.
6.15%, 08/01/29 (MBIA) 1000M 1,096,710
Montgomery County Higher
Educ. & Health
8.30%, 06/01/10 500M 544,145
PA State Turnpike Commn.
Oil Tax Rev.
4.75%, 12/01/27 (AMBAC) 1130M 1,080,337
Pennsylvania Higher Educ. Facs.
5.625%, 12/01/27 (MBIA) 1000M 1,061,460
Pennsylvania Housing
Finance Agency
5.80%, 10/01/29 1000M 1,031,560
Pennsylvania State G/O
6.25%, 07/01/11 1500M 1,765,800
Pennsylvania State
Turnpike Commn.
7.20%, 12/01/17 (FGIC) 1000M 1,117,780
Pennsylvania Trafford
School Dist.
5.90%, 05/01/11 (MBIA) 1000M 1,094,130
Philadelphia Authority for
Industrial Dev.
5.50%, 11/15/16 1590M 1,655,333
Philadelphia Regional Port. Auth.
7.125%, 08/01/10 (MBIA) 250M 264,693
7.15%, 08/01/20 (MBIA) 250M 264,792
Philadelphia Water & Waste
6.25%, 08/01/11 (MBIA) 1000M 1,169,550
6.25%, 08/01/12 (MBIA) 500M 586,855
Pittsburgh PA Water &
Sewer System Rev.
6.50%, 09/01/13 (FGIC) 1000M 1,198,130
Scranton Lackawanna
Health & Welfare
6.20%, 07/01/17 1000M 1,061,290
Westmoreland County
Municipal Auth.
0.00%, 08/15/18 (FGIC) 500M 189,360
York County Solid Waste
5.50%, 12/01/14 (FGIC) 1000M 1,085,720
-----------
31,700,368
-----------
Puerto Rico 6.1%
Puerto Rico Commonwealth
Hwy & Transport
5.50%, 07/01/36 1000M 1,081,200
Puerto Rico G/O
5.375%, 07/01/25 1000M 1,023,050
-----------
2,104,250
-----------
Total Investments
(Cost $31,674,945)* 33,804,618
Excess of Other Assets
Over Liabilities 2.6% 915,494
-----------
Net Assets $34,720,112
===========
- --------------------------------------------------------------------------------
* Also cost for federal income tax purposes. At November 30, 1998, net
unrealized appreciation for federal income tax purposes aggregated
$2,129,673 all of which related to appreciated securities.
The following abbreviations are used in portfolio descriptions:
(ACA) - ACA Financial Guaranty Corp.
(AMBAC) - Guaranteed by American Municipal Bond Association Corp.
(FGIC) - Guaranteed by Financial Guaranty Insurance Co.
(MBIA) - Guaranteed by Municipal Bond Investors Assurance Corp.
G/O - General Obligation Bond
See Notes to Financial Statements.
95
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Statement of Assets and Liabilities
at November 30, 1998
- --------------------------------------------------------------------------------
Assets
Investments at value $ 33,804,618
Cash and cash equivalents 310,815
Receivable for fund shares sold 7,437
Receivable for interest 530,282
Receivable from fund administrator 135,035
------------
Total Assets 34,788,187
------------
Liabilities
Payable for fund shares repurchased 23,104
Accrued expenses 9,023
Management fee payable 15,674
Distribution fee payable 10,191
Fund service fee payable 10,083
------------
Total Liabilities 68,075
------------
Net Assets Applicable to Outstanding Shares $ 34,720,112
============
Net Asset Value and Offering Price Per Share
$34,720,112 / 2,576,514 shares outstanding $ 13.48
Sales Charge--4.00% of Offering Price 0.56
------------
Maximum Offering Price Per Share $ 14.04
============
Net Assets Represent
No par value shares of beneficial interest;
authorized - unlimited shares
Paid-in-capital $ 31,832,699
Accumulated undistributed net investment income 648
Accumulated undistributed net realized gain
on investments 757,092
Unrealized appreciation of investments 2,129,673
------------
Net Assets $ 34,720,112
============
Investments at Cost $ 31,674,945
============
Sentinel Pennsylvania Tax-Free Trust
Statement of Operations
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
Investment Income
Income:
Interest $ 1,879,741
------------
Expenses:
Management advisory fee 190,754
Transfer agent and custodian 55,869
Distribution expense 69,370
Accounting services 84,000
Auditing fees 5,000
Legal fees 2,700
Reports and notices to shareholders 4,200
Directors' fees and expenses 35,154
Other 7,072
------------
Total Expenses 454,119
Expense Reimbursement (178,423)
Expense Offset (10,119)
------------
Net Expenses 265,577
------------
Net Investment Income 1,614,164
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on sales of investments 757,062
Net change in unrealized appreciation (depreciation) (88,964)
------------
Net Realized and Unrealized Gain on Investments 668,098
------------
Net Increase in Net Assets from Operations $ 2,282,262
============
See Notes to Financial Statements.
96
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
Ended Ended
11/30/98 11/30/97
------------ ------------
<S> <C> <C>
Increase in Net Assets from Operations
Net investment income $ 1,614,164 $ 1,668,097
Net realized gain on sales of investments 757,062 324,179
Net change in unrealized appreciation (depreciation) (88,964) 40,300
------------ ------------
Net increase in net assets from operations 2,282,262 2,032,576
------------ ------------
Distributions to Shareholders
From net investment income (1,613,860) (1,667,753)
From realized gain on sale of investments (324,168) (218,975)
------------ ------------
Total distributions to shareholders (1,938,028) (1,886,728)
------------ ------------
From Capital Share Transactions
Net proceeds from sales of shares 2,130,748 3,118,082
Net asset value of shares in reinvestment
of dividends and distributions 1,341,058 1,283,959
------------ ------------
3,471,806 4,402,041
Less: Payments for shares reacquired (3,939,578) (5,249,491)
------------ ------------
Decrease in net assets from capital share transactions (467,772) (847,450)
------------ ------------
Total Decrease in Net Assets for period (123,538) (701,602)
Net Assets: Beginning of period 34,843,650 35,545,252
------------ ------------
Net Assets: End of period $ 34,720,112 $ 34,843,650
============ ============
Undistributed Net Investment Income
at End of Period $ 648 $ 344
============ ============
</TABLE>
See Notes to Financial Statements.
97
<PAGE>
Sentinel Pennsylvania Tax-Free Trust
Financial Highlights
Selected per share data and ratios
Selected data for a share of capital stock outstanding throughout each fiscal
period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 13.34 $ 13.29 $ 13.40 $ 12.29 $ 13.57
---------- ---------- ---------- ---------- ----------
Income from Investment Operations
Net investment income 0.63 0.64 0.66 0.66 0.64
Net realized and unrealized gain (loss) on investments 0.26 0.13 (0.03) 1.11 (1.28)
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.89 0.77 0.63 1.77 (0.64)
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends from net investment income 0.63 0.64 0.66 0.66 0.64
Distributions from realized gains on investments 0.12 0.08 0.08 -- --
---------- ---------- ---------- ---------- ----------
Total Distributions 0.75 0.72 0.74 0.66 0.64
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $ 13.48 $ 13.34 $ 13.29 $ 13.40 $ 12.29
========== ========== ========== ========== ==========
Total Return (%) * 6.9 6.1 5.0 14.8 (4.9)
Ratios/Supplemental Data
Ratio of net expenses to average net assets (%) 0.77 0.85 0.75 0.97 1.30
Ratio of expenses to average net assets before
expense reductions (%) ** 1.31 1.34 1.37 1.36 1.30
Ratio of net investment income to average net assets (%) 4.65 4.86 5.07 5.14 4.84
Ratio of net investment income to average net assets before
voluntary expense reimbursements (%) 4.14 4.41 4.48 4.78 4.84
Portfolio turnover rate (%) 50 28 56 80 56
Net assets at end of period (000 omitted) $ 34,720 $ 34,844 $ 35,545 $ 34,975 $ 31,172
</TABLE>
+ Annualized
++ Not annualized
* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all distributions
at the net asset value during the period, and a redemption on the last day of
the period. Initial sales charge is not reflected in the calculation of total
return.
** Expense reductions are comprised of the voluntary expense reimbursements and
include, effective 1995, the earnings credits as described in Notes (5) and
(1) D.
See Notes to Financial Statements.
98
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Sentinel Pennsylvania Tax-Free Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The following is a summary of significant
accounting policies followed by the Trust.
A. Security Valuation: Investments in securities are valued on the basis of
valuations provided by an independent pricing organization. The independent
pricing organization values the investments, taking into consideration
characteristics of the securities, values of similar securities that trade on a
regular basis, and other relevant market data. Short-term tax-free notes are
stated at cost, which approximates market value.
B. Securities Transactions and Related Investment Income: Securities
transactions are accounted for on the date the securities are purchased or sold
(trade date). Interest income is recorded on the accrual basis and premiums are
amortized. Cost of investments sold is determined on the basis of identified
cost for both financial reporting and income tax purposes. The Trust invests in
debt instruments of municipal issuers whose ability to meet their obligations
may be affected by economic developments in the State of Pennsylvania.
C. Federal Income Taxes: It is the Trust's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies. The Trust intends to distribute all of its taxable income to its
shareholders; therefore, no federal excise tax or income tax provision is
required.
D. Other: Earnings credits are received from the custodian and dividend paying
agent on cash balances and are reflected in the statement of operations as an
expense offset.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
(2) Distributions:
Realized gains from securities transactions, if any, will be distributed to
shareholders prior to the end of each calendar year. At November 30, 1998 the
Trust did not have any capital loss carryforwards for federal income tax
purposes.
Dividends from net investment income are declared and paid monthly and recorded
on the ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with federal income tax regulations.
(3) Trust Shares:
Transactions in Trust shares were as follows:
Year Year
Ended Ended
11/30/98 11/30/97
-------- --------
Shares sold ...................................... 158,799 236,999
Shares issued to stockholders in reinvestment
of dividends and distributions ................... 100,222 97,949
-------- --------
259,021 334,948
Shares redeemed .................................. (293,605) (398,691)
-------- --------
Net decrease ..................................... (34,584) (63,743)
======== ========
(4) Investment Transactions:
Purchases and sales of securities other than short-term securities aggregated
$16,836,280 and $17,728,460 respectively, during the year ended November 30,
1998.
(5) Management Advisory Fee and Other Transactions with Affiliates:
Pursuant to the Investment Advisory Agreement (the "Agreement"), Sentinel
Advisors, Co., ("SAC"), a Vermont general partnership whose general partners are
Sentinel Advisors, Inc., an indirect wholly-owned subsidiary of National Life
Insurance Company ("National Life"), ProvidentMutual Management Co., Inc., an
affiliate of Provident Mutual Life Insurance Company of Philadelphia ("Provident
Mutual"), HTK of Delaware, Inc. ("HTK"), an affiliate of The Penn Mutual Life
Insurance Company ("Penn Mutual") and Sentinel Management Company ("SMC"), a
Vermont general partnership whose general partners are affiliates of National
Life, Provident Mutual and Penn Mutual, provides general supervision of the
Trust's investments as well as certain administrative and related services. As
compensation in full for services rendered under its Agreement, the Trust pays
SAC a monthly fee determined as follows: 0.55% per annum on the first $50
million of average daily net assets; 0.50% per annum on the next $50 million of
such assets; and 0.45% per annum on such assets in excess of $100 million.
99
<PAGE>
Sentinel Financial Services Company ("SFSC"), a Vermont general partnership
whose general partners are National Life Investment Management Company, Inc., a
wholly-owned subsidiary of National Life, ProvidentMutual Financial Services,
Inc., an affiliate of Provident Mutual, HTK and SMC, is the principal
underwriter ("Distributor") of the Trust's shares. SFSC receives a sales charge
added to the net asset value received by the Trust on the sale of its shares.
This compensation is not an expense of the Trust and does not affect its
operating results. SFSC has advised the Trust that it received sales charges
aggregating $74,014 for the year ended November 30, 1998. The Trust is advised
that the total distribution charges retained by SFSC on the sale of shares
amounted to $303 after allowances of $4,086 to Equity Services, Inc., an
affiliate of National Life, $6,933 to 1717 Capital Management Company, an
affiliate of Provident Mutual, $13,137 to Hornor, Townsend & Kent, Inc. and
$3,950 to Janney Montgomery Scott, Inc., affiliates of Penn Mutual, and $45,605
to other investment dealers.
Each trustee who is not an employee of the adviser or an affiliated company is
paid an annual fee of $2,500 plus $200 for each meeting of the Board of Trustees
attended. Such trustees are reimbursed for travel and other out-of-pocket
expenses incurred in attending such meetings.
Pursuant to the Fund Services Agreement with Sentinel Administrative Service
Company ("SASC"), a Vermont general partnership whose general partners are
Sentinel Administrative Service Corporation, an indirect wholly-owned subsidiary
of National Life, SIGMA American Corp., an affiliate of Provident Mutual, HTK
and SMC, the Trust receives trust accounting and financial administrative
services, transfer agent services and investor services, all of which are
coordinated with other services which the Trust has contracted for with outside
providers. Total fees for the year ended November 30, 1998 were $121,000.
SAC has voluntarily agreed to refund its fee to the extent necessary to prevent
the overall aggregate expense ratio of the Trust and the Class A Shares of
Sentinel Group Funds, Inc. (excluding the Sentinel World Fund) from exceeding
1.30% of average daily net assets in any fiscal year. Sentinel Group Funds, Inc.
is a series fund with twelve portfolios and together with the Trust make up the
Sentinel Family of Funds. Although SAC has no present intention to do so, this
arrangement may be terminated at any time. Expenses for the year ended November
30, 1998 did not exceed 1.30% of its average daily net assets.
Effective March 27, 1995 thru May 14, 1995, SASC agreed to reimburse the Trust
for expenses in excess of an annual rate of 1.00% of the Trust's average daily
net assets. Effective May 15, 1995 thru March 30, 1997, SASC agreed to reimburse
the Trust for expenses in excess of an annual rate of 0.75% of the Trust's
average daily net assets. Effective March 31, 1997, SASC has agreed to reimburse
the Trust for expenses in excess of an annual rate of 0.90% of the Trust's
average daily net assets. Effective March 30, 1998 SASC has agreed to reimburse
the Trust for expenses in excess of an annual rate of 0.70% of the Trust's
average daily net assets. For the year ended November 30, 1998 the total amount
reimbursable was $178,423. This arrangement may be terminated at any time.
(6) Distribution Expenses:
On March 1, 1993, the Trust adopted a new distribution plan ("Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan the Trust pays to the Distributor
a monthly fee at the maximum annual rate of 0.20% of average daily net assets.
Such fees will be used to reimburse the Distributor for expenses incurred in
connection with distribution and promotion of the shares of the Trust, including
salaries and expenses of the Distributor's wholesale sales force, home office
management and marketing personnel, expenses incurred by the Distributor for the
occupancy of its office space in Montpelier, Vermont, expenses incurred by the
Distributor with respect to equipment and supplies, expenses incurred for the
preparation, printing and distribution of sales literature used in connection
with the offering of such shares to the public, expenses incurred in
advertising, promotion and selling shares of such Trust to the public, expenses
incurred for the preparation, printing and distribution of the Prospectus and
Statement of Additional Information, any supplement thereto used in connection
with the offering of such Trust's shares to the public, or any reports and other
communications for the distribution to existing shareholders, and service fees
(deferred commissions) paid to securities dealers who have executed a selling
agreement with the Distributor. The Distributor is not reimbursed for any
unreimbursed prior years expenses.
100
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of Sentinel Pennsylvania Tax-Free
Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Sentinel Pennsylvania Tax-Free
Trust (the "Trust") at November 30, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 18, 1998
<PAGE>
Federal Tax Status of Dividends and Distributions
(Unaudited)
During the fiscal year ended November 30, 1998, the Sentinel Funds paid the
following dividends and distributions:
Net Short-term Long-term
Investment Capital Capital
Income Gain Gain
- ----------------------------------- ---------- ---------- ---------
Common Stock - A .................. $ .453 $ .13163 $4.55782
Common Stock - B .................. .127 .13163 4.55782
Common Stock - C .................. .033 -- --
Balanced - A ...................... .551 .05974 1.10426
Balanced - B ...................... .399 .05974 1.10426
Balanced - C ...................... .160 -- --
Growth - A ........................ -- 2.74623 2.37907
Growth - B ........................ -- -- --
Small Company - A ................. .019 -- .74696
Small Company - B ................. -- -- .74696
World - A ......................... .118 .09249 .55040
World - B ......................... -- .09249 .55040
World - C ......................... -- -- --
High Yield Bond - A ............... .862 .08757 --
High Yield Bond - B ............... .836 .08757 --
High Yield Bond - C ............... .453 -- --
Bond - A .......................... .401 -- --
Bond - B .......................... .343 -- --
Government Securities ............. 611 -- --
Short Maturity Government ......... 573 -- --
U.S. Treasury MM - A .............. .044 --
U.S. Treasury MM - B .............. .044 -- --
Tax-Free Income ................... .652 .11513 .07662
New York Tax-Free Income .......... .622 -- .02930
Pennsylvania Tax-Free Trust ....... .625 .02531 .09950
Each of the long-term capital gain distributions has been designated as a
"capital gain dividend" under the Federal Internal Revenue Code. The December
1997, long-term capital gain was included on Form 1099-DIV for the 1997 calendar
year.
For corporate shareholders, the percentage of the total dividends from net
investment income from the fiscal year 1998 qualifying for the 70% dividend
received deduction available to corporations are as follows:
Sentinel Small Company Fund 66%
Sentinel Growth Fund 6%
Sentinel Common Stock Fund 100%
Sentinel Balanced Fund 43%
In January 1999 you will be sent 1998 Form 1099-DIV from the Sentinel Funds. The
form will indicate the federal income tax status of the dividends and capital
gains distributions paid to you or credited to your account in additional shares
during the calendar year 1998. The Internal Revenue Service requires us to file
this information, and it must be reported by you on your Federal Income Tax
Return for 1998. All of the dividends paid by the Sentinel Tax-Free Income Fund,
the Sentinel New York Tax-Free Income Fund and the Sentinel Pennsylvania
Tax-Free Trust from its net investment income is tax-exempt for Federal income
tax purposes.
Privileges, Plans and Services for Shareholders
Open Account - Unless another distribution option is elected, an Open Account is
automatically established for each new investor. In an Open Account, all income
dividends and any capital gains distributions are reinvested in additional
shares at net asset value and without charge.
Other Distribution Options - Upon written notice to Sentinel Administrative
Service Company, you may elect one of the following options:
1. Receive dividends in cash and reinvest any capital gains distributions in
additional shares of any of the Sentinel Funds, of the same class, at net
asset value.
2. Receive both dividends and capital gains in cash.
3. Reinvest both dividends and capital gains in another Sentinel Fund, of the
same class, at net asset value (excluding dividends earned on assets
initially invested in Sentinel U.S. Treasury Money Market Fund).
Automatic Investment Plan - This service, provided without charge, enables you
to make regular investments of $50 or more by means of an automatic checking
account debiting service via the ACH (Automated Clearing House) network.
Information and the application necessary to establish this plan are included in
the prospectus. A separate folder and application are also available from
Sentinel Administrative Service Company, or from your investment dealer.
Systematic Withdrawal Plan - This plan enables you to receive a check once per
month, during any months of the year you specify, for a dollar amount that you
specify. Note that this plan is available only to those who own, or are
purchasing, at least $5,000 worth of shares of one or more of the Sentinel
Funds, except Sentinel U.S. Treasury Money Market Fund, as determined by the
current offering price. Payments may be made to you, your bank, or other payee
as requested on the application. Under the Systematic Withdrawal Plan, all
dividends and distributions are automatically reinvested at net asset value and
payments are made from the proceeds of redeemed shares.
High Yield Bond, Bond, Tax-Free Income, New York Tax-Free Income, Government
Securities, Short Maturity Government, U.S. Treasury Money Market and
Pennsylvania Tax-Free Fund Check Writing Service - This special feature of the
Class A Shares of Sentinel High Yield Bond Fund, Sentinel Bond Fund, Sentinel
Tax-Free Income Fund, Sentinel New York Tax-Free Income Fund, Sentinel
Government Securities Fund, Sentinel Short Maturity Government Fund, Sentinel
U.S. Treasury Money Market Fund and Sentinel Pennsylvania Tax-Free Trust enables
you to
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draw checks (minimum amount $500 except for the U.S. Treasury Money Market Fund
which is $250) on your account through Investors Fiduciary Trust Co. There is
currently no fee for this service. Please note that this service is not
available to IRA, Keogh, 403(b) or other fiduciary accounts. Information and
applications are available by contacting Sentinel Funds Investor Services at
(800) 282-FUND (3863).
Exchange Privilege - The Exchange Privilege is designed to add flexibility to
your investment program by enabling you to exchange all or part of your shares
in one Sentinel Fund for shares of the same class of another Fund in the family
without payment of any additional sales charge. The exception to no additional
sales charge is when shares are exchanged from the U.S. Treasury Money Market
Fund to Class A Shares of another Sentinel Fund, a sales charge will be imposed
unless the assets in the U.S. Treasury Money Market Fund were in another
Sentinel Fund and were previously subject to a sales charge. Shares being
exchanged into another Fund must have a value of at least $1,000 (the minimum
investment required to open a new account) unless you already have an account in
that Fund. Shares being exchanged must have been in the account a minimum of 15
calendar days (90 days in the case of funds initially invested in the Sentinel
Short Maturity Government Fund or exchanged into such Fund from funds initially
invested in the Sentinel U.S. Treasury Money Market Fund). Account registrations
must be identical. Exchanges may be made by calling toll-free, (800) 282-FUND
(3863), or by writing Sentinel Funds, P. O. Box 1499, Montpelier, Vermont
05601-1499. Note that an exchange is a taxable transaction for federal income
tax purposes.
Reinstatement Privilege - A shareholder who redeems all or part of an account
may reinvest all or part of the redemption proceeds at the then current net
asset value if a written request to the Fund is received or postmarked within
one year after the date of the redemption. Sentinel Short Maturity Government
Fund shareholders who have held their shares for 90 days or less, however, may
only use this reinstatement privilege to reinvest in the Short Maturity
Government Fund. In general, this privilege may be exercised only once by a
shareholder.
Telephone Redemption - Up to $1,000,000 in funds may be redeemed by telephone
upon completion of the appropriate section of the Application, or subsequent
submission of such, with proper signature guarantee. Under this service,
proceeds may either be sent to the address of record or a pre-designated bank. A
signature guarantee is required on any change in redemption instructions as well
as a 30 day waiting period for changes to become effective. To redeem shares by
telephone, you may call (800) 282-FUND (3863).
Tax-Deferred Retirement Plans - Shares of Sentinel Group Funds may be purchased
by all types of tax-deferred retirement plans, including self-employed
individuals and partnerships ("Keogh Plans"), Individual Retirement Accounts
("IRAs"), SIMPLE IRAs, Simplified Employee Pension Plans ("SEP-IRAs"), 403(b)
Plans (deferred compensation arrangements for employees of public school systems
and certain non-profit organizations), Section 457 Plans and other corporate
pension and profit-sharing plans. Consult your tax advisor for details.
Please refer to the prospectus for complete details regarding these privileges,
plans and services.
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Directors/Trustees and Officers
Sentinel Group Funds, Inc. and
Sentinel Pennsylvania Tax-Free Trust
Patrick E. Welch
Chairman and Chief Executive Officer
Chairman and Chief Executive Officer,
National Life Insurance Company
Joseph M. Rob
Director/Trustee and President
Chief Executive Officer,
Sentinel Management Company
Richard J. Borda
Director/Trustee
Former Vice Chairman,
National Life Insurance Company
Dr. Kalman J. Cohen
Director/Trustee
Distinguished Bank Research
Professor Emeritus,
The Fuqua School of Business,
Duke University
Richard D. Farman
Director/Trustee
President and Chief Operating Officer,
Pacific Enterprises
John D. Feerick
Director/Trustee
Dean, Fordham University
School of Law
Richard I. Johannesen, Jr.
Director/Trustee
Former Vice President and Manager -
Bond Market Research Department,
Salomon Brothers Inc.
Robert B. Mathias
Director/Trustee
Sports Consultant;
Former U.S. Congressman
Keniston P. Merrill
Director/Trustee
Former Chairman and
Chief Executive Officer,
Sentinel Advisors Company
Deborah G. Miller
Director/Trustee
Vice President
Digital Equipment Corporation
John Raisian
Director/Trustee
Director and Senior Fellow,
Hoover Institution,
Stanford University
Susan M. Sterne
Director/Trustee
President, Economic Analysis Associates, Inc.
Angela E. Vallot
Director/Trustee
Counsel, Texaco Inc.
John M. Grab, Jr.
Vice President
Thomas P. Malone
Vice President and Treasurer
Scott G. Wheeler
Assistant Treasurer
D. Russell Morgan
Secretary
Investment Adviser
Sentinel Advisors Company
Principal Underwriter
Sentinel Financial Services Company
Counsel
Brown & Wood
Independent Accountants
PricewaterhouseCoopers LLP
Custodian and Dividend Paying Agent
Investors Fiduciary Trust Company
Transfer Agent, Shareholder Servicing Agent and Administrator
Sentinel Administrative Service Company
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The Sentinel Funds Board of Directors
[PHOTO OF SENTINEL FUNDS BOARD OF DIRECTORS APPEARS HERE]
Standing, left to right: Dr. Kalman J. Cohen, Joseph M. Rob, Richard I.
Johannesen, Jr., Robert B. Mathias, Keniston P. Merrill, John D. Feerick.
Seated, left to right: Richard D. Farman, Angela E. Vallot, Patrick E. Welch,
Susan M. Sterne, Richard J. Borda. Not pictured: Deborah G. Miller, John
Raisian.
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A Brief History
[GRAPHIC APPEARS HERE]
The Sentinel Family of Funds is one of America's oldest fund families. Its
largest member, Sentinel Group Funds, Inc., was originally incorporated as Group
Securities, Inc. in the state of Delaware on December 3, 1933. Designed as a
series type of investment company, its main objectives were to offer
shareholders the benefits of "group security investing" along with the ability
to invest in individual industries or industrial groups readily and
conveniently, each in the form of a single stock. Shares of 17 individual
classes of stock were first offered to the public at $1.10 per share on January
12, 1934 - virtually at the bottom of the Great Depression.
Following several additions and deletions, 21 classes of stock were maintained
for an extended period of time. Subsequent consolidations, mergers and name
changes combined the classes of stock into what are today the two original
remaining funds in Sentinel Group Funds, Inc., Sentinel Common Stock Fund and
Sentinel Balanced Fund. Sentinel Growth Fund and Sentinel Bond Fund were
organized by National Life Insurance Company in 1969 and merged into the
Sentinel Group in 1978. Three more additions, Sentinel Government Securities
Fund, Sentinel Tax-Free Income Fund and Sentinel High Yield Bond Fund were
introduced on September 2, 1986, October 1, 1990 and June 23, 1997,
respectively.
In May, 1981, Sentinel Cash Management Fund, Inc. was organized as a no-load
money market fund. The "Cash Fund" was also organized as a series fund, and was
designed to operate independently of Sentinel Group Funds, Inc., while at the
same time sharing the Group's management, distribution, transfer agent and other
servicing and administrative arrangements.
On March 1, 1993, National Life Insurance Company and Provident Mutual Life
Insurance Company of Philadelphia entered into a joint venture arrangement which
resulted in the merging of the nine ProvidentMutual Funds into the Sentinel
Family of Funds. With the merger, three new classes of stock were added to
Sentinel Group Funds, Inc., and a fourth new member of the broader Sentinel
Family of Funds was added. The three new members of Sentinel Group Funds, Inc.
are the Sentinel Small Company, World and U.S. Treasury Money Market funds. The
fourth new member of the Sentinel Family of Funds is Sentinel Pennsylvania
Tax-Free Trust (the "Trust"). The Trust operates as a separate investment
company with respect to Sentinel Group Funds, Inc., but shares management,
distribution, fund accounting, transfer agent and other arrangements with the
Sentinel Group.
Also on March 1, 1993, Sentinel Cash Management Fund, Inc. was merged into the
Sentinel U.S. Treasury Money Market Fund.
On March 27, 1995, Penn Mutual Life Insurance Company joined National Life
Insurance Company and Provident Mutual Life Insurance Company in their mutual
fund operation. This resulted in the merging of seven funds of The Independence
Capital Group of Funds into Sentinel Group Funds, Inc., and the creation of two
new classes of stock - Sentinel New York Tax-Free Income Fund and Sentinel Short
Maturity Government Fund.
On April 1, 1996, five Sentinel funds began offering two classes of shares:
Sentinel Small Company, World, Common Stock, Balanced and Bond funds. The new
class is called "Class B shares," while the original class is called "Class A
shares." Sentinel U.S. Treasury Money Market Fund also has Class B shares which
are primarily available through exchanges from the other Class B shares.
Sentinel High Yield Bond Fund Class B shares have also been available since that
fund's introduction on June 23, 1997. On January 12, 1998 Sentinel Growth Fund
also offered Class B shares. Effective May 4, 1998 a third share class, Class C
shares, were offered on Sentinel Common Stock, Balanced, World and High Yield
Bond funds.
The thirteen funds in the Sentinel Family of Funds, which includes the twelve
funds in Sentinel Group Funds, Inc., and the Sentinel Pennsylvania Tax-Free
Trust, now represent net assets of $3.0 billion which are managed on behalf of
approximately 116,000 individual, corporate and institutional shareholders
located across the country and around the world. Shares are distributed by
registered representatives and independent broker/dealers through Sentinel
Financial Services Company, an affiliate of the partnership between National
Life, Provident Mutual and Penn Mutual. Sentinel Advisors Company and Sentinel
Administrative Service Company, which are also affiliates of the partnership,
provide respective investment management and shareholder services to the funds.
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[LOGO OF SENTINEL FUNDS APPEARS HERE]
Sentinel Funds
Integrity Since 1934
Sentinel Common Stock Fund
Sentinel Balanced Fund
Sentinel Growth Fund
Sentinel Small Company Fund
Sentinel World Fund
Sentinel High Yield Bond Fund
Sentinel Bond Fund
Sentinel Government Securities Fund
Sentinel Short Maturity Government Fund
Sentinel U.S. Treasury Money Market Fund
Sentinel Tax-Free Income Fund
Sentinel New York Tax-Free Income Fund
Sentinel Pennsylvania Tax-Free Trust
Member of ------------------------
FORUM for INVESTOR ADVICE Postage Rate
Investment Professionals Helping Investors. U.S. Postage
PAID
This brochure is authorized for distribution Hudson, MA
to prospective investors only when preceded Permit No. 19
or accompanied by an effective prospectus. ------------------------
Distributed by
Sentinel Financial Services Company
National Life Drive
Montpelier, Vermont 05604
(800) 233-4332
<PAGE>
[Sentinel Funds Logo Appears Here]
Sentinel Funds
Integrity Since 1934
Sentinel Common Stock Fund
Sentinel Balanced Fund
Sentinel Growth Fund
Sentinel Small Company Fund
Sentinel World Fund
Sentinel High Yield Bond Fund
Sentinel Bond Fund
Sentinel Government Securities Fund
Sentinel Short Maturity Government Fund
Sentinel U.S. Treasury Money Market Fund
Sentinel Tax-Free Income Fund
Sentinel New York Tax-Free Income Fund
Sentinel Pennsylvania Tax-Free Trust
Distributed by
Sentinel Financial Services Company
National Life Drive
Montpelier, Vermont 05604
(800) 233-4332
Member of
FORUM for INVESTOR ADVICE
Investment Professionals Helping Investors
This brochure is authorized for distribution to prospective investors only when
preceded or accompanied by an effective prospectus.
